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• The Propensity for Mandatory Audit Rotation and its Impact on Earnings Management in Europe

  222-233

  Regina Reicher

  Tran Nguyen Bao Ngo

  Views:

  250

  The doubt of investors for the accuracy of financial reporting statements and the credibility of external audit functions has becoming more and more severe in the recent years due to a variety of booming accounting scandals related to earnings management occurring around the world. To cope with these serious frauds in the world of financial market, many countries have adopted Mandatory Audit Rotation (MAR) rules. Although the MAR rule has been valid around European Union (EU) members since 2016, the effectiveness of this rule has not been examined in any academic papers yet. As a result, the aim of this study is to investigate the effectiveness and the necessity of the latest MAR rule in the EU by testing the influence of audit rotation activities and audit tenure on earnings management of companies in the STOXX Europe 600 Index. Practical implications of this study will not also prove whether companies in STOXX Europe 600 Index should be required to shorten their audit tenure by rotating their audit engagement more often in order to decline the degree of earnings management, but they will also help to strengthen support for the essentiality of MAR legislations in the EU if the result indicates that longer audit tenure actually leads to more earnings management of STOXX Europe 600 Index companies.

• Fraud in the Financial Sectors

  1-17

  Mihály Hegedűs

  Views:

  301

  The competition for social resources encourages economic players to break ethical business rules to gain an economic advantage. Digitized data is making it increasingly difficult to verify their content of reality. The Wirecard scandal and the COVID-19 crisis will transform the environment around us, change our way of thinking about the world, accelerate discussions on the possible control of data produced by digitization tools, and the issue of the widest possible introduction of international accounting. Since the economic crisis of 2007, there has been a general and measurable increase in fraud in public procurements in construction industry, real estate, oil and gas, heavy industry and in mining industry, and in the financial sectors, which some governments of countries are trying to prevent it by using new tax control methods. In the stagnant economies of the economic crisis that is likely to materialize as a result of the COVID-19 epidemic, economic players will share on fewer and fewer orders, and as competition increases, the possibility or compulsion of fraud increases. Crises either begin in the financial sector or it will become one of its victims. Although financial scandals have not shaken confidence in the financial sector in recent decades, but it has violated the generally accepted public opinion that the financial sector is strictly regulated and it is non-fraudulent, non-infected area. International events affecting the financial sector have shown that internal procedures that ensure the lawful operation of a company in financial institutions have not prevented internal abuse because some of the perpetrators came from leaders.Due to the generalizations, the integrity of financial and supervisory organizations not directly involved in financial scandals are also significantly damaged, and trust can only be restored again through joint efforts, legal tightening and appropriate communication of it.