Identifying research directions for the audit's contribution to a good corporate governance: a quantitative study.

• Author: Bota-Avram, Cristina
• Position: Report

1. INTRODUCTION

   Every financial scandal that had been occurred in the last 150 years had a bigger or a smaller contribution to the deterioration of public confidence in the competence and responsibility of auditors in exercising their profession (Fraser and Pong, 2009). But till this moment, the audit profession had never been faced such a serious decline of public confidence in the auditors' capabilities and professionalism, this decline being caused by the succession of bankruptcies and financial scandals that shuddered some of the big international corporations in the last decade. Analysed from economic and financial point of view, the beginning of 21st century was a tumultuous one being marked by numerous financial scandals caused by the bankruptcies of large corporations that have been occurred since 2001 (Enron) and continuing to 2002 (WorldCom, Quest Communications, Adelphia, Global Crossing, Nortel, Parmalat), all these negative events determining a great impact over corporate life, leading to a major risk most of the investors to lose their confidence in the true and fair view furnished by the companies' financial statements. There are many researchers in the speciality literature that have paid attention for the researches dedicated to the audit's responsibility in the issuing and propagation of such negative phenomena Gillan and Martin, 2007, Deakin and Konzelmann, 2004, Healy, 2003; Ribstein, 2003; Fusaro and Miller, 2002; Gordon, 2002; Weil, 2002, Benston and Hatgraves, 2002, Vinten, 2002). The fast expansion of the financial scandals that have affected the economies of some countries included in the categories of high level of development, have led to increasing pressure from the public and investors about the real ownership of corporate responsibility, determining questions on the effectiveness of corporate governance mechanisms, in the same time the vision over the internal and external auditors being more and more critical because they did not prove the maximum effectiveness in the identifying of the warning signs that could prevent such catastrophic events (Fraser and Pong, 2009, Sikka, 2009, Leech, 2008). An important new element that will influence more and more the next evolution of audit profession will be determined by the necessity of an audit approach within a much wider area, being identified more connections that should exist between audit, corporate governance and corporate social responsibility (Porter, 2009, Sikka, 2009). Moreover, latest literature (Porter, 2009) advances the idea of a trilateral audit's approach (external auditors, internal auditors, audit committees) could provide the key element to ensuring corporate accountability to the public which is more and more interested by the effectiveness of audit function.

   Starting from the primary objective of corporate governance which is the one to monitor the behaviours of different interested parties and to reduce the agency costs underlying different principal-agent relationships (Karpoff et al., 1996, Maniam et al., 2006) it's become obviously the necessity of existing of an independent audit function, as an important mechanism of corporate governance, which should be able to contribute at the balancing of the powers and obligations of different interested parties in order to reduce various conflict interests among shareholders (the owners), the board of directors, the management and the employees (Lin and Ming, 2010). Therefore, I consider that it will be significant to identify the main research approaches that have been developed by different researchers in the last years regarding the audit's contribution to a sound corporate governance system, following to identify some further research directions in this area.

2. RESEARCH METHODOLOGY DEVELOPMENT

   It has been adopted a normative approach and the research is based, primarily, on a quantitative study which starts from the examination of significant literature in the field. The relevant literature was reviewed with a focus on mainly research developments that have theoretical and practical implications for the audit's contribution in the field of corporate governance under different aspects and circumstances. I used a tripartite approach of the audit functions, thus our study is focused on analysing the contribution of internal audit, external audit and audit committees for the ensuring a good corporate governance. In order to identify the main research directions were developed by different researchers in this area there were followed various aspects like:

   * The selection of the analysed journals,

   * The analysis of the identified relevant papers in the field of audit's contribution for sound corporate governance,

   * The interpretation of the results.

   2.1. Selection of the journals and papers in audit and corporate governance included in the study

   To develop a database with relevant journals that should be included in such a study it's important to identify relevant journal rankings that could offer us a real perspective over the quality of various journals in the area of accounting, auditing and corporate governance. There many researches that realised different rankings of the academic journals, using different criteria, like:

   * Hull and Wright (1990) examined the quality of 79 accounting and business journals using the criteria of the accounting faculty's perception.

   * Brown and Huefner (1994) analysed the quality of 44 accounting journals based on the quality perception of accounting journals among 367 senior accounting faculty members from Business Week's Best 40 MBA program schools.

   * Johnson et al. (2002) investigated the quality of journal based on a survey conducted among all the administrators of accounting programs, detecting some of the elite journals.

   * Brown (2003) used the method of...