What is Carnes et al.’s (2019) first hypothesis?
| H 1 : Investors react negatively to the revelation that a company’s internal control audit did not include acquired operations |
Model 1 on page 77 defines a variable “opt-out”. What does that variable indicate?
| “Opt out” is an indicator variable that is used to indicate whether a company purchases an internal control audit or not. When the value of “opt out” is 1, then the company does not purchase an internal audit control for a target, i, in a given fiscal year. When the value is zero, it indicates that a company purchases internal audit control for a target, i, in a given fiscal year. |
Delegate your assignment to our experts and they will do the rest.
Which industry had the highest “opt-out” percentage? (Table 2, Panel C)
| The industry with the highest number of opt out is the manufacturing industry. It has an "opt out" percentage of 60% which is greater than the percentage “opt out” of other industries. This is an indication that the manufacturing industry has less companies or businesses which purchases internal audit control. |
Did Boeing opt out? Refer to the second auditor’s report of 2018 and quote the expert.
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From the second auditor’s report, Boeing is found to “opt out.” This is evident from the fact that two Boeing Co. internal auditors blew the whistle to journalists concerning the weakness in Boeing’s control over it reporting process. Following the whistle blowing, it is evident that Boeing value of “opt out” was 0, showing that the company purchases internal control audit. Moreover, the second annual audit report of 2018 whows that Boesing “opted out”. The audit report states that “i n the first quarter of 2018, we adopted the following Accounting Standards Updates (ASU), which are reflected in the unaudited Consolidated Financial Statements on pages 8-14: ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ; ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost; ASU 2016-18 Statement of Cash Flows (Topic 230) Restricted Cash; and ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The statements show a list of unaudited elements in Boeing. |
Provide a 100-200 word summary, in your words, of Carnes et al (2019). Cite the authors at least once.
| Carnes et al (2019) wanted “to understand whether investors demand internal control audits for these large companies, we exploit a regulatory exemption that permits companies to exclude acquired operations from an internal control audit” (pg. 71). The study used a voluntary setting and found out that investors react negatively a company they invest in exclude an acquired operation from audit and when there is much uncertain information. The study also found out that when there is more exclusion, more anger is witnessed in investors. Also, companies that exclude operations from audit are prone to restatement hence the justification of perceptions of investors (Carnes et al., 2019). The results of the study were found to be in line with results found in investors demanding internal control audit for large public companies in the United States. |
Choose one of the references at the end of the article. Copy and paste the entire reference and attach the article. For instructions on how to find journal articles through the Brooklyn College Library, please see below.
| Leuz, C., and P. Wysocki. 2016. The economics of disclosure and financial reporting regulation: Evidence and suggestions for future research. Journal of Accounting Research 54 (2): 525–622. https://doi.org/10.1111/1475-679X.12115 |
References
Carnes, R.R., Christensen, D.M., and Lamoreaux, P.T. (2019) Investor Demand for Internal Control Audits of Large U.S. Companies: Evidence from a Regulatory Exemption for M&A Transactions. The Accounting Review: January, Vol. 94, No. 1, pp. 71-99.
