The assumption of the traditional agency theory states how the human ability and knowledge that assists to overcome the human limitations regularly that arise in daily interaction of the agency production. It takes into account the realist ontology as the philosophical foundation of any specific significance that has 4 kinds of ontological realistic fact under the critical realism. It suggests different kinds for the human agency that are segregated by accessing the self-knowledge advantage and it hypothesize the procedures through which the agency types are regularly maintained and produced within day-to-day interaction (Cavanagh et al. 2016).
Owing to the theorizing of the agency production, the theoretical probability of the non-human agency that is distinct from the kinds of human agency is suggested. The production of the agency as well as the conversion of the structure is the main objective of the traditional agency theory (Kuhner and Pelger 2015). Further, it tries to explain the way in which the humans can implement their ‘know-how’ to generate their pragmatic attitudes, with respect to the day-to-day social interaction under the limitation of knowledge with regard to which the humans are generally confined.
a. Influence of the traditional agency theory on accounting aspects
b. Influence of the traditional agency theory on compensation approach
The “In formativeness principle” has been introduced for replying the inquiry related to the traditional agency theory. This principle explains that the information with regard to the selected action of the agent, his skill and effort, though not complete, shall be included under the compensation contracts, as far as the marginal benefits of information is more than the marginal cost. The agency theory hold up the collection of additional information regarding the agent’s skills and efforts as it can improve the solution to the fee schedule as well as to improve the precision of measurement criteria for the control system of the management (Mitnick 2015). The compensation of the agent is the function of few observable attributes for the results from her or his action. Further, the contract denotes the budgeted or standards attributes that segregates the group of possible results into the unfavourable and favourable subsets. However, the compensation of the agent includes two functions, one is defined over the favourable subset and the other one is the unfavourable subset.
c. Criticism for the traditional agency theory
d. Alternative to the agency theory
One of the alternatives of agency theory is the stakeholder theory that is used to explain and understand different kinds of relationships in business. It also provides the way to understand the business challenges. Problems arise due to misinformation or may be caused due to clashing of the business interests. The theory is used to outline the interest of the employees, shareholders, vendors, public and customers. Deficiencies faced by the agency theory that are overcome by the stakeholder theory are as follows:
e. Focus of stewardship for influencing the reporting and measuring the information of financial accounting
The stewardship is connected with the agency theory and is a wider notion as compared to the allocation of the resources as it pays attention on the past performance as well as how the organization is situated for the future. Therefore, it shall be retained as different objective for the financial reporting to assure that there is suitable emphasis on the organization’s performance as whole and not just the expected future cash flows. The objective of the stewardship is characterised as the information that delivers the foundation for the constructive dialogue among the investors and the management (Welsh et al. 2013). It also recommends that this dialogue occurs in various media and in various ways and GAAP plays an important role in shaping the dialogues.
f. Importance of valuation for measuring and reporting the financial accounting information
The valuation process of the organization’s assets and liabilities are crucial for the purpose of financial reporting. Various accounting valuation approaches are there that are used for preparing the financial statements of the organization to measure its liabilities and assets. The valuation methods are required by the rules of accounting, for instance, the requirement of accepting the options for valuing the options are that one which is granted by the company to its employees and other assets are valued through the price that are paid (Bingham and Kiesel 2013). The valuation is crucial for various reasons that include the assessment of tax, measuring the value of liabilities and assets, analysing the performance of the business. However, the valuation requires proper assumptions and judgements. Depending upon the purposes and circumstances, the valuation methods differ.
g. Conflicting viewpoints for pursuing stewardship and valuation usefulness
The valuation usefulness and the stewardship are the alternative objectives for the financial accounting. As far as the internal validity is considered, the interpretation of the outcomes depends on the used metrics for the stewardship and the usefulness of the valuation to get success in capturing the underlying concepts of economics (Kuhner and Pelger 2015). The stewardship and the valuation usefulness are regarded as two sub-objectives of the financial accounting. They are regarded as conflicting if the below mentioned two conditions are met –
Further, another conflicting viewpoint is that there is a cross-sectional difference in weighing the valuation usefulness and the stewardship in the informal infrastructure of non-accounting. Adding-up that the stewardship and valuation usefulness are the conflicting objects of the financial accounting, it is expected that the firm-specific determinant under the governance structure related to the non-accounting aspects are conflicting (Drymiotes, and Hemmer 2013).
a. Research aim of each study
An assessment of Audit Expectation Gap in Ghana
Aim – the aim of this study is to assess the presence of gap with regard to the audit expectation in Ghana specifically concerning the responsibility of the auditor related to the prevention and detection of fraud and effectiveness of the structure of internal control for the audited organization (Agyei, Aye and Owusu-Yeboah 2013). Therefore, the aim of this study is to analyse the existence of gap from the audit expectation in Ghana from the stockbrokers and auditor’s point of view
Audit expectation gap in Sri Lanka – The role of policy makers
Aim – the aim of the study is to examine the differences among the society and the auditors with regard to the reliability of the audit function, responsibility of the auditor and the usefulness of the audit. Further, the other aims of the study is to –
b. Research hypothesis of the study – “Audit expectation gap in Sri Lanka – The role of policy makers”
Looking at the objective of the research, the hypothesis of the research will be as follows –
H0: The role of the auditors has no impact on implementation of internal control and will not be efficient for detecting all the frauds related to the financial statement
H1: The role of the auditors has great impact on implementation of internal control and will be efficient for detecting all the frauds related to the financial statement (Gunathilaka 2012).
c. Variables of each study
Audit expectation gap in Sri Lanka – The role of policy makers: the variables under this study are measured in terms of assigning the strong disagreement with regard to the statement where the score of 5 reveals the the strong agreement. The respondents of the demographic data were collected based on the age, gender, education level and self-description. Further, for the survey, the auditors, investors, management students and the business executives (Gunathilaka 2012).
An assessment of Audit Expectation Gap in Ghana: the variable for this study is the gap in audit expectation. The variable of the study is measured by SPSS (statistical package for Social sciences). The questions that were used for the study were closed ended and the score scale was assigned on the basis of agreement and disagreement (Agyei, Aye and Owusu-Yeboah 2013).
d. Definition of population for selecting the participants
Audit expectation gap in Sri Lanka – The role of policy makers: this study used the five point bipolar Likert scale for the questionnaire of the survey to take the observation of various participants. They were to tick in the space provided in the questionnaire for expressing their agreement and disagreement for the provided statements (Gunathilaka 2012).
An assessment of Audit Expectation Gap in Ghana: under this study, the non-probability sampling method are utilised for performing the study. The sampling technique that were used were purposive and convenience. The convenient method used for the participants who responded to the questionnaire and the purposive method were used for the participants who represented as the users of the financial statements (Agyei, Aye and Owusu-Yeboah 2013).
e. Invitation of participants for participating in the study
Audit expectation gap in Sri Lanka: the survey instruments were send to 150 chartered accountants and were selected on random basis using the directory of chartered accountants. The instrument were also send to 150 clients from the firms of professional accounting, 150 investors from the stock brokers and 100 students from management (Gunathilaka 2012).
An assessment of Audit Expectation Gap in Ghana: The respondents for the study were the stockbrokers and auditors and they were invited from Greater Accara as most of the selected respondents belong to central business district of Accra and most of the auditing firm are found there. The stock brokers were chosen from list of brokerage organizations listed under stock exchange of Ghana (Agyei, Aye and Owusu-Yeboah 2013).
f. Information provided in the study regarding distribution of questionnaire
Audit expectation gap in Sri Lanka: The questionnaires were send to 150 investors through stock brokers and to others through random distribution.
An assessment of Audit Expectation Gap in Ghana: The survey instruments were personally administered to each of the respondent.
g. Non-response bias
Sometimes, all the selected participants for the survey are not willing to answer or fill-up the survey form or the questionnaire. The term non-response bias is defined as the bias arising from the situation where the views of the respondents vary from that of the non-respondents. The reason of non-response may be as follows –
h. Addressing the non-response bias
For the research topic “An assessment of Audit Expectation Gap in Ghana” 20 questionnaires were returned, out of those the usable ones were sand to each of the group of respondents. Non-respondents under both researches were coordinated through e-mail for stating their reactions or giving reasons for not sending their feedback. Instead of sending the e-mail few respondents were still there who did not send their feedback. It was discovered that a considerable number of the respondents were non-responsive. The non-response bias was at last not considered for the outcomes (Hashimoto et al. 2013). Despite the fact that the real relationship among the non-response and biasness is not comprehensible, it is essential to comprehend the effect of the non-response inclination as it endangers the assessments that are gotten from the overviews and along these lines, it relies on upon the individual supposition and learning of the surveyor to some degree.
h. Response rate of each study
Audit expectation gap in Sri Lanka: The study had total 252 responses, which represent the rate of response for 45.8%. The respondents included the sample of 52 chartered accountants, 121 bachelor degree holder, 88 company’s stock holder, 58 business managers and 54 from the others (Gunathilaka 2012).
An assessment of Audit Expectation Gap in Ghana: Out of 50 questionnaires, 30 questionnaire were send back by the auditors and 35 questionnaire were send back by the stockbrokers., 20 usable questionnaires out of total questionnaire that were send back, again send to each of the groups of stockbroker and auditor for filling-up.
i. Data analysis of each study
Audit expectation gap in Sri Lanka: the data that were collected were analysed based on the scale ranging from one to five. One score was assigned for representing the strong disagreement and five score was assigned for representing the strong agreement. This kind of scale range is used when the items that are under judgement based on the single dimension and displayed on the scale with the equal interval. Further the collected data were descriptively assessed in association with the SPSS (Statistical Package for Social Sciences) (Gunathilaka 2012).
An assessment of Audit Expectation Gap in Ghana: The data that were collected were analysed based on the scale ranging from one to five. One score was assigned for representing the strong disagreement and five score was assigned for representing the strong agreement. This kind of scale range is used when the items that are under judgement based on the single dimension and displayed on the scale with the equal interval (Agyei, Aye and Owusu-Yeboah 2013).
j. Significant flaw of both the studies
References
Agyei, A, Aye, BK and Owusu-Yeboah, E 2013, ‘An assessment of audit expectation gap in Ghana’, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3, no. 4, pp. 112-8.
Cavanagh, A., Freeman, S., Kalfadellis, P. and Tamer Cavusgil, S., 2016. How do subsidiaries assume autonomy? A refined application of agency theory within the subsidiary?headquarters context. Global Strategy Journal.
Cordery, C.J. and Sinclair, R., 2016. Decision-Usefulness and Stewardship As Conceptual Framework Objectives: Continuing Challenges.
Drymiotes, G. and Hemmer, T., 2013. On the stewardship and valuation implications of accrual accounting systems. Journal of Accounting Research, 51(2), pp.281-334.
Farkas, G., 2016. Agent-Principal Problem, Stewardship Theory And Behavioural Agency Model In The Explanation Of Family Business Performance. In Conference Proceedings DOKBAT (p. 135).
Frias?Aceituno, J.V., Rodríguez?Ariza, L. and Garcia?Sánchez, I.M., 2014. Explanatory factors of integrated sustainability and financial reporting. Business strategy and the environment, 23(1), pp.56-72.
Gunathilaka, A 2012, ‘Audit expectation gap in Sri Lanka: the role of policy makers’, International Journal of Multidisciplinary Research, vol. 2, no. 10, pp. 1-12.
Hashimoto, S., Kawado, M., Kawamura, T. and Nakamura, Y., 2016. Effect of non-response bias on estimates of the numbers of patients with intractable diseases based on nationwide epidemiological surveys of Japan. Fujita Medical Journal, 2(3), pp.55-58.
Kuhner, C and Pelger, C 2015, ‘On the relationship of stewardship and valuation—an analytical viewpoint’, Abacus, vol. 51, no. 3, pp. 379-411.
Mitnick, B.M., 2015. Agency theory. Wiley Encyclopedia of Management.
Schillemans, T., 2013. Moving Beyond The Clash of Interests: On stewardship theory and the relationships between central government departments and public agencies. Public Management Review, 15(4), pp.541-562.
Studer, J., Baggio, S., Mohler-Kuo, M., Dermota, P., Gaume, J., Bertholet, N., Daeppen, J.B. and Gmel, G., 2013. Examining non-response bias in substance use research—are late respondents proxies for non-respondents?. Drug and alcohol dependence, 132(1), pp.316-323.
Sztompka, P., 2014. Evolving focus on human agency in contemporary social theory. Agency and structure: reorienting social theory. Londres: Routledge, pp.25-60.
Thalberg, I., 2014. Enigmas of agency: Studies in the philosophy of human action (Vol. 87). Routledge.
Welsh, D.H., Memili, E., Rosplock, K., Roure, J. and Segurado, J.L., 2013. Perceptions of entrepreneurship across generations in family offices: A stewardship theory perspective. Journal of Family Business Strategy, 4(3), pp.213-226.
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