Impact of the Accounting Information System on Corporate Governance: Evidence from Turkish Non-Listed Companies

Australasian Accounting, Business and Finance Journal, Mar 2017

Corporate scandals in the early 2000s have demonstrated how accounting and auditing failures, together with the abuses of managers have the ability to create major problems. In order to avoid future scandals, this study investigates the association between the accounting information system and corporate governance. We hope that these findings will contribute towards the enhancement of good corporate governance created by the accounting function of business organizations. The results of empirical analyses indicate that bookkeeping, financial reporting, and the budgeting system have a positive impact on the corporate governance level, whereas the adoption of Turkish Accounting / Financial Reporting Standards do not. Thus, in order to foster corporate governance, managers should establish internal reporting procedures as well as internal control and monitoring devices before attempting external control through independent auditing.

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Impact of the Accounting Information System on Corporate Governance: Evidence from Turkish Non-Listed Companies

Uyar, Ali; Gungormus, Ali Haydar; and Kuzey, Cemil, Impact of the Accounting Information System on Corporate Governance: Evidence from Turkish Non-Listed Companies, Australasian Accounting, Business and Finance Journal Impact of the Accounting Information System on Corporate Governance: Evidence from Turkish Non-Listed Companies Ali Haydar Gungormus Istanbul 0 1 Turkey 0 1 0 1 Recommended Citation 0 Ali Uyar American University of the Middle East , Kuwait 1 Cemil Kuzey Murray State University , USA 2 College of Business Administration, American University of the Middle East , Egaila, Kuwait Block 3, Building 1, Egaila, 15453 , Kuwait 3 Independent Scholar , Istanbul , Turkey 4 Murray State University , Arthur J , Bauernfeind College of Business, Computer Science/ Information Systems , Murray, KY 42071 , United States Impact of the Accounting Information System on Corporate Governance: Evidence from Turkish Non-Listed Companies standards, corporate governance, management accounting, Turkey. Introduction Corporate scandals (i.e. Enron, Tyco, and WorldCom) in the early 2000s have demonstrated how accounting and auditing failures have resulted in corporate failures, destroying investor confidence, and harming capital markets. In response to these corporate accounting scandals, the U.S. Congress passed the Sarbanes-Oxley Act (SOX) in 2002, to protect investors from possible future scandals as well as to prevent fraudulent financial reporting by companies. In fact, these corporate failures are not peculiar to just one country or a geographical region, and they are not limited to a time frame; they occur in various countries at varying time intervals, as past harsh experiences have shown. A quick Google search produces a comprehensive list of such scandals across countries and intervals. In the context of Australia, Garry et al. (2014) reported that these corporate scandals were cyclical over four rounds of corporate failures (i.e. early 1960s, late 1980s, early 1990s and the early 2000s), and that these corporate scandals were followed by a series of changes in governance (i.e. legislative reforms relating to financial reporting or auditing) to prevent their recurrence. For example, in response to the crisis in the early 2000s, the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 Cwlth (CLERP 9 Act 2004) was enacted, which included increased disclosure requirements, tightened requirements for continuous disclosure, enhanced accountability, increased penalties for non-compliance, and increased auditors’ independence (Australian Securities and Investments Commission, 2012) . The adoption of corporate governance principles and the enactment of regulations to improve investor confidence in the marketplace were hastily put into place all around the world. Good governing practices are particularly important for emerging countries, since they need external funds to finance investments. Foreign investors are inclined to prefer countries that promise good investment opportunities and also an attractive investment environment such as appropriate regulations, transparency and accountability. In order to access international financing resources, Turkey must also provide quality financial information to stakeholders (Alp & Ustundag, 2009) . For this reason, regulations were enacted regarding corporate governance practices by the Capital Markets Board: The International Accounting/Financial Reporting Standards (TAS/TFRS) were adopted, a new Turkish Commercial Code was enacted, and the Corporate Governance Index was established by the Borsa Istanbul (formerly known as the Istanbul Stock Exchange). The purpose of these regulations and initiatives is to build a stronger, trustworthy, transparent business environment that confidently attracts investors. The recent worldwide corporate scandals have demonstrated that the proper functioning of accounting information system is crucial for improving governance in business organizations, since it produces primary financial reports utilized by stakeholders including investors, creditors and others. Although voluntary disclosures play a role in the decisions of investors, creditors, and other stakeholders, mandatory financial reports remain the primary tools for investing decisions particularly. Thus, the quality and reliability of information presented in financial reports is crucial to these stakeholders. A well-functioning accounting information system (AIS), free from fraud, is likely to improve the corporate governance level in organizations, build a better business world, improve investor confidence, and assist the efficiency of capital markets. Corporate governance and accounting are interconnected with each other on the basis of the two principles of transparency and accountability. The effectiveness of the AIS is expected to strengthen governance mechanisms leading to the efficient functioning of capital markets. AIS provide (...truncated)


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Ali Uyar, Ali Haydar Gungormus, Cemil Kuzey. Impact of the Accounting Information System on Corporate Governance: Evidence from Turkish Non-Listed Companies, Australasian Accounting, Business and Finance Journal, 2017, Volume 11, Issue 1,