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)