improving organizing controls to enhance financial accounting information quality of the listed companies in the vietnam stock exchange

1 1 CHAPTER 1- INTRODUTION 1.1 The reasons to research In the modern economy with the development of capital market, listed companies LCs and its financial information which is disclos

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1 CHAPTER 1- INTRODUTION

1.1 The reasons to research

In the modern economy with the development of capital market, listed companies (LCs) and its financial information which is disclosure public legally on the stock exchange is necessary Investors, governments and other stakeholders who concern about the LCs are always considering the information on business strategy, on the financial situation of these companies when investing in The financial information of LCs is audited, reviewed by audit firms and give the “true and fair” opinion In addition, this information is examined and supervised by the stock exchanges (SE) and the State Securities Commission (SSC) Therefore, investing in LCs investors feel more secured than that in unlisted companies, but the reliability of the information still has some doubtful notes

According to Agrawal (2005), Brown.J (2010), the wave of accounting scandals recently emerged in the international financial community that raises issues about the quality of financial statements (FS) [44,58] Widespread disruption caused by the disclosure of dishonest financial and accounting data that required the need to strengthen financial accounting information quality (FAIQ) and control board of directors (BOD) by establishing corporate governance [54,59,74,92,104] In Vietnam, the scandals in Bach Tuyet Cotton Corporation and the Vinashin Group are clearly examples of the weaknesses in corporate governance and public disclosure of financial accounting information (FAI)

The results of the fraud information disclosures affect investors in particular and the national economy in general lead to an urgent requirement of control of FAIQ of LCs Control is considered in various aspects that ensure comprehensive control, including LCs those prepare and present FAI - internal control (IC) and external control in which the

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national control (NC) influences the most on FAIQ which disclosured by LCs

Therefore, the Thesis " Improving organizing controls to enhance

financial accounting information quality of the listed companies in the Vietnam stock exchange " is necessary

1.4 Objects and scope of research

The thesis studies organizing controls (including OIC and ONC) to FAIQ of LCs in the Vietnam stock exchange, thereby proposing solutions to improve organizing controls in order to develop LCs’ FAIQ The thesis focuses on the collected data about FAIQ from the non-financial LCs on Hochiminh Stock Exchange (HOSE) The research period is from the year 2008 to the year 2012

1.5 New contributions of the thesis

(1) The thesis used various methods and models which measure the quality characteristics of LCs’ FAIQ

(2) The thesis identified the positive aspects of OIC to FAIQ of LCs

(3) The thesis pointed out the impact of ONC to FAIQ of LCs (4) The thesis assessed the actual state of FAIQ of LCs in the Vietnam stock exchange during the study period (based on an independent audit opinion on the FS of non-financial LCs on HOSE) (5) The thesis applied qualitative methods in determining the relationship and the initial impact to provide the research model The

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quantitative methods are used to test the relationship between OIC and ONC to FAIQ of LCs (analysing by EViews software)

1.6 Outline of the thesis

The thesis consists of six chapters, including:

Chapter 1- Introduction;

Chapter 2 - General theory and literature review on organizing controls to enhance FAIQ of LCs in the stock exchange;

Chapter 3 - Research methodology of organizing controls to FAIQ

of LCs in the Vietnam stock exchange;

Chapter 4 - Results of the research on the impacts of organizing controls to FAIQ of LCs in the Vietnam stock exchange;

Chapter 5 - Analysing the research results and proposing solutions

to improve organizing controls to enhance FAIQ of LCs in the Vietnam stock exchange;

Chapter 6 - Conclusions

Concluding remarks in chapter 1

The thesis identified the object of the research, which is the impact

of OIC and ONC to FAIQ of non-financial LCs The research scope is non-financial LCs in the Vietnam stock exchange at HOSE, the research period from the year 2008 to the year 2012

The overall objective of the thesis is focusing on the research and assessing the relationships between OIC and ONC with FAIQ of LCs that supply investors with higher information requirements

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2 CHAPTER 2 - GENERAL THEORY AND LITERATURE REVIEW ON ORGNIZING CONTROLS TO ENHANCE FINANCIAL ACCOUNTING INFORMATION QUALITY OF LISTED COMPANIES IN THE STOCK EXCHANGE

2.1 Organizing of information control

Economic information is defined as signals in which received, understood and assessed and those are useful in making economic decisions of users Economic information meets characteristics of

information that are needed to be controlled, measured to ensure

information reliability

Information control regularly ensures unity and connection between the information elements The false and unreviewed information will affect users

2.1.2 Organizing of information control

According to the author, organizing of information control is the way that links the different components in a specific system in which combining internal control and external control to the information that

is managed

2.2 Financial accounting information quality of listed companies

2.2.1 The criteria of financial accounting information quality

Information quality assures these characteristics satisfying needs, meeting the different needs and standardized The standardization of the information quality often is to meet different needs, such as reliability, objectivity, timeliness, relevance, understandability, comparability of the information Reliability is considered as the important standard of information quality Besides, based on the characteristics of information,

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information quality must be quantified according to the characteristics of information and be controlled to ensure the information quality that convey from the input to the ouput

According to IFRS (2013), the following criteria are used to decide FAI has: relevance, faithful representation, comparability, verifiability, timeliness and understandability

2.2.2 Requirements on financial accounting information quality of listed companies

Main characteristics of the LCs include: public joint stock companies with large scale, issuing securities, financial information disclosure and stakeholders who interested in FAI of LCs and theirs operations are managed by the legal system seriously

Requirements on FAI of LCs includes:

Firstly, FAI of LCs shall be provided publicly is the official and unique information of LS;

Secondly, FAI of LCs must ensure transparency and publicly disclosure that required by law;

Thirdly, FAI of LCs includes multi - contents;

Fourthly, FAI of LCs (via FS ) must comply with the provisions of SEC where listed and it is controlled and handled with violations of information disclosure;

Fifthly, FAI of LCs must be published on time;

Last, FAI shall be provided to assure coporation’s value

2.2.3 Roles of financial accounting information quality of listed companies on the stock exchange

According to Robert M Bushman and Abbie J Smith (2003), FAI affects investors, profitability and added value of corporations Ensuring information quality provides information completeness, timeliness and faithfulness needs to combine with published information in the FS of LCs

According to Alvin A.Arens (2012), the problems in preparation and presentation the FS of Enron and WorldCom showed weaknesses in their IC In the U.S, the independent auditors should make an assessment and report the effectiveness of IC related to the preparation the LCs FS This content is included in its audited FS of the LCs Apply a similar to Japan via J-SOX Act

As the international experience, the LCs must be controlled by the government - an legally external control in the stock market management and the IC

2.3.1 Identifing the content of organizing controls of financial accounting information

Organizing controls is the way to link the different components in a specific system, were internal and external control toward the general goal of the managed objects such as economic information The thesis identifies contents of organizing controls of FAI including: Quantifying FAIQ (control object); OIC to FAIQ of LCs; ONC (external control) to FAIQ of LCs

2.3.2 Quantifying financial accounting information quality of listed companies

Quantifying FAIQ by standardizing mesurement of FS: Relevance (R), faithful representation (F), comparability (Co), verifiability (V), timeliness (T), understandability (U) and total assessment

Organizing internal control of financial accounting information of the listed companies is how to set the relationship among the components of the IC system that included control environment, accounting information systems and control procedures in order to ensure reliability of information that reflected on FS

Quantifying the organizing internal control

Organizing internal control is quantified through the average values

of the components in the system [65]: CS = (EC + AS + CP)/3 (2.2) Each component in OIC such as control environment (EC), accounting information systems (AS) and control procedures (CP) were quantified

Methodology to evaluate the relationship between organizing internal control and financial accounting information quality of listed companies

J.Altamuro (2010) pointed out that the financial entities had a positive effect on control procedure to prepare FS [84] According to N.Klai (2011), the corporation size was associated adversely to FAIQ

There are some experiences of control of stock market information from the U.S, Japan, China, Malaysia, Thailand

According N.Klai (2011), the national control and the financial institutions control strengthened the transparency and relevance in the preparation of FS (applicable to state companies) [99] Most countries have their specific supervisory systems through the SSCs, the National Supervisory Committees and the SEs

Alvin A.Arens (2012) has pointed out that the independent audit opinion of the FS were the necessary requirements of the SEC to LCs [45]

Organizing national controls of FAI of LCs includes national supervisory agencies and national control procedures

National supervisory agencies

National supervisory agencies implement monitoring of FAIQ of LCs in stock markets over the world usually include: Government, Ministry of Finance, the State Securities Commission (SSC), the Stock Exchange (SE), the National Supervisory Committees

Independent audit is considered as the other hand of the government

in controlling FAIQ of LCs in stock markets

These national supervisory agencies implement supporting functions such as legal advice, professional advice, training for LCs in management for FAIQ in developing countries

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National control procedures

In order to promote the role of control, national supervisory agencies implement control procedures such as monitoring, checking, inspecting and penalizing All procedures are controlled by the laws and

by laws documents ONC influences strongly through the system of national securities laws LCs who disclosed misstatement may be administrative sanction or criminal

Organizing national controls of FAIQ of LCs in the stock exchange includes supervisory agencies monitoring FAI and control procedures of these agencies that regulate and handle violations of disclosure FAI

The relationship between the state and FAI which prposed by N.Klai (2011), the author establishes the relationship between NC of FAIQ of LCs in Vietnam's stock market Based on, the thesis builds the research model and the research hypotheses to quantify external control factors those namely SC to FAIQ through LCs FS This organizing control includes national supervisory agencies and national control procedures

Concluding remarks in chapter 2

Chapter 2 synthesis these general theories of organizing of information control, FAIQ of LCs

Chapter 2 has overview the theories of control of FAIQ that include FAIQ (controlled information), ICO and NCO

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CONTROLS TO FINANCIAL ACCOUNTING INFORMATION QUALITY OF LISTED COMPANIES IN THE VIETNAM STOCK EXCHANGE

3.1 Sources of research data

The thesis uses two data sources in the research process: secondary data and primary data

3.2 Qualitative research methodology

3.2.1 Desk research

The thesis uses qualitative method in the initial research stage to find the previous models, methodologies and results These are basis for the thesis

3.2.2 Real-life situation research

The author conducted the situation on FAIQ of LCs in the Vietnam stock exchange

3.2.3 In–depth interview of experts

The author performed in-depth interviews with the experts who have experiences in the field of auditing, accounting, stock exchange, management of stock market in order to build the model, the model

variables, as well as building the research questionnaires (Appendix 02)

3.2.4 Summarise and analysis

The author analysed and identified the background theories of the thesis and synthesized of specialists' opinions

3.3 Quantitative research methodology

3.3.1 Develop research hypotheses and research model

These results from qualitative research methodology help to build the research hypotheses and model of the relationship between organizing controls (IC and NO) and FAIQ of LCs

OIC affect FAIQ of LCs

H0: OIC not affect FAIQ of LCs

H1: OIC affect FAIQ of LCs

FAQ = β 0 + β 1 EC + β 2 AS + β 3 CP + β 4. Year + β 5 Capital +β 6

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Where : FAQ: Quality of financial accounting information of LCs

EC: Control enviroment

AS: Accounting information system

CP: Control procedures

Year: Operating years

Capital: Capital

HOSE: Listed times in HOSE

ONC affect FAIQ of LCs

H0: National supervisory agencies not affect FAIQ of LCs

H1: National supervisory agencies affect FAIQ of LC

FAQ = β 0 + β 1 S + β 2 SP + β 3. Year + β 4 Capital +β 5 HOSE

Where: S: Affecting of national supervisory agencies

SP: Affecting of supporting functions from agencies

Year: Operating years

Capital:Capital

HOSE: Listed times in HOSE

3.3.2 Research questionnaires

3.3.2.1 Constructing research questionnaires

Research questionnaires was constructed (Apendix 03) This has been

sent to 266 companies (out of 282 companies) of non-financial LCs in HOSE (the statistics in the year 2012 accordingly) and received 69 responses (26%)

3.3.2.2 Collectting data from the questionnaires

Code of data: Coding data on each questionnaire

Declaration data: Enter data into the excel table (Appendix 05, 08,

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3.3.3 Descriptive statistics analysis

Analysis of descriptive statistics by Eviews software

3.3.4 Regression correlated method

The thesis used EViews software to test the relationship of organizing controls and FAIQ of LCs

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Concluding remarks in chapter 3

Chapter 3 summarised research process, research data collection, research methodology used in the thesis

Qualitative research methodologies used in the thesis include desk research, real-life situation research, in-depth interview, synthesis and analysis methods

Quantitative research methodologies applied in the thesis include survey, descriptive statistics analysis and correlated regression method

by EViews software