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Since the recent financial and accounting scandals, audit quality and reliability of the disseminated information have been considered as quite important at the national and international levels.
Indeed, large companies taking the shape of a network (as Enron and Worldcom) and large famous audit firms are implied in accounting frauds. Consequently, the confidence has been lost between investors and managers. Similarly, the existence of interests' divergence between managers and shareholders reveal an opportunist behavior of these managers and a problem of information asymmetry between the two parts.
This situation required the introduction of a more transparent climate aiming at regaining the investors trust. The latters require the application of control and monitoring mechanisms of high quality to safeguard their interests and to obtain a reliable and relevant accounting and financial information.
Moreover, to improve the audit process in order to attenuate the conflicts of interests and to certify the credibility of the disseminated information, the appearance of new reforms such as the Sarbanes-Oxley law (Act 2002) in the United States, the financial security law of August 1st, 2003 in France, the law n°2005-96 of October 18th, 2005 relating to the reinforcement of the security of the financial relations in Tunisia provided confidence with the investors in terms of the information communication and reinforced the prohibitions of services provision other than audit in order to maintain the auditor independence. Similarly, the Tunisian government has been interested in improving the control procedures by installing a set of rules and practices aiming at solving the agency relations and ensuring the credibility of provided information.
Then, it becomes interesting to study the impact of the auditor independence on the voluntary information disclosure in the Tunisian context.
In order that the auditor keeps his good quality, he must be independent, must be able to resist the pressures of managers and must ensure the publication of the discovered anomalies even if this publication forms a bad news to his customer.
The voluntary information disclosure plays a big role in making investment decisions and it is consequently useful to owners and investors considering since that it assists them in determining the estimated performance of the company and in controlling the managers activities.
In this context, it seems judicious to improve the information disclosure via improving the control mechanisms and consequently improving the audit quality by ensuring the auditor independence allowing an external expertise to evaluate the control process.
Thus, the crucial role played by the external auditor enables to provide a relevant, sincere and transparent accounting information in an independent, objective and qualified way and also reduces the accounting manipulations and frauds. Indeed, the intervention of the external audit as an independent and qualified control mechanism seems to be useful to ensure the credibility of the provided information.
In addition, the majority of former researches (Cooke, 1992 and Wallace, 1980), studying the relation between the auditor independence and the information disclosure were mainly interested in the developed countries which motivated our research to study this relation in a country under development and particularly in Tunisia.
Our research aims at dealing with the following problem: what impact does the auditor independence have on the voluntary information disclosure? Consequently, the objective of our research is to explore the relation between the auditor independence and the voluntary disclosure of information with taking the Tunisian companies as sample.
The remainder of the paper is organised as follows: In the first section, we will present the theoretical framework of this research. The hypothesis will be treated in the second section. The sample and the followed methodology will be presented in the third section. The fourth section will clarify the main results and discussions.
1 - Contribution of the contractual politico and signal theory to the concept of the voluntary disclosure:
The studies relating to the process determinants of the audit quality as well as the level of disclosure were mainly introduced by the agency and signal theory.
1.1- The relation between the disclosure and the reduction of the agency conflicts :
The agency theory also called "theory of constituents" is defined by Jensen and Meckling (1976), as a contract by which a person, the principal or the constituent has recourse to another person,the agent, to act in his place which implies the delegation of some decisions of the principal to the agent.
In this way when the shareholders achieve their decisional capacity on behalf of the managers, the conflicts of interests emerge. The emergence of interests conflicts is explained by the uncertainty related to the environment, the imperfect observability of the agent efforts as well as the establishment costs and the contracts execution.
Cohen (1997), underlined that the agency theory is present when there is a separation between the property of the productive resources and their effective implementation; i.e. each time there is a separation between management and property. It is notably the case of companies having a dual structure.
The managers profit from an informational advantage because of their daily presence in the company. So they can benefit from this freedom to direct the business management and consequently, they can manage the disclosure of their information according to their personal interests.
Beyond this relation between the manager and the shareholder, there are other relations within the company which form the origin of the agency relations, for examples the relationship between the employers and the employees, the lenders and the borrowersâ€¦
Whatever the nature of these agency relations, this situation gives place to interests conflicts between the parties due to the information asymmetry and the environment uncertainty.
These conflicts involve costs called the agencies costs. These costs are presented by Jensen and Meckling (1976), according to three categories:
Monitoring costs: they are the costs supported by the shareholders aiming at controlling the manager and making sure that he acts in accordance with their interests.
Customs clearance costs : they are the expenditures engaged by the agent to put the principal in confidence.
Residual costs: they are the costs inherent to the interest divergence between the managers and the shareholders.
In the measurement to attenuate these agencies relations, it is interesting to install control mechanisms enabling to reduce them as the quality of the external checking i.e. the independence of the external auditor and the debt.
1.2- The relation between the disclosure and the performance :
The theory of signal is developed by Spence (1973), to explain the behavior in the labor market. This theory is based on the information asymmetry and it envisages the stock exchange movements that are more accentuated in the case of the companies having more information asymmetry.
According to this thesis of indication, the asymmetry of information between the manager who is implied in the business management and available the firm and the shareholder who does not have all the information relating to the value of the company, then the internal members (insiders) must make signals to the outsiders through the financial decisions. Consequently, the object of the theory of signal is to encourage the managers to reveal the information proving the true situation of the company.
Within the same framework, Watson (2002), confirmed this theory and indicated that the managers have the information that the investors do not have. This asymmetry of information can only be reduced if the part that have the information will announce it to the others. Therefore, the indication can be defined as a reaction to the asymmetry of information in the markets.
Indeed, the maximization of the richness of the company through the signals can release the costs of indication such as the cost of the dividends and the cost of the emission of the capital growth.
Thus, the policy of dividend is a strategic decision for the company because it announces the exact state of the company if it is in good state or in bad condition so the dividends play an informative part, consequently a role of indication used as performance signals of the current and estimated company. In the same way, the introduction of the exchange stock can constitute a good signal since that the selected company chooses to underestimate itself to draw the attention of investors by ensuring a good investment appropriateness and a good growth prospect.
According to Watson (2002), the theory of indication can help to explain the voluntary disclosure. In the same way, Inchausti (1997), used both theories i.e. the agency and signal theories to justify his hypotheses. So the theory of agency and the theory of the signal are complementary at the basis of any conflict and any asymmetry of information because they enable to explain the voluntary disclosure decision within the company.
2 - Hypotheses development:
Within the framework of the theory of agency and signal, the researches of voluntary disclosure were based on selecting the variables likely to influence the level of disclosure (Depoers, 2000; Hanifaa and Cooke, 2002). In this section, we will develop the hypotheses of our research according to the same theories within the Tunisian context.
2.1- Hypotheses related to the characteristics of the audit firm and the auditor:
De Angelo (1981), defends the thesis that the large audit firms belonging to the "Big four" groups are more independent and they are most probable to reveal more information than the small ones because they lose more in term of reputation and important potential incomes in case of dependence. Within the same framework, Depoers (2000), advances that the « Big » offer a better quality of information to preserve their reputation as a guarantor of good quality.
According to these studies, we note that the reputation of the auditor enables to entrust the reliability and the sincerity of the disseminated information as well as the quality of the audit process.
From which is the following hypothesis:
2.1.2- Audit firm Size:
Depoers (2000), Haniffa and Cooke (2002), suppose that the large audit firms in particular those having a high sales turnover and having an important manpower as well as well qualified and independent auditors are most probable to reveal the maximum of relevant information than the small audit firms.
This hypotheses is confirmed by Angelo (1981), owing to the fact that it showed that a high-quality of audit requires enormous costs that a small audit firm is not able to support, while the large firms can absorb through their portfolios well distributed.
In the same context, Raffournier (1995), and Depoers (2000), affirmed the positive impact of the large firms at the level of disclosure. Among these studies, we propose to test the following hypothesis:
2.1.3- Auditor rotation:
There are various explanations concerning the rotation of the auditor. The first interpretation which explains why at the end of the term of the office, the auditors will be conscious that they will leave at the expiry the mandate and that they cannot renew the contract. Then, this phase guarantees the independence of the auditor as well as a better quality of information.
The second interpretation explains why when the auditor certifies reliable information while resting on his independence and qualification level, then it will keep a stable relation auditor-customer. According to this fact, the rate of rotation of the auditor will be weak.
In our study, we could note if the auditor exercised only one or more mandate starting from the annual reports. From which is the following hypothesis:
2.2- Hypotheses related to the other control mechanisms:
Watson (2002), adopted the theory of agency and signal to explain the sign of the relation which can exist between the level of debt and the disclosure.
On the one hand, he showed that the theory of agency enables to envisage a positive relation because the costs of agencies are more important for the firms with a higher debt ratio (Fama and Miller, 1972 ; Jensen and Meckling, 1976 ; and Smith and Warner, 1979); in addition, he showed that the theory of signals does not enable to fix the sign of this relation.
The same hypothesis is advanced on the one hand by Raffournier (1995), to test the impact of the policy of debt on the level of disclosure in the annual reports of the Swiss firms, and on the other hand by Depoers (2000), to test the same relation in the French context.
Within the same framework, Saada (1995), suggested the existence of a positive relation between the debt and the extent of the sectoral information disclosure in the annual reports.
2.2.2- Audit committee:
The existence of a committee charged to supervise the audit and to reduce the risks which threaten the independence of the auditor by examining the principle of separation of the audit activities and the council enables to ensure a better quality of information.
The Sarbanes-Oxley law requires that all the companies have to set up a committee of independent audit to control the process of checking and control. As well as the change of the person in charge of the accounting control must take place at least every five years.
This committee must also establish procedures to receive and treat the accounting and audit complaints and to guarantee the confidential treatment of the observations emanating of the personnel of the company concerning the accounting or audit problems (law of Sarbanes-Oxley, article 301).
In Tunisia, the article 256 (bis) of the Commercial Companies Code requires that the creation of permanent audit Committee must be obligatory for the companies making a public offering.
2.2.3- Duality :
The study of Ball, Kothari and Robin (2000), confirms the existence of a positive relation between the separation of the functions of decisions and control and the level of disclosure relating to the remuneration of the manager.
In the same framework, Haniffa and Cooke (2000), asserted a relation between the duality of the roles and the level of disclosure in the listed Malaysian companies.
Among these studies, we notice that there is a positive relation between the separation of the roles of the chairman of the board and the managing director and the level of disclosure in the quoted Tunisian industrial companies.
This variable can have an impact on the extent of disclosure of the Tunisian companies because this practice is not common for all the companies. From which is the following hypothesis:
3.1- Sample Description:
The sample of our study was formed by 40 Tunisian industrial companies of which 26 are listed according to the real estate stock exchange of Tunis (BVMT). The period covered is 2007.
We excluded the financial institutions notably banks, insurance and investment companies due to the specificity of their disclosures as well as trade companies since that the Botosan index (1997) was conceived for the industrial companies.
The data are drawn from the annual reports (2007) of the companies presented in the sample in order to calculate a disclosure score. The annual reports of the companies listed according to the real estate stock exchange of Tunis are collected within the Council of Tunisian Market and stock market intermediaries. Whereas, the annual reports of the unlisted companies are collected within the chartered accountants and the intermediaries of the stock of exchange.
3.2- Presentation model :
Let us recall that our objective consists in testing the impact of the auditor independence on the information disclosure of the annual reports of the Tunisian companies. Our model is presented as follows:
In other words, our model is presented as follows:
DIV= ß0 + ß1 (CACAC) +ß2 (EFFECT) + ß3 (ROTA) + ß4 (REPUT) + ß5 (COMITE) + ß6 (DUAL) + ß7 (END) + ß8 (TA) + ß9 (COTA)
Div : Disclosure quality levels.
CACAC : Turnover of the audit firm.
EFFECT: Staff of the audit firm.
ROTA : Auditor rotation.
REPUT : Auditor reputation.
COMITE : Audit committee.
DUAL : Duality.
END : Debt.
TA : Company size.
COTA : listing status
3.3- Measurement of variables :
3.3.1- Measure of the dependant variable: the level of disclosure:
Certain empirical studies consider that the variability of the level of disclosure of a firm in comparison to another is due to the quantity of information published voluntarily by the firms.
The studies of Chow and Wong-Boren (1987), Botosan (1997) and Walker and Tsalta (2001), applied this methodology by testing the association between the level of disclosure measured by the quantity of information revealed voluntarily.
Some studies such as Walker and Tsalta (2001), Bozec and Zéghal (2001), are based on former indices by choosing the items considered as the most important according to their problems. For our study, we chose the index of Botosan (1997), for the calculation of the index of disclosure as translated by Bozec and Zéghal (2001).
Our choice is explained by the following arguments:
This index is judged as the result of a severe work, Zéghal and Bozec (2001), Singleton and Globerman (2000), since that it integrates many studies relating to the information needs of the users including the reports of Jenkins (AICPA 1994).
The credibility and the validity of this index are certified by several authors, for this reason it was the subject of several studies in different contexts: Botosan (1997), in America, Bozec and Zéghal (2001), in Canada and Singleton and Globerman (2000), in Japan.
The test of this index in several contexts confirms its reliability in the Tunisian context.
In the same way, the items of the index of Botosan (1997), meet well the needs of any investor in particular the Tunisian investor.
Through a comparison between the items of the index of Botosan (1997), and of the items of the index built by Ben Ahmed (1999), adapted to the Tunisian context, we notice that there is an analogy between the two indices.
The index of Botosan (1997), translated by Bozec and Zéghal, (2001), illustrates the classification of 57 quantitative and qualitative items gathered in five categories (see Annex 1).
A total measurement of the disclosure is certified by taking the total of the points of the index for each company. This total will be divided by the theoretical score i.e. by the full number of the items which are regarded as relevant for each company. For example, the following items are not included in the theoretical score of the business enterprises:
Life cycle of the product and the innovation.
Volume of the production units.
Price of the production units.
Change in the cost of the factors of production.
Investment in research and development and other tangible assets related to the produced units.
Comparison of the estimation of the level of production with the real level of production.
3.3.2- Measure of independent variables:
3.4- Preliminary tests:
3.4.1- Test of the comparison of the averages:
Aiming at determining the dependant variable (to be explained) of our model, we have to apply the test of comparison of the averages which enables to test the differences in averages of the variables taken in pairs.
The test of comparison of average shows in table 3 that the majority of the categorical indices (general information, historical information, nonfinancial information, forecast information and information resulting from the analysis of direction) are statistically significant which proves the existence of a difference in average. Except (IG # IIA) and (IH # IP) are not significant which shows the equality of the averages of these categorical indices.
This test enables us thereafter to carry out a test of row of Wilcoxon thus enabling to classify the categorical indices according to their explanatory weights i.e. to determine the index weighing more information.
According to table 4 presented above, we noticed that the forecast information weighs more than the other categorical indices. In second position, we will find the historical information ollowed by the information resulting from the analysis of the direction, then the general information and lately the non-financial information. This test shows that the majority of the categorical indices are significant except for (IG # IIA) and (IH # IP) in accordance with the result obtained by the test of comparison of the averages.
3.4.3- Test of correlation :
A problem of multi colinearity can exist if there is a strong correlation between the explanatory variables.
Table 5 : Correlation of the exogenous variables:
This table shows that there is a strong correlation between the reputation of the audit firm and its turnover. This result shows that when the turnover increases then the firm will be more reputed.
Within the same framework, we notice that there is a strong correlation between the listing status and the existence of the committee of audit as well as the office plurality of the roles of the managing director and the chairman of the board.
4 - Empirical results:
4.1- Result of the analysis of the dependant variable:
In the annual reports used in this analysis, we could notice that there are certain categorical indices of information which is published in a common and frequent way between the Tunisian companies.
The following table presents the descriptive statistics of the variable to be explained. The level of voluntary disclosure average is of 37,4% with a minimum of 10% and a maximum of 59%.
The decomposition of the overall index into sub-indices enables us to look further into the analysis of the information revealed in the annual reports of the Tunisian firms. This decomposition enabled us to examine the average scores granted to each type of information in the following table:
This table shows that general information is revealed in the annual reports of the Tunisian companies (12.51) followed by the information resulting from the analysis of the direction (6,41), then the historical information (5,90), the forecast information comes in the fourth position (3,61) and finally the non-financial information (3,41).
4.2- Results of the analysis of the explanatory variables:
Table 8 and 9 present the descriptive statistics of the continuous variables in our model whereas table 10 describes the results of the univariete analysis.
Table 8 shows that the debt ratio and the size of the firm have a significant effect at 1% on the level of disclosure, but the characteristics of the audit firm (turnover and effect) are not significant.
From table 9, we could also conclude that 70% of the audit firm are not the representatives of the Big and that 80% of the auditors exercise only one mandate.
The results show that 5% of the listed companies constituted an audit committee which has the role of ensuring the sincerity and the exhaustiveness of information.
We have to still notice that 45% of the firms separate the functions
4.3- Results of the multivariate analysis:
A multivariate analysis is necessary in order to take into account the marginal effect of the various variables on the voluntary information disclosure.
This table enables us to check the abscence of auto corrrelation between the explanatory variables. Thus these strongly correlated variables were not gathered in one model.
4.3.1- Impact of the caracteristics of the audit firm on the level of disclosure:
The caracteristics of the audit firm are detected through its sales turnover and its auditors as well as its reputation.
The statistics of the quality of adjustment show that R2 is equal to 49,4% in model 1-1 and 52,1% in the model the 1-2 thus quality of the adjustment are good in model 1-1 since 49,4% of the variation of the level of disclosure are explained by this regression. This result is confirmed by adjusted R2 (45,4%).
Also, in the model 1-2 the quality of the adjustment is good since 52,1% of the variation of the level of disclosure are explained by this regression. This result is confirmed by adjusted R2 (46,6%).
In accordance with hypothesis 2, this variable seems to have a positive effect on the level of voluntary disclosure but not significant (T=0,793 and P= 0,485). This positive relation corroborates with the results of Raffournier (1995), and Deopers (2000), which affirmed the positive impact of large audit firm on the level of disclosure.
This variable has a negative and insignificant effect on the voluntary level of disclosure (T=-0,367 and P= 0,745). This relation is not significant compared to that found by Haniffa and Cooke (2000).
In accordance with hypothesis 1, the companies audited by the group Big four seem to reveal more voluntary information than that audited ones by the Tunisian audit firm (T=0,289) but this relation is not significant (P= 0,779). This positive and insignificant variable is comparable with that found by Eng and Mark (2003), contrary to Raffournier (1995), who found it positive and significant.
The duality does not seem to have a significant effect on the voluntary level of disclosure (T=0,034 and P= 0,974) in model 1-1 and (T=0,143 and P=0,897) in the model 1-2. This result corroborates with the results of Haniffa and Cooke (2000), which suppose the existence of a positive but insignificant relation between the separation of the functions of decisions and control and the level of disclosure.
In accordance with what we provided, the size of the firm seems to have a positive and significant effect on the level of disclosure. This variable was always tested on the level of the empirical studies and in the majority of the cases, it was validated.
The listing status has been a positive and significant effect at the 1% level on the level of disclosure.
4.3.2- Impact of the characteristics of the auditor on the level of disclosure:
Specification of model 2-1:
The statistics of the quality of adjustment show that R2 is equal to 54,3% in the model 2-1 and 52,2% in the model 2-2, thus the quality of the adjustment is good.
The most reputed auditors seem to reveal more voluntary than those who are less reputed (T=0,467) in model 2-1 and (T=0,564) in the model 2-2. Contrary to hypothesis 1, this relation is nonsignificant (P= 0,679) in model 2-1 and (P=0,664) in the model 2-2. This positive relation is comparable with that found by Angelo (1981), which advances that the size of the auditor is a signal of quality.
The rotation of the auditor has a negative effect on the level of disclosure (T=-0,992) in model 2-1 and (T=-0,689) in the model 2-2. That during this relation is insignificant (P= 0,331) in model 2-1 and (P=0,380) in the model 2-2.
Indeed, when the rate of rotation of auditors is weak i.e. the relation auditor-customer is stable while the level of disclosure is high.
The presence of a committee to supervise the audit and to reduce the risks which threaten the independence of the auditor influences positively and significantly (at the 1%) the level of disclosure in the annual reports for the two models.
In model 2-1, the coefficient is 5,469 which means that the presence of an audit committee increases the level of disclosure of 5,469 units, this relation can be explained by the insurance of independence of the committee of audit to control the process. In the same way, in the model the 2-2 coefficient is 5,034 which means that the presence of an audit committee on increases the level of disclosure of 5,034 units on average.
First, the size of the firm seems to have a positive and significant effect (at the 1%) on the level of disclosure. This variable was always tested in empirical studies and in the majority of the cases, it has been validated.
Then, the variable quotation has also a positive and significant impact (at the 1%) on the level of disclosure in both models. This result corroborates the result found by Haniffa and Cooke, 2000.
Finally, the debt influences positively and significantly (at the 1%) the level of disclosure in the annual reports.
The main aim of this research is to study the impact of the independence of the auditor on the voluntary information disclosure in the Tunisian context.
To undertake this study, we tried first of all to present pioneering works that constitute the theoretical framework of this subject.
Then, we tried to determine the direction of the relations which exist between the information disclosure and the independence of the auditor starting from a sample of 40 annual reports of the industrial Tunisian companies (listed and unlisted) which relates to the year 2007.
To be done, we defined a linear model of regression which connects various measurements of the categories of information and the variables measuring the independence of the auditor. The model takes into account other explanatory variables related to caracteristic of the company such as the size, the debt and the listing status.
The results of the analysis show that there are no significant relation between the independence of the auditor and the voluntary information disclosure. With regard to the term of the office, the results reveal that there is no significant statistical relation between the rotation of the auditor and the level of disclosure, which checks the H3 hypothesis.
The results also show that the turnover of the firm does not have any impact on the contents of the revealed information. The rate of debt appears significantly positive and related to the information disclosure to a threshold of 1% which suggests that the firms strongly involved in debt have stronger intentions to reveal the information which checks the H4 hypothesis.
The relation between the characteristics of the company and the level of disclosure is checked. Indeed, the results show a significant relation between, on the one hand, the size of the firm, the statute of quotation and the existence of a committee of audit, and on the other hand, the level of disclosure.
The theory requires the separation between the function of control and direction. This separation will enable to improve the role of control of the board of directors and to reduce the influence of the manager on decision making. The empirical test relating to the sepration between these two positions show that the separation between the functions of the council president and the chief of the direction has no influence on the level of disclosure of the Tunisian companies.
The results of the multiple analysis stress that the variation of the levels of disclosure in the annual reports of the Tunisian firms is explained only by the variables of control (size of the firm, debt and listing status). Thus, the result found during the analysis of the model of our work reveal sometimes significant and other times insignificant .
Nevertheless, the research sinificativity of the results is due to the limits noted for this work.
The fact that our sample is mostly based on listed companies with the Stock of Exchange of securities prevents us from generalizing the results of the study. Also, the use of the index of Botosan (1997), contains a certain subjectivity.
Indeed, this index is established according to the US investor who can have needs that are different from the Tunisian one. Moreover, the measurements used during our work can be called into question.
Indeed, and because of the difficulty which we met to identify the exact number of the mandate of the auditor in the firm, the measurement of this variable could be erroneous.
In spite of the encountered difficulties, our work will be able to extend on other future ways of research. Indeed, we can reproduce the study by using a larger sample and for an axis of longer time.
To conclude, we make a point of announcing that the results found in this study are limited to the Tunisian companies, they can be different in other contexts.