Directions for Reshaping Corporate Environment to Avert Financial Crisis Caused by Frauds: A Theoretical Framework

Lee, Giyoul (이기열)

Directions for Reshaping Corporate Environment to Avert Financial Crisis Caused by Frauds: A Theoretical Framework

Crisisonomy
Abbr : KRCEM
2013, 9(10), pp.193-210
Publisher : Crisis and Emergency Management: Theory and Praxis
Research Area : Social Science > Public Policy > Public Policy in general

Lee, Giyoul ¹

¹단국대학교

Accredited

ABSTRACT

Success of a nation's economy depends on how well savings are funnelled to entrepreneurs. A country that does this distribution well helps the entrepreneurs capitalize their innovative ideas and create jobs. For investors to channel their savings to entrepreneurs, they must be able to base their investment decisions on the financial information which is prepared under management’s responsibility. Motivated by personal gains, management often attempts to report financial statements fraudulently, which shakes the public's confidence in the integrity of financial reporting. To provide reliable financial information to the capital market participants for their decision making, monitoring on the financial reporting process is inevitable. Because shareholders do not directly participate in the operation of a business, they need a mechanism to protect their investments. To that end, they elect directors of the board as their representatives to watch for their interests. For directors to perform their prescribed duties, they must be independent of management and possess financial expertise. But outside directors' lack of information on the business activities restricts their abilities. Audit committee helps the board discharge their responsibilities by handing out the information that it has learned from internal and external auditors. In addition, good internal control system enhances the quality of the financial information. Internal auditors monitor and evaluate the effectiveness of internal control to locate any weaknesses and implement them. This study is aimed to help participants in the capital market make their rational decisions basing on trustworthy financial reports they were provided. To that end, tasks of the board of directors, audit committee, and internal auditors must be coordinated to ensure prevention of frauds, or detection if they occur. When they collaborate in unity, financial information provided under that governance would be reliable and help the various market participants achieve their goals.

KEYWORDS

moral hazard, fraud, board of directors, audit committee

Citation status

* References for papers published after 2023 are currently being built.

[journal] Akerlof, G. Aug. / 1970 / The Market for Lemons: Quality of Uncertainty and the Market Mechanism / Quarterly Journal of Economics 84(3) : 488~500

[book] Albrecht, W. S. / 2004 / Fraud Examination and Prevention / South-Western

[book] American Institute of Certified Public Accountants(AICPA). / 2009 / Managing the Business Risk of Fraud: A Practical Guide / AICPA

[book] American Institute of Certified Public Accountants(AICPA). / 2010 / Management Override of Internal Control: The Achilles’ Heel of Fraud Prevention / AICPA

[book] The Association of Certified Fraud Examiners(ACFE). / 2013 / The Report to the Nation on Occupational Fraud and Abuse / ACFE

[book] The Association of Certified Fraud Examiners(ACFE). / 2012 / The Report to the Nation on Occupational Fraud and Abuse / ACFE

[journal] Beasley, M. S. / 1996 / An Empirical Analysis of the Relation between the Board of Director Composition and Financial Statement Fraud / The Accounting Review 71 : 443~465

[book] Black, Henry Campbell. / 1984 / Black’s Law Dictionary / West Publishing

[web] Byrt, F. / 2013 / KPMG Insider Trading Scandal Latest Blow to Accounting Industry’s Reputation / http://www.accountingweb.com/article/kpmg-insider-trading-scandal

[journal] Carcello, J. V. / 2000 / Audit Committee Characteristics and Auditor Reporting / The Accounting Review 75 : 453~467

[journal] Carcello, J. V. / 2002 / Disclosure in Audit Committee Charters and Reports / Accounting Horizons 16(4) : 291~304

[book] Colley, J. L. Hr. / 2005 / What is Corporate Governance? / McGraw-Hill

[book] Committee of Sponsoring Organizations of the Treadway Commission(COSO). / 1999 / Fraudulent Financial Reporting, 1987-1997: An Analysis of U.S. Public Companies / Treadway Committee of Sponsoring Organizations(COSO)

[book] Committee of Sponsoring Organizations of the Treadway Commission(COSO). / 2010 / Fraudulent Financial Reporting: 1997-2007: An Analysis of U.S. Public Companies / Treadway Committee of Sponsoring Organizations(COSO)

[book] Committee of Sponsoring Organizations of the Treadway Commission(COSO). / 2013 / Internal Control-Integrated Framework / Treadway Committee of Sponsoring Organizations(COSO)

[journal] Defond, R. Hann / 2005 / Does the Market Value Financial Expertise on Audit Committees of Board of Directors? / Journal of Accounting Research 43 : 153~193

[journal] DeZoort, D. / 2001 / The Effects of Corporate Governance Experience and Financial Reporting and Audit Knowledge on Audit Committee Members' Judgments / A Journal of Practice & Theory 20 : 1~47

[journal] DeZoort / 2002 / Audit Committee Effectiveness: A Synthesis of the Empirical Audit Committee Literature / Journal of Accounting Literature 21 : 38~75

[book] Federal Bureau of Investigation(FBI). / 2012 / White Collar Crime: A Report to the Nation / Department of Justice

[book] Green, S. / 2005 / Sarbanes-Oxley and the Board of Directors / John Wiley and Sons, Inc

[journal] Healy, P. / 2001 / Information Asymmetry, Corporate Disclosure, and the Capital Markets: A Review of Empirical Disclosure Literature / Journal of Accounting and Economics 31 : 405~440

[other] Institute of Internal Auditors(IIA)Nov. / 2009 / Tone at the Top Alamonte Springs / IIA

[other] Institute of Internal Auditors(IIA). / 2009 / A Vision for the Future: Professional Practices Framework for Internal Auditing / IIA

[journal] Jenson, M. / 1976 / Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure / Journal of Financial Economics 3 : 305~360

[web] Krantz, M. / 2013 / Charged in KPMG Insider Tading Case. USA TODAY(April 11) / http://www.usatoday.com/story/money/business/2013/04/11/herbalife-kpmg-london

[web] Mintz, S. / 2013 / KPMG Scandal Damages Reputation of the Accounting Reputation / http://www.pacbitztimes.com/2013/05/03/oped-kpmg-scandal-damages

[web] New York Post / 2013 / Herbalife must Redo Books in KPMG Scandal / http://www.nypost.com/p/news/business/herbalife

[web] / 2013 / Newsway / http://news.newsway.co.kr/

[book] Palepu, K. G. / 2008 / Business Analysis and Valuation Using Financial Statement / South Western Publishing Company

[web] / 2013 / The Korea Herald / http://khnews.kheraldm.com/common_prog

[book] Skousen, K. Fred / 2005 / An Introduction to Corporate Governance and the SEC / Thompson South-Western

[web] U. S. Securities and Exchange Commission(SEC). / 2003 / SEC Charges KPMG / http://www.sec.gov/news/press/2003-16.htm

[web] U. S. Securities and Exchange Commission(SEC). / 2012 / Ponzi Schmes / http://www.sec.gov/answers/ponzi.htm

KJCKorea
Journal Central

Crisisonomy 2023 KCI Impact Factor : 0.64