-
Volume 3 Issue 2 2014 Journal of Business Management ISSN
1985-8698
THE EFFECT OF AUDIT TENURE AND FIRM SIZE ON AUDIT
QUALITY: EMPIRICAL EVIDENCE FROM GLCs IN MALAYSIA Masdiah Abdul
Hamid, Wan Mohammad Taufik Wan Abdullah and Suzana
San
1
THE CARBON DISCLOSURE OF THE MALAYSIAN MAJOR POWER
PRODUCERS: AN EXPLORATORY STUDY Bakhtiar Alrazi
12
THE CONGRUITY BETWEEN EXPECTATIONS AND PERCEPTIONS OF
INTERNSHIP ATTACHMENT: EXPLORATORY STUDY OF
ACCOUNTING INTERNS Juliana Anis Ramli, Mohd Rizuan Abdul Kadir,
Khairul Nizam Surbaini and
Zulkifli Zainal Abidin
26
POST HOC TEST OF MALAYSIAN GOVERNMENT AND QUASI-
GOVERNMENT BONDS PERFORMANCE Noriza Mohd Saad
41
THE RELATIONSHIP BETWEEN HOUSE PRICES, HOUSING LOANS
AND ECONOMIC GROWTH IN MALAYSIA Siti Mariam Sakari
50
DETERMINANTS OF SUPPLY CHAIN AGILITY PRACTICES: AN
EMPIRICAL STUDY Kamil Aziz and Suhaiza Zailani
67
SUPPRESSION ON ORGANIZATIONAL CULTURE IN MERGERS AND
ACQUISITIONS: A CASE STUDY IN TURKISH MANUFACTURING
INDUSTRY Abdullah Kiray, Oktay Ko and Mesut Tok
85
-
The effect of audit tenure and firm size on audit quality:
Empirical evidence from GLCs in Malaysia
Journal of Business Management Volume 3 Issue 2 2014 1
THE EFFECT OF AUDIT TENURE AND FIRM SIZE ON AUDIT QUALITY:
EMPIRICAL EVIDENCE FROM GLCs IN MALAYSIA
Masdiah Abdul Hamid
[email protected]
Wan Mohammad Taufik Wan Abdullah
[email protected]
Universiti Tenaga Nasional
Suzana San
[email protected]
Universiti Teknologi MARA
ABSTRACT
The purpose of this paper is to investigate the effect of the
length of audit tenure and the size
of audit firm on the audit quality of Malaysian listed
companies. To test the hypotheses, this
study measures the level of discretionary accruals based on
Ebrahim (2001) and Al-Thuneibat
et al. (2011). The population of this study encompasses Listed
Government-Linked
Companies at Bursa Malaysia throughout the year 2006 to 2010.
The main finding is that the
length of audit-client relationship affects the audit quality,
while the result does not find any
significant impact between audit firm size and audit quality.
This paper provides evidence
from emerging country about the audit quality and suggests the
other initiatives may be
needed to support the continuous improvement on audit quality,
hence could improve the
financial reporting quality of Malaysian companies.
Keywords: auditing, auditor, tenure, financial reporting,
Malaysia
INTRODUCTION
The audit process is designed to determine whether the
presentation of financial statement
reflects with the economic entity with a true and fair view
manner. Improving the audit
quality should provide reasonable assurance of financial
statement especially on earning
reporting. Therefore, poor quality of audit would impair the
quality of earnings and
discretionary accruals (Chih-Ying, Chan-Jan and Yu-Chen, 2008).
Accordingly, many studies
have been conducted on the quality of audit services and the
auditors ability in detecting
fraud and finally issuing an appropriate audit opinion on the
financial statement. Auditors
must ensure that the financial statements asserted by the
management are free from material
misstatements and there have been presented in a true and fair
view. A long engagement has
been long regarded among the auditing scholars since the
possibility of extended the duration
with its client may jeopardize the auditors objectivity
resulting a decrease in the audit quality,
and therefore could raise a public questions regarding the
credibility of financial reporting.
Independence is a vital part for the auditors in order to
enhance the public confidence towards
mailto:[email protected]:[email protected]:[email protected]
-
The effect of audit tenure and firm size on audit quality:
Empirical evidence from GLCs in Malaysia
Journal of Business Management Volume 3 Issue 2 2014 2
the reliability of the financial reporting and perceived as a
cornerstone of the accounting
profession and one of the most precious assets for the auditors
(Raghunandan, 2002; Abdul
Hamid and Abdullah, 2012). Following of corporate scandals and
failures have led to increase
demand on companies transparency requirement in the financial
reporting especially on items
related to its disclosure. As pointed out by Ratsula (2010),
financial reporting is an important
economic activity for those who use financial reports for
decision making. A company
financial statement is deemed to be a truthful statement that
should reflect with the economic
activity of the company especially for those who relied on
them.
Based on the discussion above, our objectives are to investigate
the effect of audit firm tenure
and the audit quality and determine whether the big four audit
firms are able to improve the
quality of audit as compared to the non-big four audit firms,
and therefore could enhance the
quality of financial reporting of listed Malaysian companies.
Specifically, this study will
examine the relationship between audit firms tenure and audit
quality of Malaysian listed
companies and the effect of the audit firms size on this
relationship. Furthermore, this study
also attempts to provide additional evidence on the auditing
quality in Malaysia. Thus,
following the problem discussed, this study is demonstrated by
answering the following
question, is the audit tenure and audit firm size have any
effect on audit quality of the
financial statement issued by listed Malaysian companies?
The remainder of the paper is arranged as follows. The second
section reviews some key
literature contribution about audit quality, audit firm tenure
and firm size. The third section
explains the hypotheses development and dataset employed for the
study. The fourth section
sets out the main findings of the research, while the fifth
section considers the conclusions
drawn as well as suggestions to the interested parties.
LITERATURE REVIEW
Audit quality
There is no uniform definition of audit quality. Yuniarti (2011)
had classified the
characteristics of audit quality into seven broad categories
which includes significance,
objectivity, scope, timeliness, clarity, efficiency and
effectiveness. Riyatno (2007) argued that
audit quality as something that is abstract, difficult to
measure and only be perceived by the
users of audit services. Audit quality is referred as the
market-assessed joint probability of
detection and revelation of any irregularity in financial
statement (DeAngelo, 1981) or an
auditor will both detect and report material misstatements.
Dehkordi and Makarem (2011) had
differentiated between the auditors probability of detection is
closely related to auditor
competence during performing its task while probability of
revelation is associated with
auditor independence. Auditors are responsible to perform the
audit task with fully competent
and due care to enable them detecting the material
misstatements. Therefore, improving the
audit quality perceived as main factor for the incumbent
auditors to enhance the public
confidence towards their profession. Thus, maintaining
objectivity and independence seem as
a cornerstone for the audit firms in providing reasonable
assurance of audit quality.
-
The effect of audit tenure and firm size on audit quality:
Empirical evidence from GLCs in Malaysia
Journal of Business Management Volume 3 Issue 2 2014 3
Audit firm tenure
Audit tenure refers to the number of consecutive years that the
auditor has audited the client
(Johnson, Khurana and Reynolds, 2002). Al-Thuneibat, Al Isaa and
Ata Baker (2011) found
that the audit tenure negatively affect the quality of audit
reported by publicly traded firms in
Jordan. The result indicated that the audit quality could be
declined when the audit firm has
long tenure with its client as a result of the enhancement in
the magnitude of discretionary
accruals. In contrast, Jackson, Moldrich and Roebuck (2008)
revealed that audit firms tenure
is unaffected when proxies by the level of discretionary
expenses. Ebrahim (2001) had
included auditors tenure as auditing factors on earning
management behavior presented that
auditors tenure is negatively related to the magnitude of
discretionary accruals indicating that
auditors become more familiar with clients operations and its
financial reporting, therefore
this enables the auditors to detect and prevent any
opportunistic usage of accruals.
Furthermore, the auditors who have long served a client may
establish close relationship with
the management which lead to the impairment of auditors
independence (Carcello and Neal,
2000). Fairchild (2007) argued that mandatory rotation of
auditors could reduce the audit
quality because the longer duration relationship between its
client may result increasing
sympathy towards management and consequently auditors behaving
unethically and issuing
biased report in favor of management (Jenkins and Velury, 2008).
Following issues on auditor
independence, previous studies have viewed on the retention
period between auditor and audit
client should not exceed three years (Hamdan, Kukreja, Awwad and
Dergham, 2012).
However, Shafie, Wan Hussin, Md Yusof and Md Hussain (2009)
argued that mandatory
rotation of auditor does not improve auditor reporting quality
instead of improving the auditor
independence and therefore the auditor make fewer errors when
their tenure is longer.
Raghunandan (2002) also claimed that auditors tenure is not
associated with the reporting
failure and claims that the mandatory auditor rotation is not
perceived as a good solution to
improve the audit quality. In contrast, Ye et al. (2006) claimed
that the mandatory rotation
could be a vital solution in improving the auditor independence
and audit quality since the
longer tenure will contribute to the client willingness to
purchase other services from the
auditors.
Audit firm size
This study includes the size of auditing firms as factor
affecting the quality of audit services,
and the majority of biggest corporations financial statements
are audited by the big auditing
firms (Hamdan et al., 2012). Furthermore the larger audit firms
tendency to provide higher
audit quality is due to their greater monitoring ability. Past
studies claimed that the big size
audit firms are able to improve the quality of financial
reporting and could reduce the earnings
management (Connie, Mark and James, 1998; Ebrahim, 2001) and
less likely to allow
earnings management than small audit firms (Duh, Lee and Hua,
2007). Yuniarti (2011)
however revealed that the size of audit firm did not
significantly affect the audit quality.
Similarly, Dehkordi and Makarem (2011) had implied that the size
of auditor does not affect
the level of audit quality and therefore do not lead to changes
in the level of discretionary
accruals in Iran. Becker, Defond, Jiambalvo and Subramanyam
(1998) found that the Big five
auditor recorded lower amount of discretionary accruals, while
Chih-Ying et al. (2008)
noticed there is an association between big five auditor and the
lower of discretionary
accruals. The other study (Al-Thuneibat et al., 2011), a
statistical analysis did not reveal any
significant impact between audit firm size on the correlation
between audit firm tenure and
audit quality.
-
The effect of audit tenure and firm size on audit quality:
Empirical evidence from GLCs in Malaysia
Journal of Business Management Volume 3 Issue 2 2014 4
RESEARCH METHODOLOGY
Hypotheses development
Following the previous studies (Ebrahim, 2001; Jackson et al.,
2008; and Al-Thuneibat et al.,
2011), this study attempts to examine the effect of audit firm
tenure and firm size on the audit
quality of Malaysian listed companies. The quality of audit
service is very important since it
reflects with the auditors activities in gathering the
sufficient evidence, detecting fraud
activities, reducing the manipulation of financial information
and finally issuing the
appropriate opinion on the financial reporting with all material
respects. Simultaneously, the
auditing quality will also enhance the public confidence in the
credibility of the audit process
and financial reporting, especially on the auditors independence
and believes that the
auditors ethically behavior towards the clients. In line with
the objectives, this study attempts
to investigate on auditing tools to see whether this
characteristic has contributed to the
improvement of audit quality of the Malaysian listed companies.
Therefore, our first
hypothesis is written as follows:
H1 : The length of the audit firm-client relationship affects
audit quality, as measured by DAs.
Next, our objective attempts to examine whether audit firm size
has any effect on the audit
quality in Malaysia. By using discretionary accruals, thus the
second hypothesis is posted as
follows:
H2 : The size of the audit firm enhances the effect of the
firm-client relationship length on
audit quality, as measured by DAs.
Sample and data collection
The population of this study consists of 33 listed
Government-Linked Companies (GLCs) as
of 13th
March 2009 which obtained from Ministry of Finance (MOF)
website. This study
excludes financial sectors because they are more heavily
regulated (Li, 2010). Those
companies which their annual reports are not available under the
period of study and listed as
GLCs after year 2006 are also excluded. After eliminating
companies with outliers and
missing data, the final sample produced of 125 firm-year
observations. This study analyses
the issues which concerned across a period of 5 years, from 2006
to 2010. For a given firm-
year observations to be included in the study, all financial
information used are available from
Thomson Reuters Eikon Database.
Variables measurement
This study measures the variables based on previous studies.
Table 1 provides the
measurement of variables used in the study and their expected
sign. This study includes
auditors tenure and audit firms size as independent variables
and audit quality as dependent
variable. As for control variables, this study includes client
size, leverage and client age. From
the table, audit quality is measured by using discretionary
accruals because it provides an
-
The effect of audit tenure and firm size on audit quality:
Empirical evidence from GLCs in Malaysia
Journal of Business Management Volume 3 Issue 2 2014 5
indication of management active intervention in reporting
earnings (Chi and Huang, 2004, Al-
Thuneibat et al., 2011). The auditors tenure is measured by the
length of years which the
auditor engaged with the client. The data of the audit tenure is
backward collected from past
companys annual report starting from 2010, and trace it until
the year during which the client
changed to another audit firm (Boone, Khurana and Raman, 2008;
Abdul Hamid and
Abdullah, 2012). Audit firm size is measured based on whether
the companies are being
audited by big four auditing firm or vice versa. This study also
includes control variables to
reduce the systematic effects on accruals and to achieve greater
results. This study measures
client size by using the natural log of total assets to
eliminate the effect of firm size, clients
leverage and age as control variables.
Variable Acronym Measurement Expected sign
Dependent variables: Audit Quality
Discretionary Accruals DA Difference between net income
before
extraordinary item and net cash flow from
operating activities
-ve
Independent variables:
Auditor Tenure TENURE Continuous variable: length of years the
auditor
audit their client
+ve
Audit Firm Size BIG4 Dummy value (1 = if the audit firm among
the
Big four auditing firm, 0 = otherwise)
+ve
Control variables:
Client Size SIZE Natural log of total assets -ve/+ve
Leverage LEV Total debt/Total assets -ve/+ve
Client Age AGE No of years company has been listed in Bursa
Malaysia
-ve/+ve
Figure 1: Variables Measurement
Research models
Following previous studies (Ebrahim, 2001; Jackson et al., 2008;
Al-Thuneibat et al., 2011),
this study has developed a model to measure the effect of the
audit tenure and firm size on the
audit quality in Malaysia. Accordingly, this study uses
discretionary accruals to measure the
level of audit quality, as dependent variable. This study
estimates the level of discretionary
accruals for firms by using Modified Jones Model as follow:
TAit /A it-1 = [1/A it-1] +1i [(REVit RECit) /A it-1] + 2i
[PPEit /A it-1] + it (1)
Where:
TAit = The total accruals of firm (i) in year (t), is measured
by the difference
between net income before extraordinary item and net cash flow
from
operating activities (Al-Thuneibat et al., 2011)
REVit = The change in revenue of firm (i) between year t and
t-1
RECit = The change in account receivable of firm (i) between
year t and t-1
PPEit = The gross property, plant and equipment of firm (i) in
year (t)
A it-1 = The total assets of the previous period of firm (i) at
the end of year t-1.
-
The effect of audit tenure and firm size on audit quality:
Empirical evidence from GLCs in Malaysia
Journal of Business Management Volume 3 Issue 2 2014 6
In estimating the model in equation (1), this study will
incorporate the control variables such
as client size, leverage and age. Therefore, the entire model to
be employed in this study is as
follow:
DA it = 0 + 1TENUREit + 2BIG4it + 3SIZEit + 4LEVit + 5AGEit + it
(2)
Where:
DA it = The level of discretionary accruals for firm (i) at the
end of the year (t).
0 = The constant. 1..5 = The slope of the independent and
controls variables. TENUREit = The length of years the auditor
audit their client, for the firm (i) in the year of (t). BIG4it = A
dummy variable, equals 1 if the company audited by big four audit
firms and 0
otherwise. SIZEit = Natural log of total assets, for the firm
(i) in the year of (t). LEVit = The financial leverage ratio, for
the firm (i) in the year of (t). AGEit = The number of years of
firm (i) has been listed in Bursa Malaysia in the year of
(t). it = Error term.
EMPIRICAL RESULTS
The objectives of the study attempt to verify the auditing
quality of the financial report
measured by discretionary accruals and to examine the effect of
length of audit tenure and the
size of audit firm to an audit quality in Malaysia. This study
attempts to provide additional
evidence on the auditing quality in Malaysia and its ability to
enhance and sustain the level of
audit quality in the financial statements issued by Malaysian
companies.
Descriptive statistics of the variables
Table 2 reports sample frequencies. The result shows that 24.8
percent of sample companies
engaged with their auditors for a duration of 1-5 years, 60.8
percent are engaged with their
auditors for a duration of 6-10 years, and 14.4 percent are
engaged with auditors for a
duration of more than 10 years. This variation in firms tenure
would help in carrying out the
analysis of the data and obtain a reliable conclusion about the
relationship between the
variables.
Table 3 presents the descriptive statistics for continuous
variables of GLCs. The maximum
value for audit tenure is 11 years, with an average value of 7
years. This could signal that
most of the sample companies have retained the same auditor for
a very long engagement
duration which is up to 7 years, which audited by the big four
auditing firms. Information of
audit firm size (Table 4) shows that most of the samples
companies are likely engaged with
the big four audit firm (96 percent) while for the non-big four
only reveals 4%. The average
value for SIZE presents 6.44 with value for firms total asset
approximately RM94 million.
As for LEVERAGE, the mean value is fairly low, 0.58 indicating
that the firms assets were
financed through equity rather than debt. The average value for
AGE of firms in our sample is
18 years.
-
The effect of audit tenure and firm size on audit quality:
Empirical evidence from GLCs in Malaysia
Journal of Business Management Volume 3 Issue 2 2014 7
Table 2: Frequencies Table of GLCs (N=125)
Tenure
1 - 5 years 6 - 10 years > 10 years
Percentage of firms 24.8 60.8 14.4
Table 3: Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
TENURE 125 1 11 6.68 2.536
SIZE 125 4.77 7.88 6.44 0.756
LEVERAGE 125 0.00 9.79 0.579 1.483
AGE 125 0 49 18.14 14.698
Table 4: Information on Audit Firm Size of Sample
Status
N Percent
GLCs NON-BIG4 5 4.0
BIG4 120 96.0
Correlation matrix
Table 5 reports the correlations between the variables used in
the regressions. The correlation
analysis was carried out using the Pearson index does not show
particular differences in the
magnitude and significance of the association between variables.
As shown in Table 5, the
Pearson correlation matrix (bottom), and the correlation between
each pair of independent
variables of the sample companies are weak which is below than
0.6. However, the
correlation among them has statistically significant association
at the 1% and 5% confidence
level, indicating that the study model is effective in
explaining and determining the effect on
the dependent variables. Further observations from the full
Spearmans correlation matrix (see
at the top of table 5) also reports low level of association
(below 0.6). Based on the result, the
Pearsons correlation matrix produces similar results which
should not give rise to
multicollinearity problems.
-
The effect of audit tenure and firm size on audit quality:
Empirical evidence from GLCs in Malaysia
Journal of Business Management Volume 3 Issue 2 2014 8
Table 5: Pearson Correlation Matrix (Bottom) and Spearman
Correlation Matrix (Top)
between Variables
DA TENURE BIG4 SIZE LEVERAGE AGE
DA
.209**
(.019) .146(.104) .363***
(.000) -.135(.133) -.222**
(.013)
TENURE .181
**(.043)
.219
**(.014) .537
***(.000)
-
.516***
(.000) .461
***(.000)
BIG4 .055(.540) .217**
(.015)
.339
***(.000) -.189
**(.035) .074(.414)
SIZE .187
**(.037) .539
***(.000) .429
***(.000)
-
.577***
(.000) .271
***(.002)
LEVERAGE -.038(.673) -.434
***(.000)
-
.603***
(.000) -.561
***(.000)
-.145(.106)
AGE -.064(.481) .456***
(.000) .086(.342) .195**
(.029) -.147(.101)
Notes: *** Significant at the two-tailed 1% confidence level; **
Significant at the two-tailed 5% confidence
level; and * Significant at the two-tailed 10% confidence
level.
Testing the hypotheses
To achieve the objectives, the study employs a linear regression
on the variables of the
equation used for measuring the level of DAs to test the
hypothesis. The length of the auditor
tenure is defined by the length of years the audit firm has
audited the audit client. Following
the previous studies, this study has classified the tenure into
three categories according to their
length which is short for two to three years, medium for four to
eight years and long is for
nine years or more. This study measures the audit quality by
using the level of DAs. A model
is developed based on previous studies with the aim to identify
the level of DAs in the
financial reporting issued by Malaysian listed companies. Table
6 provides information about
the overall regression model. As shown in the table, the value
of the significance is 0.069,
which indicates that there is statistically significant
relationship (p
-
The effect of audit tenure and firm size on audit quality:
Empirical evidence from GLCs in Malaysia
Journal of Business Management Volume 3 Issue 2 2014 9
therefore, the first hypothesis is accepted. Based on the
result, the coefficient reveals positive
relationship between DAs and audit firm tenure indicating that
the longer of audit firm tenure,
the higher the level of DAs, hence, resulting the lower of audit
quality. Our result is consistent
with Geiger and Raghunandan (2002) and Al-Thuneibat et al.
(2011) imply that the longer
tenure between the audit firm and its client, management more
likely to manage earnings and
accordingly it will result in a lower audit quality. Consistent
with previous studies (Dehkordi
and Makarem, 2011; Al-Thuneibat et al., 2011) the result found
that the variable of BIG4 is
not significant with the level of DAs. Therefore, it is
concluded that the size of audit firm does
not give any effect on the audit quality. The correlation
coefficient for the variable of AGE is
significant at 0.10 and negatively correlated with the level of
DAs. This finding concludes
that the longer the company has been listed at the Bursa
Malaysia, the lesser the possibility of
having the earnings management, thus leading to the higher level
of audit quality. Previous
study implied that the positive correlation between clients
total debts and DAs indicates that
the greater management incentives to manage earnings by reducing
DAs in order to meet debt
constraints, hence resulting better quality of audit.
Inconsistent with previous studies (Johnson
et al., 2002; Jackson et al., 2008), the result however reveals
that the variable of LEVERAGE
is not significant with DAs. As for SIZE variable, the
correlation coefficient also reveals
insignificant positive correlation with DAs. Therefore, it is
noticed that, both clients total
debt and assets do not influence the level of audit quality in
Malaysia, hence indicates that
there are other factors that may contribute to audit
quality.
Table 8: Coefficient Result of GLCs (N=125)
Model
Unstandardized
Coefficients
Standardized
Coefficients
t
Sig. B SE
1 (Constant) -3.662 2.276
-1.609 0.110
TENURE 0.203 0.103 0.234 1.976 0.051*
BIG4 0.477 1.258 0.043 0.380 0.705
AGE -0.028 0.015 -0.183 -1.850 0.067*
LEVERAGE 0.231 0.186 0.155 1.242 0.217
SIZE 0.484 0.343 0.166 1.410 0.161
Notes: *** Significant at the two-tailed 1% confidence level; **
Significant at the two-tailed 5% confidence
level; and * Significant at the two-tailed 10% confidence
level.
CONCLUSIONS AND RECOMMENDATIONS
The aims of this study is to examine the relationship between
audit quality which is measured
by the level of DAs and the two auditor specific factors such as
the audit tenure and the size
of the audit firm in Malaysia. As for the audit tenure, the
result is consistent with the past
studies (Geiger and Raghunandan, 2002; Al-Thuneibat et al.,
2011) which revealed that the
length of the audit-firm client relationship was found to
negatively affect the quality of audit
reported by listed GLCs in Malaysia. Furthermore, this study
also found that, the majority of
the Malaysian listed GLCs retain the same auditor from the
beginning an engagement which
considered as not a good practice in the profession since the
public could curious on the
independence of the auditor which reflect negatively on the
quality of financial reporting. In
addition, our result aligns with the nature of the Malaysian
listed companies ordinarily
engaged with their auditors for long tenure up to seven years or
more. Al-Thuneibat et al.,
-
The effect of audit tenure and firm size on audit quality:
Empirical evidence from GLCs in Malaysia
Journal of Business Management Volume 3 Issue 2 2014 10
(2011) argued that the longer audit-client relationship might
have created a learned
confidence in the client and therefore it could impair the
auditors independence and
objectivity. Therefore, this circumstances may produce biased
behavior when the auditor
attempt to develop his loyalty, personal and non-professional
attachment with their client, and
could impair the motive to perform the audit process with due
professional care and
professionalism. This study also found that, the size of the
audit firms does not enhance the
effect of the audit firms tenure on the audit quality in
Malaysia. Thus, it is concluded that the
longer the audit firm tenure, the lower the audit quality would
be provided, regardless of the
audit firm size of GLCs listed in Bursa Malaysia. Further, the
finding shows that majority of
companies in Malaysia prefer the audit services from the big
four auditing firms which is
resulted in 96 percent. It is consistent with other studies from
other countries that found most
of the listed companies preferably engaged with the big auditing
firms. The result could
support the notion that the big auditing firms are more capable
in the service delivery which
associated with superior financial reporting quality
provided.
Based on these findings, the study makes a number of
recommendations which includes a
mandatory rotation is necessary for the auditing firm to avoid
any bias decision during the
auditing process. More importantly, the quality of audit
services performed by the auditor
simultaneously could enhance the shareholders, stakeholders and
public confidence towards
the financial statements. The duration between the auditors with
their client must not exceed
at least four periods in order to maintain the auditor
independence and avoid from any
litigation cases which involve the auditor. Thus, the
recommendation goes to the auditing
profession on how to improve the level of auditing quality. In
addition, the existing practices
of auditor could be revised and come out with a new
transformation to enhance the quality of
services. For the future research agenda, this study suggests an
alternative measurement is
used to measure the audit quality which may include other
proxies and other types of
discretionary accruals. In addition, the future research should
consider other factors affecting
the audit quality such as client importance (Ebrahim, 2001) and
focus on auditor-specific
factors such as the specialization in the audit industry
(Schauer, 2002).
REFERENCES
Abdul Hamid, M. and Abdullah, A. (2012). Influence of corporate
governance on audit and
non-audit fees: Malaysian evidence. Journal of Business and
Policy Research, 7(3,
Special Issue), 140-158.
Al-Thuneibat, A.A, Al Isaa, R.T.I and Ata Baker, R.A. (2011). Do
audit tebure and firm size
contribute to audit quality?: Empirical evidence from Jordan.
Managerial Auditing
Journal, 26(4), 317-334.
Becker, C., Defond M., Jiambalvo, J., and Subramanyam, K.
(1998). The effect of audit
quality on earnings management. Contemporary Accounting
Research, 15, 1-24.
Boone, J., Khurana, I., and Raman, K. (2008). Audit tenure and
the equity risk premium.
Journal of Accounting, Auditing and Finance, 115-140.
Carcello , J.V., and Neal, T.L. (2000). Audit committee
composition and auditor reporting.
Accounting Review, 75(4), 453-467.
Chi, W., and Huang, H. (2004). Discretionary accruals, audit
firm tenure and audit-partner
tenure: empirical evidence from Taiwan. Working Paper, National
Chengchi
University, Taipei.
-
The effect of audit tenure and firm size on audit quality:
Empirical evidence from GLCs in Malaysia
Journal of Business Management Volume 3 Issue 2 2014 11
Chih-Ying, C., Chan-Jan, L., and Yu-Chen, L. (2008). Audit
partner tenure, audit firm tenure,
and discretionary accruals: does long auditor tenure impair
earnings quality?
Contemporary Accounting Research, 25(2), 415-445.
Connie, L., Mark,L., and James, J. (1998). The effect of audit
quality on earnings
management. Contemporary Accounting Research , 15(1), 1-24.
DeAngelo, L. (1981). Auditor size and audit quality. Journal of
Accounting and Economics,
Vol.3(3), 183-199.
Dehkordi, H., and Makarem, N. (2011). The effect of size and
type of auditor on audit quality.
International Research Journal of Finance and Economics, 80,
121-137.
Duh, R.-R., Lee, W.-C., and Hua, C.-Y. (2007). Non-audit service
and auditor independence:
An examination of the Procomp effect. Review of Quantitative
Finance and
Accounting, 32(1), 33-59.
Ebrahim, A. (2001). Auditing quality, auditor tenure, client
importance and earning
management: Additional evidence. Rutgers University,
www.aaahq.org/audit/midyear.
Retrieved from www.aaahq.org/audit/midyear
Fairchild, R.J. (2007). does audit tenure lead to more fraud? A
game-theoretic approach.
[Available at SSRN: http://ssrn.com/abstract=993400 or
http://dx.doi.org/10.2139/ssrn.993400], 1-14.
Geiger, M. and Raghunandan, K. (2002). Auditor tenure and
auditor reporting failures.
Auditing: A Journal of Practice & Theory, 21(1),
637-660.
Hamdan, A.M.M., Kukreja, G., Awwad, B.S.A., and Dergham, M.M.
(2012). The auditing
quality and accounting conservatism. International Management
Review, 8(2), 33-50.
Jackson, A., Moldrich, M., and Roebuck, P. (2008). Mandatory
audit firm rotation and audit
quality. Managerial Auditing Journal, 23(5), 420-437.
Jenkins, D.S and Velury, U. (2008). Does auditor tenure
influence the reporting of
conservative earnings? Journal of Accounting and Public Policy,
27, 115-132.
Johnson, E.V.,Khurana, I.K., and Reynolds, J.K. (2002). Audit
firm tenure and the quality of
financial report. Contemporary Accounting Research, 19(4),
637-660.
Li, D. (2010). Does auditor tenure affect accounting
conservatism? Further evidence. Journal
of Accounting and Public Policy, 29(2010), 226-241.
Raghunandan, K. (2002). Auditor tenure and audit reporting
failures. Auditing: A Journal of
Practice & Theory, 21(1), 67-78.
Ratsula, O.-P. (2010). The interplay between internal governance
structures, audit fees and
earnings management in Finnish Listed Companies. Aalto
University School of
Economics.
Riyatno. (2007). Public accounting firm size effect on earnings
response coefficients. Journal
of Financial and Business, 5(2).
Schauer, P. (2002). The effects of industry specialization on
audit quality: an examination
using bid-ask spreads. Journal of Accounting and Finance
Research, 10(1), 76-86.
Shafie, R., Wan Hussin, W.N., Md Yusof, M.A., and Md Hussain,
M.H. (2009). Audit firm
tenure and auditor reporting quality: Evidence in Malaysia.
International Business
Research, 2(2), 99-109.
Ye, P., Carson, E., and Simnett, R. (2006). Threats to auditor
independence: the impact of
non-audit services, tenure and alumni affiliation. Working
paper, 1-45.
Yuniarti, R. (2011). Audit firm size, audit fee and audit
quality. Journal of Global
Management, 2(1), 84-96.
-
The carbon disclosure of the Malaysian major power producers: An
exploratory study
Journal of Business Management Volume 3 Issue 2 2014 12
THE CARBON DISCLOSURE OF THE MALAYSIAN MAJOR POWER
PRODUCERS: AN EXPLORATORY STUDY
Bakhtiar Alrazi
[email protected]
Universiti Tenaga Nasional
ABSTRACT
Combating climate change is a global agenda and electricity
industry is the main contributor
of the carbon emission build-up. Thus, companies from this
industry are expected to inform
the society about their initiatives and performance related to
carbon emissions. This study
examines the carbon disclosure of the major power producers in
Malaysia, focusing on the
level and type and nature of disclosure and the reporting media
used to disclose the
information. Using content analysis method, the study analyses
the carbon-related information
in the most recent annual reports, stand-alone sustainability
reports, and website of nine
power producers in Malaysia. The information was measured in
number of sentences and
classified into evidence, news type, and carbon sub-themes. The
findings suggest that the
disclosure of carbon information is low. The information is
predominantly declarative,
portraying good 'corporate citizen' image, and about the
management system in place. Finally,
consistent with prior literature, annual report is still the
most important medium in
communicating corporate social and environmental (including
carbon) information.
Keywords: accounting, carbon emission, content analysis,
Malaysia, power producers
INTRODUCTION
Global warming and climate change are significant challenges,
particularly for companies in
the electricity industry. The Intergovernmental Panel on Climate
Change (IPCC) states that
the main cause of climate change is the increased concentration
of anthropogenic greenhouse
gas (GHG) emissions in the atmosphere, including carbon dioxide
(CO2) emissions (IPCC,
2007). The International Energy Agency (IEA) reported that in
2007, the electricity industry
was responsible for 41 percent of energy-related CO2 emissions;
this is a 60 percent increase
on the 1990 level (IEA, 2009). Therefore, it is very imperative
for companies in this industry
to demonstrate to stakeholders (including shareholders,
creditors, the government, and
society) that they are putting efforts in mitigating climate
change impacts. This can be done
through, among others, corporate disclosure via annual reports,
sustainability reports, and/or
the website.
Malaysia is an interesting setting to investigate the level of
carbon disclosure for several
reasons. Firstly, Malaysia is one of the proactive countries in
dealing with climate change
issues. Since its ratification of the Kyoto Protocol in 2002,
Malaysia has been implementing
various initiatives including the introduction of several
climate-related policies at the national
level and the development of the National Carbon Disclosure
Program which is expected to
stimulate the reporting of carbon information among the
Malaysian corporations. More
mailto:[email protected]
-
The carbon disclosure of the Malaysian major power producers: An
exploratory study
Journal of Business Management Volume 3 Issue 2 2014 13
importantly, during the United Nations Climate Change Conference
2009 in Copenhagen, its
Prime Minister has expressed a commitment to reduce the
country's carbon emissions by up to
40 percent by the 2020 year. Emissions for the year 2005 is used
as the benchmark (Soon,
2012). Secondly, even though the electricity transmission and
distribution operations have
been monopolized by a single electric utility, the electricity
generation operations are shared by
several companies. Furthermore, based on the World Bank (2013),
93 percent of the electricity
generated in Malaysia is derived from either oil, gas, or coal
which are all fossil fuels that can
intensify the level of carbon emissions. Taking from the
competitive and legitimacy
viewpoints, it is expected that these electricity companies
would face greater need to report on
their carbon information than companies from other industries.
Finally, literature on the
disclosure of carbon information among electricity companies has
been very limited. The large
majority focused on the US and there is no study that has
investigated the issue on Malaysia.
For these reasons, the study aims to achieve the following
objectives. Firstly, it aims to
explore the level of carbon disclosure made by the electricity
power producers in Malaysia. In
doing so, the number of sentences related to the utilities
carbon performance, policies, and
initiatives as disclosed in the most recent corporate annual
reports and stand-alone
sustainability reports and on the website is counted. Secondly,
it aims to understand the type
and nature of carbon disclosure being reported by these
companies. In this regard, the study
focuses on the evidence, news type, and several sub-themes
related to carbon disclosure.
The research is pertinent for several reasons. It adds to the
body of knowledge by providing
evidence on the carbon disclosure by companies from an industry
which is known for its
carbon emissions contribution. Currently, there have been a
limited number of studies being
conducted in Malaysia relating to carbon disclosure. The study
is unique by examining the
disclosure in a more comprehensive manner than the existing
literature through the evaluation
of disclosure across reporting media and the development of
carbon disclosure sub-
categorization scheme that can be further utilized by future
researchers. The analysis of the
disclosure also allows the identification of strengths and
weaknesses in the current reporting
practice for further improvement. Carbon emissions and climate
change impact on the quality
of life of many and, thus, large emitting companies should
provide related disclosures to
explain their carbon-mitigation efforts and performance.
Finally, in light of the effort to
introduce the National Carbon Disclosure Program in Malaysia,
this research is very timely in
providing an indicator for the readiness of companies in
Malaysia to adopt the program in the
future.
The remaining section of the paper is structured as follows. The
next section provides the
review of literature, covering the Malaysian initiatives on
climate change, the contribution of
electricity industry towards carbon emissions, and prior
literature examining carbon
disclosure among electricity companies. It is then followed by a
section discussing the sample
selection and research methods. The penultimate section presents
the findings and analysis.
The final section concludes, highlights the limitation, and
provides some recommendations.
-
The carbon disclosure of the Malaysian major power producers: An
exploratory study
Journal of Business Management Volume 3 Issue 2 2014 14
LITERATURE REVIEW
Malaysia and climate change
Malaysia has ratified the Kyoto Protocol on 4 September 2002
(UNFCCC, 2013). Being a
signatory to the Protocol, the government is expected to plan,
execute, and evaluate
appropriate adapation and mitigation measures. To date, various
initiatives have been
implemented. These include the introduction of several
climate-related policies including the
National Policy on Climate Change and the National Green
Technology Policy as well as the
restructuring of the Ministry of Energy, Water, and
Communication (currently known as the
Ministry of Energy, Green Technology, and Water).
To ensure a high degree of consistency and transparency, the
Ministry of Natural Resources
and Environment is currently working with the United Nations
Development Program to
establish a framework for a national carbon disclosure program
for Malaysia. The framework,
called 'MYCarbon - A Corporate GHG Accounting and Reporting
Program for Malaysia',
aims to encourage corporate and public organizations/entities to
report on their GHG
emissions through public recognized standard and guidance. Thus
far, there have been two
stakeholder consultation workshops conducted in July and
September 2012. The participants
of the workshops comprised various government agencies, private
companies, business
associations, and non governmental organizations (NGOs) (Soon,
2012).
All these efforts are put in place to meet the commitment
expressed by the Prime Minister at
the United Nations Climate Change Conference 2009 in Copenhagen
which is to reduce the
countrys carbon emissions by up to 40 percent by 2020 based on
the 2005 year level (Soon,
2012). Furthermore, according to the World Bank (2013), Malaysia
recorded CO2 emission in
metric tonnes per capita of 7.14 in year 2009. The level of
emissions was at 1.34 metric
tonnes per capita in 1970, suggesting an increase of more than
400 percent.
Electricity industry and climate change
The International Energy Agency (EIA) is an organization founded
in response to the global
1973/74 oil crisis. At present, it focuses on issues covering
energy security, economic
development, environmental awareness, and engagement worlwide.
According to IEA (2009),
in 2007, the electricity industry was responsible for 41 percent
of energy-related carbon
emissions. The report also identified the transportation
industry (23 percent) and other
industrials (20 percent) as the other sectors with greatest
contribution to the global emissions
build-up. A more alarming fact is that the emissions contributed
by the electricity industry had
increased at a much faster rate than the average increase in
global emissions. In essence, it
increased by 60 percent from the level recorded in 1990 (as
compared to a-38 percent increase
of average global emission during the same period).
Furthermore, carbon emissions have been found to be the main
cause of climate change and
global warming - environmental issues receiving increased global
attention at present. The
developments in global warming and climate change make it
necessary for electricity
companies to reduce their emissions by 60 percent in order to
limit the global average annual
temperature increase to a tolerable level. This is despite the
projection that the demand for
-
The carbon disclosure of the Malaysian major power producers: An
exploratory study
Journal of Business Management Volume 3 Issue 2 2014 15
energy will grow by 38 percent by 2030 (Acclimatise, 2009).
Hence, this could present a
challenge for the industry.
The electricity industry in Malaysia is regulated by Energy
Commission of Malaysia (also
known as Suruhanjaya Tenaga Malaysia) which was established on 1
May 2001 under the
Energy Commissions Act 2001. Generally, in terms of electricity
transmission and
distribution, these business activities have been monopolized by
Tenaga Nasional Berhad
which represents the largest electric utility in Malaysia.
However, in terms of generation, the
activities are shared by several companies, including Tenaga
Nasional Berhad itself and
several other independent power producers (IPPs). According to
the website of the Energy
Commission of Malaysia, there are 27 IPPs in operation as of
year 2011 and had generated a
total of 21,800 Giga-watt hours (GWh) for that year.
Furthermore, based on the World Bank
(2013), 93 percent of the electricity generated in Malaysia is
derived from either oil, gas, or
coal, although there is a sign of increasing trend in the use of
natural gas (Suruhanjaya
Tenaga, 2011b).
Prior literature on carbon disclosure among electricity
companies
Examining the literature in the international arena, there are
several studies on electricity
companies. However, these studies are largely US-based (see, for
example, Silvia-Gao, 2012;
Freedman & Stagliano, 2008; Freedman & Jaggi, 2004;
Freedman, Jaggi & Stagliano, 2004).
Studies on other countries include: European countries (Van der
Laan Smith, Adhikari &
Tondkar, 2005; Sullivan & Kozak, 2006); New Zealand (Hooks,
Kearin & Blake, 2004);
Canada (Cormier & Gordon, 2001), and Malaysia (Alrazi,
2013). In the case of RiskMetrics
(2009), Trucost (2006), and Alrazi (2012), they conducted an
international comparison.
However, Malaysian companies that made up the sample were either
limited in number or
none at all.
The extent of carbon disclosure among companies in Malaysia has
been examined by Alrazi
(2013), Amran, Say, Nejati, Zulkafli, and Boey (2012), Amran,
Periasamy, and Zulkafli
(2011), and CDP (2011, 2010, 2009, 2008, 2007, 2006). However,
except for Alrazi (2013),
in all these studies, electricity companies are not the focus of
the study. Furthermore, Alrazi
(2013) only analyzed one company and examined the disclosure
made in the annual reports.
Analyzing the report of one company makes the finding not
generalizable, while focusing on
annual reports do not reflect the complete picture of the
company disclosure (Unerman,
2000). Therefore, this study includes other power producers and
analyzes various disclosure
media.
SAMPLE SELECTION AND RESEARCH METHODS
Sample selection
As of the year 2011, there are 28 major power producers in
Malaysia (Suruhanjaya Tenaga,
2011a). However, most of these power producers are private
limited companies. Thus, their
corporate reports are not publicly accessible. To facilitate the
analysis of carbon disclosure,
the corporate reports of the parent companies were examined. For
this, available search
engines were used to identify their parent companies. In the
end, the private limited
-
The carbon disclosure of the Malaysian major power producers: An
exploratory study
Journal of Business Management Volume 3 Issue 2 2014 16
companies can be linked to nine (9) public companies with
publicly accessible corporate
reports. Table 1 summarizes the profile of these public
companies. Based on the analysis of
the percentage of revenue, profits (results), and assets derived
from/belonged to the electricity
business, it can be considered that the electricity business
constituted a major activity of the
companies. However, this was not the case for three companies,
namely Genting Berhad
(GEN, primarily engaged in the leisure and hospitality
business), Sime Darby Berhad (SIM -
plantation, industrial, and motor), and YTL Power International
Berhad (YTP - multi utilities).
Table 1: List of Sample Companies
No Companies*
Units
Generated
(GWh)**
% of operations***
Revenue Results Assets
1 Eden Inc. Berhad (EDE) 392 44 16 86
2 Genting Berhad (GEN) 3,672 5 2 5
3 Malakoff Corporation Berhad (MAL) 22,787 100 100 100
4 Mega First Corporation Berhad (MEG) 123 76 74 38
5 MMC Corporation Berhad (MMC) 11,621 67 58 64
6 Sime Darby Berhad (SIME) 17 2 6 8
7 Tenaga Nasional Berhad (TEN) 37,859 100 100 100
8 YTL Corporation Berhad (YTC) 3,879 78 57 70
9 YTL Power International Berhad (YTP) 7,606 7 21 5 * MMC
Corporation Berhad owned 51 percent of shares in Malakoff
Corporation Berhad, whilst
YTL Corporation Berhad owned 51 percent of shares in YTL Power
International Berhad.
Three-digit company code is indicated in parentheses.
** Estimated based on 2011 data (source: Suruhanjaya Tenaga,
2011; Tenaga Nasional Berhad,
2011) and after taking into consideration the percentage of
ownership. The data counted only
electricity generated in Malaysia.
*** Estimated based on 2012 figures as reported in the segmental
reporting section in the notes to
the financial statements.
Research methods
This research uses content analysis to answer the research
objectives. Krippendorf (2004)
defines content analysis as a research technique for making
replicable and valid inferences
from texts (or other meaningful matter) to the contexts of their
use (p. 18). There are several
issues for an effective content analysis, including the
definition of the content (information) to
be investigated, the location (or source) of the information,
and the measurement of the
information (Gray, Kouhy & Lavers, 1995).
Definition of carbon disclosure
Carbon-related keywords including carbon, CO2, climate, warming,
and green
(content analysis issue: definition) were used to search for the
information in the corporate
reports. In determining whether a particular information can be
regarded as carbon-related for
the purpose of this research, all disclosures must be
specifically stated which means that they
cannot be implied (Hackston & Milne, 1996). In this regard,
the information should
emphasize on any concerns, initiatives, or performance of the
company related to carbon
-
The carbon disclosure of the Malaysian major power producers: An
exploratory study
Journal of Business Management Volume 3 Issue 2 2014 17
emissions. For example, the discussion of the use of renewable
energy in the corporate reports
was considered as carbon-related only when there was also an
emphasis on the intent to
reduce negative impacts on the environment and/or that the
discussion is presented in a
section dedicated (partly or wholly) to the environment (Alrazi,
2012). Otherwise, such
disclosures were treated as part of the usual discussion of
business operations (see also Haque
& Deegan, 2010; Nik Ahmad & Sulaiman, 2004; Williams,
1999). Secondly, any discussion
of GHG emissions, global warming, and climate change was treated
as discussion of CO2
emissions, unless stated otherwise in the reports. According to
IPCC (2007), CO2 emissions
made up about 77 percent of the total GHG emissions in 2004, and
CO2 emissions are the
major cause of global warming/climate change.
Reporting medium for carbon disclosure
To provide a more comprehensive picture of corporate disclosure
(Unerman, 2000), this
research analyzed the three main media used by companies to
communicate their corporate
information to the stakeholders and that have been analyzed in
the prior literature (see, for
example, De Villiers & Van Staden, 2011; Van Staden &
Hooks, 2007; Frost, Jones, Loftus &
Van der Laan, 2005; Patten & Crampton, 2004). They were
annual reports, stand-alone
sustainability reports, and website. Annual reports were
downloaded from either the company
websites or the Bursa Malaysia website. As for stand-alone
sustainability reports, only one (1)
company published such a report for the year of analysis, namely
YTC. The report was
downloaded from the company website. Both annual reports and
stand-alone sustainability
reports were for the 2012 financial year (the most recent data
available at the time the
research commenced). For the website disclosure, the analysis
was performed in the month of
September, 2013. The company websites were searched through
using the sitemap tool and/or
homepage menus for section(s) on the 'environment'. Consistent
with Patten and Crampton
(2004), the website analysis was limited to up to two levels
(i.e., two clicks) from the
homepage/sitemap, unless further links indicate the disclosure
of carbon information beyond
the second level (see Patten & Crampton, 2004). This is
reasonable as it is expected that
stakeholders will spend little time going through various
sections of the website to evaluate
company environmental policy and performance (De Villiers &
Van Staden, 2011).
Measurement of carbon disclosure
Once the keywords were found, the relevant pages of the reports
were printed out to enable
further measurement of the information. The extent of disclosure
was measured based on
number of sentences (content analysis issue: measurement). This
is so as individual words
have no meaning without a sentence to provide the context with
(Milne & Adler, 1999). Since
sentences can be used to convey meaning, they are likely to
provide more reliable measures
(Hackston & Milne, 1996). Graphs, which could not be
measured using number of sentences,
were counted as one sentence for one graph (Hooks & Van
Staden, 2011). Where appropriate,
logical sentences were used, for example, for bulleted points,
each bullet point was regarded
as one sentence (Hooks & Van Staden, 2011). Likewise, tables
depicting carbon-related
information should be interpreted as one line equals sentence
(Hackston & Milne, 1996).
However, if the tables provide information in a narrative
sentence, the treatment was similar
to the other sentences in the normal text (Alrazi, Nik Ahmad
& Sulaiman, 2009). Any
disclosure was recorded as a carbon-related sentence each time
it was discussed (Hackston &
Milne, 1996). Nevertheless, if the information were provided in
another language (i.e., Malay
and/or Chinese), only those in English was considered (Alrazi et
al., 2009).
-
The carbon disclosure of the Malaysian major power producers: An
exploratory study
Journal of Business Management Volume 3 Issue 2 2014 18
To provide a more meaningful analysis, the sentences were
further classified according to
categorization scheme developed in the prior literature in
regards to 'evidence' - monetary,
non-monetary, or declarative, and 'news type' - good news, bad
news, or neutral news (Alrazi
et al., 2009; Nik Ahmad & Sulaiman, 2004; Niskala &
Pretes, 1995; Gray et al., 1995).
Additionally, the carbon disclosures were classified as to
whether they are related to the issues
of governance, management system, accounting, engagement,
performance, and others. Table
2 summarizes the description of each classification.
Table 2: Categorization Scheme of Carbon Information
Dimension Sub-categories Description
Evidence Monetary "All environmental information expressed
in
monetary terms" (Niskala & Pretes 1995: 457)
Non-monetary "Environmental measures such as emissions
levels and forest materials consumed in
production by volume" (Niskala & Pretes 1995:
457)
Declarative "All verbal disclosure" (Niskala & Pretes
1995:
457)
News type Good news "Statements beyond the minimum which
include (for example) specific details where
these details have a creditable or neutral
reflection on the company; any statement which
reflect credit on the company; upbeat
analysis/discussion/ statements" (Gray et al.,
1995: 99)
Bad news "Any statement which reflects/might reflect
discredit on the company" (Gray et al., 1995:
99)
Neutral news "Statement of policy or intent within statutory
minimum with no details of what or how;
statement of facts whose credit/discredit to the
company is not obvious which are
unaccompanied by editorializing" (Gray et al.,
1995: 99)
Carbon sub-themes Governance Vision or mission statement and
organizational
structure related to carbon emissions and
climate change
Management system Any specific management system in place to
mitigate the impacts of carbon emissions
including carbon policy and energy audit
Accounting Any specific carbon-related accounting system
in place including the use of specific carbon
accounting standards and reporting guidelines,
assurance statement, and any data on
investments and cost savings
Engagement Stakeholder engagement activities including
community outreach programs and membership
in associations or bodies propagating climate
-
The carbon disclosure of the Malaysian major power producers: An
exploratory study
Journal of Business Management Volume 3 Issue 2 2014 19
Dimension Sub-categories Description
change issues
Performance Carbon emissions data, including awards
received related to carbon emissions
Others Other information that might not be directly
related to the company's own initiatives and
impacts including industrial and public concerns
about carbon-related issues and initiatives
(policies) undertaken (adopted) by the
government
FINDINGS AND ANALYSIS
Level of carbon disclosure
Table 3 summarizes the level of carbon disclosure made by the
sample companies for each
reporting medium - annual reports, stand-alone sustainability
reports, and the website. The
number indicates total sentences reported relating to carbon
information. It is worthy to re-
highlight that only one company published a stand-alone
sustainability report for the year.
All but one company - Eden Inc. Berhad (EDE) - made some form of
carbon disclosure in
their corporate reports. This represents 88.9 percent of the
sample companies. Overall, the
highest level of reporting, when all the reporting media are
combined, is found from the
reports of YTC with a total of 133 sentences. This can be
attributed to the disclosure of
information in the stand-alone sustainability report. The
Malaysia's largest electric utility -
TEN - came second with 54 sentences, and SIM follows behind with
27 sentences. Hence, the
disclosure of carbon information among electricity companies in
Malaysia is low.
Table 3: Summary of the Level of Carbon Disclosure
Media EDE GEN MAL MEG MMC SIM TEN YTC YTP
AR 0 1 3 1 4 27 34 1 6
SAR 0 0 0 0 0 0 0 131 0
WS 0 1 0 0 4 0 20 1 4
TOTAL 0 2 3 1 8 27 54 133 10
AR=Annual report SAR=Stand-alone sustainability report
WS=Website
Analysis by the reporting medium reveals that annual report
remains as the main
communication medium in reporting carbon information. One
company (i.e., YTC) reported
on its carbon information in a stand-alone sustainability
report. The publication of this report
could be linked to the fact that, in comparison to the other
companies in the sample, YTC
operates in wide geographical areas - mainly in Malaysia,
Singapore, and the UK -, and has
been listed on the Tokyo Stock Exchange since 1996. This
effectively has exposed the
company to the expectations of various stakeholder groups, both
local and international.
Furthermore, of the sample companies, only five used the website
to disclose carbon
information. The highest number of sentences for this reporting
medium is 20 sentences
which is by TEN. The disclosure made is predominantly related to
the discussion of the
-
The carbon disclosure of the Malaysian major power producers: An
exploratory study
Journal of Business Management Volume 3 Issue 2 2014 20
proposal by the government (in which TEN is a government-linked
company) pertaining to
the use of nuclear as an alternative fuel to mitigate climate
change issues. The analysis of
reporting media also tentatively suggests that companies tended
to prefer to disclose
information in one particular medium (as the disclosure in one
medium reduces the disclosure
in other media) and that the potential of website as an
effective medium of reporting has not
been fully exploited by the companies to report on their carbon
initiatives and performance.
Nature and type of carbon disclosure
Table 4 presents the nature and type of carbon disclosure. They
are divided into evidence,
news type, and carbon-sub themes. The data are also reported by
the reporting medium. As
depicted by the table, most of the information disclosed are
declarative in nature. This
observation is consistent across the reporting media (i.e., 61
percent for AR, 74 percent for
SAR, and 73 percent for WS). The predominance of declarative (or
narrative) information
indicates that the quality of information is relatively low.
Unlike quantified data, information
expressed in declarative (or narrative) form are less objective,
usually not verified, and, thus,
subjected to manipulation (Clarkson, Li, Richardson &
Vasvari, 2008). Prior literature
utilizing disclosure index method had consistently assigned
greater weight to the disclosure of
information expressed in either quantitative (refers to
non-monetary here) or monetary forms
(see, for example, Schneider & Samkin, 2008; Wiseman, 1982).
Only SIM (for AR), YTC (for
SAR), and TEN (for WS) reported monetary data.
The disclosure made by these companies can also be characterized
as predisposed towards
portraying them as good corporate citizens. This is evident from
the information which is
largely conveying good news, except for the disclosure on the
website (in which neutral news
were reported in greater extent than good news). There were two
sentences that can be
considered as bad news when TEN reported that the CO2 emission
intensity of the company
had increased from the previous year and further stated the high
utilization of coal-fired
power plants during the financial year as the reason for the
increase. Neutral news came in the
form of policies, statements of commitment, and other
information which lacks detailed
description. A high disclosure level of this type of information
can be observed from the
website, a finding which is consistent with Alrazi (2012). The
predominance of good news in
the reports, according to Gray, Owen, and Adams (1996), can be
construed as having
legitimizing motive.
Table 4: Nature and Type of Carbon Disclosure
Categorisation scheme AR SAR WS
N % N % N %
Evidence Monetary 1 1.3 3 2.3 3 10.0
Non-monetary 29 37.7 31 23.3 5 16.7
Declarative 47 61.0 99 74.4 22 73.3
Total 77 100.0 133 100.0 30 100.00
News type
Good news 51 66.2 94 70.7 10 333
Bad news 2 2.6 0 0.0 0 0.0
Neutral news 24 31.2 39 29.3 20 66.7
Total 77 100.0 133 100.0 30 100.00
-
The carbon disclosure of the Malaysian major power producers: An
exploratory study
Journal of Business Management Volume 3 Issue 2 2014 21
Carbon sub-
themes
Governance 0 0.0 3 2.3 0 0.0
Management
system
53 68.8 77 57.9 2 6.7
Accounting 1 1.3 3 2.3 2 6.7
Engagement 4 5.2 31 23.3 5 16.7
Performance 11 14.3 13 9.8 4 13.3
Others 8 10.4 6 4.5 17 56.6
Total 77 100.0 133 100.0 30 100.00 AR=Annual report
SAR=Stand-alone sustainability report WS=Website
Finally, the research also investigates the extent of carbon
sub-themes being reported. The
majority of the information is related to management system,
ranging from policies to detailed
description of system in place to mitigate climate change. YTC
stated its sustainability mission
in the stand-alone sustainability report which incorporates
"reducing our carbon footprint
through increasing energy efficiency and reducing energy
consumption" (YTL Corporation,
2012b: 15). Investment, per-unit cost, and cost savings (each
with two sentences) make up the
accounting-related information.
Engagement in climate change issues also represent a large
proportion of disclosed
information. For example, MMC in its annual report and website
disclosed its involvement in
a tree planting program organized by the city council as an
initiative to offset carbon
emissions (three sentences and four sentences, respectively).
Furthermore, YTC in its stand-
alone sustainability report discussed its involvement in a
series of Communiqu on Climate
Change, the 2C Challenge Communiqu, the Business Council for
Sustainability &
Responsibility Malaysia, and Earth Hour, in great length (18
sentences). Data on emissions
were only provided by TEN and YTC (five sentences and four
sentences, respectively). The
other performance-related information is pertaining to awards
received for excellence in
climate change initiatives and performance. Reference to
government policies and other
information that might not be directly related to companies were
considered under the 'others'
category. It was mostly reported on the website, in particular
by TEN, when discussing the
reasons for considering nuclear as an alternative fuel.
CONCLUSION AND LIMITATIONS
Climate change is an issue of international significance and
electricity industry has been
found to be the main contributor of carbon emissions which, in
turn, intensify the climate
change issues. In this study, the annual reports, stand-alone
sustainability report, and the
website of nine electricity generating companies in Malaysia
have been analyzed for the
disclosure of carbon-related information. The disclosure is
assessed based on the 2012
financial year (except for the website, which is based on
current date) and the disclosure was
measured in number of sentences.
Despite the significant contribution of this industry towards
global carbon emissions build up,
the disclosure is characterized as low with most of the
information reported were in
declarative form and used to portray good corporate citizenship
image. The disclosures of
management system and engagement take precedence over the
disclosure of other information
such as those pertaining to governance, accounting, and
performance. In light of this scenario,
it is difficult for stakeholders to understand the climate
change impacts of company operations
and initiatives that have been undertaken to mitigate the
climate change issue. For regulators,
-
The carbon disclosure of the Malaysian major power producers: An
exploratory study
Journal of Business Management Volume 3 Issue 2 2014 22
this situation has also made the tracking of carbon emissions at
the national level rather
problematic. Ironically, carbon level tracking is of paramount
importance to help determine
the progress towards the 40%-emission reduction target as
expressed at the Copenhagen
conference. Therefore, the effort to come up with MYCarbon is
considered timely so as to
help companies to improve their carbon reporting.
This study is not without its limitation. Firstly, by focusing
on a single year, it only provides a
snapshot of corporate disclosure. A longitudinal study enables
any trend in the reporting
practice to be observed. For example, during the data collection
process, it was noted that one
of the sample companies published a stand-alone sustainability
report for the year 2011 (but
not in year 2012). Thus, disclosure might be low in year 2012,
but not necessarily in other
years. Similarly, in the case of YTC which is the only company
published a stand-alone report
for the financial year, it would be of useful to examine the
trend over several years as the
disclosure made by the company in 2007 was not as comprehensive
as the disclosure in 2012
(Alrazi, 2012).
Secondly, the research is of exploratory in nature. Therefore,
it lacks theoretical rigour in
understanding the reasons for disclosure and non-disclosure of
carbon information.
Legitimacy theory, institutional theory, resource dependency
theory, and stakeholder theory
are some of the possible theoretical perspectives worth
exploring for (Chen & Roberts, 2010).
Thirdly, the research only measures the disclosure in terms of
number of sentences. Future
research might want to consider assessing the quality of
disclosure, for example, by the use of
disclosure index.
REFERENCES
Acclimatise. (2009). Carbon disclosure project report - Global
electric utilities: Building
business resilience to inevitable climate change. Available
at
https://www.cdproject.net/CDPResults/67_329_218_Acclimatise_CDP2009_Global%
20Electric_Utilities_Adaptation_Report.pdf
Alrazi, B. (2013). An analysis of the carbon disclosure by the
largest electric utility in
Malaysia. Paper presented at the National Symposium and
Exhibition on Business &
Accounting 2013, 19 June 2013, Muadzam Shah, Pahang,
Malaysia
Alrazi, B. (2012). The quality and the determinants of
environmental reporting of electricity
generating companies: An international comparison, Unpublished
PhD thesis, The
University of Auckland, New Zealand.
Alrazi, B., Sulaiman, M. & Nik Ahmad, N.A., (2009). A
longitudinal examination of
environmental reporting practices in Malaysia. Gadjah Mada
International Journal of
Business. 11(1). 3772.
Amran, A., Periasamy, V. & Zulkafli, A. H. (2011).
Determinants of climate change
disclosure by developed and emerging countries in Asia Pacific.
Sustainable
Development. doi: 10.1002/sd.539
Amran, A., Say, K. O., Nejati, M., Zulkafli, A. H. & Boey,
A. L. (2012). Relationship of firm
attributes, ownership structure and business network on climate
change efforts:
Evidence from Malaysia. International Journal of Sustainable
Development & World
Ecology. 19(5). 406-414.
CDP (2011). CDP Asia ex-Japan Report 2011 - Demanding regulatory
certainty. Available at
https://www.cdproject.net/CDPResults/CDP-Asia-ex-Japan-Report-2011.pdf
-
The carbon disclosure of the Malaysian major power producers: An
exploratory study
Journal of Business Management Volume 3 Issue 2 2014 23
CDP (2010). Carbon Disclosure Project 2010 - Asia ex-Japan
report. Available at
https://www.cdproject.net/CDPResults/CDP-2010-Asia-ex-Japan-Report.pdf
CDP (2009). Carbon Disclosure Project 2009 - Asia ex-Japan
report. Available at
https://www.cdproject.net/CDPResults/CDP%202009%20Asia%20ex%20Japan%20R
eport.pdf
CDP (2008). Carbon Disclosure Project Report 2008 - Asia
ex-Japan. Available at
https://www.cdproject.net/CDPResults/67_329_148_CDP6_Asia_Report_2008.pdf
CDP (2007). Carbon Disclosure Project Report 2007 - Asia
ex-Japan. Available at
https://www.cdproject.net/CDPResults/CDP5_Asia_Report.pdf
CDP (2006). Carbon Disclosure Project Report 2006 - Asia
ex-Japan. Available at
https://www.cdproject.net/CDPResults/cdp4_asia_report.pdf
Chen, J. C., & Roberts, R. W. (2010). Toward a more coherent
understanding of the
organizationsociety relationship: A theoretical consideration
for social and
environmental accounting research. Journal of Business Ethics.
97. 651-665.
Clarkson, P. M., Li, Y., Richardson, G. D., & Vasvari, F. P.
(2008). Revisiting the relation
between environmental performance and environmental disclosure:
An empirical
analysis. Accounting, Organizations and Society. 33.
303-327.
Cormier, D., & Gordon, I. M. (2001). An examination of
social and environmental reporting
strategies. Accounting, Auditing & Accountability Journal.
14(5). 587-616.
De Villiers, C., & Van Staden, C. J. (2011). Where firms
choose to disclose voluntary
environmental information. Journal of Accounting and Public
Policy. 30. 504-525.
Eden Inc. Berhad (2012). Annual Report 2012.
Eden Inc. Berhad. http://www.edenzil.com/
Freedman, M., & Jaggi, B. (2004). Carbon dioxide emissions
and disclosures by electric
utilities in C. R. Lehman, T. Tinker, B. Merino & M. Neimark
(Eds.). Advances in
Public Interest Accounting. 10. 105-129.
Freedman, M., Jaggi, B., & Stagliano, A. J. (2004).
Pollution disclosures by electric utilities:
An evaluation at the start of the first phase of 1990 Clean Air
Act, in B. Jaggi & M.
Freedman (Eds.). Advances in Environmental Accounting and
Management. 2. 59-100.
Freedman, M., & Stagliano, A. J. (2008). Environmental
disclosures: Electric utilities and
Phase 2 of the Clean Air Act, Critical Perspectives on
Accounting. 19. 466-486.
Frost, G., Jones, S., Loftus, J., & Van der Laan, S. (2005).
A survey of sustainability reporting
practices of Australian reporting entities. Australian
Accounting Review. 15(1). 89-96.
Genting Berhad (2012). 2012 Annual Report
Genting Berhad. http://www.genting.com/groupprofile/gent.htm
Gray, R., Kouhy, R., & Lavers, S. (1995). Methodological
themes - Constructing a research
database of social and environmental reporting by UK companies.
Accounting,
Auditing & Accountability Journal. 8(2). 78-101.
Gray, R., Owen, D., & Adams, C. (1996). Accounting &
Accountability - Changes and
Challenges in Corporate Social and Environmental Reporting.
Prentice Hall Europe.
Hertfordshire, UK.
Hackston, D., & Milne, M. J. (1996). Some determinants of
social and environmental
disclosures in New Zealand companies. Accounting, Auditing &
Accountability
Journal. 9(1). 77-108.
Haque, S., & Deegan, C. (2010). Corporate climate
change-related governance practices and
related disclosures: Evidence from Australia. Australian
Accounting Review. 20(4).
317-333.
Hooks, J., Kearins, K., & Blake, M. (2004). Effective
environmental disclosures? An
evaluation of power generators reporting initiatives. New
Zealand Journal of Applied
Business Research. 2(2). 40-58.
-
The carbon disclosure of the Malaysian major power producers: An
exploratory study
Journal of Business Management Volume 3 Issue 2 2014 24
Hooks, J., & Van Staden, C. J. (2011). Evaluating
environmental disclosures: The relationship
between quality and extent measures. British Accounting Review.
43. 200-213.
IEA. (2009). CO2 emissions from fuel combustion - Highlights
(2009 edition). Available at
http://ccsl.iccip.net/co2highlights.pdf
IPCC. (2007). Climate change 2007: Synthesis report. Valencia,
Spain: Intergovernmental
Panel on Climate Change. Available at
http://www.ipcc.ch/pdf/assessment-
report/ar4/syr/ar4_syr.pdf
Krippendorf, K. (2004). Content Analysis - An Introduction to
Its Methodology (2nd ed.).
Sage Publications. Thousand Oaks, CA.
Malakoff Berhad (2012). Annual Report 2012.
Malakoff Berhad. http://www.malakoff.com.my/.
Mega First Corporation Berhad (2012). Annual Report 2012.
Mega First Corporation Berhad. http://www.mega-first.com/
Milne, M. J., & Adler, R. W. (1999). Exploring the
reliability of social and environmental
disclosures content analysis, Accounting, Auditing &
Accountability Journal. 12(2).
237-256.
MMC Corporation Berhad (2012). Annual Report 2012.
MMC Corporation Berhad. http://www.mmc.com.my/home.asp
Nik Ahmad, N. N., & Sulaiman, M. (2004). Environmental
disclosures in Malaysian annual
reports: A legitimacy theory perspective. International Journal
of Commerce and
Management. 14(1). 44-58.
Niskala, M. & Pretes, M. (1995). Environmental reporting in
Finland: A note on the use of
annual reports, Accounting, Organizations and Society. 20(6).
457-466.
Patten, D. M., & Crampton, W. (2004). Legitimacy and the
internet: An examination of
corporate web page environmental disclosures, in B. Jaggi &
M. Freedman (Eds.).
Advances in Environmental Accounting and Management. 2.
31-57
RiskMetrics. (2009). Carbon disclosure project - Electric
utilities report 2009. Available at:
https://www.cdproject.net/CDPResults/65_329_210_CDP_ElectricUtilities.pdf
Schneider, A., & Samkin, G. (2008). Intellectual capital
reporting by the New Zealand local
government sector. Journal of Intellectual Capital. 9(3).
456-486.
Silva-Gao, L. (2012). The disclosure of environmental capital
expenditures: Evidence from
the electric utility sector in the USA. Corporate Social
Responsibility and
Environmental Management. 19(4). 240252.
Sime Darby Berhad (2012). Annual Report 2012.
Sime Darby Berhad. http://www.simedarby.com/
Soon, H. Y. (2012). National carbon disclosure programme for
Malaysia - Local emission
factor workshop. Available at
http://ecoideal.com.my/mycarbon/download/Development
%20of%20Local%20Emission%20Factor%20Workshop-2292012shy.pdf
Sullivan, R., & Kozak, J. (2006). The climate change
disclosures of European electricity
utilities. Available at
http://www.insightinvestment.fr/global/documents/riliterature/367922/cc_
disclosures_report.pdf
Suruhanjaya Tenaga (2011a). List of utilities and major power
producers. Available at:
http://www.st.gov.my/v4/index.php?option=com_content&view=article&id=5684&Ite
mid=4305&lang=en
Suruhanjaya Tenaga (2011b). Summary - Primary energy supply.
Available at:
http://meih.st.gov.my/statistics?p_auth=RMDPz6GF&p_p_id=Eng_Statistic_WAR_S
TOASPublicPortlet&p_p_lifecycle=1&p_p_state=maximized&p_p_mode=view&_En
g_Statistic_WAR_STOASPublicPortlet_execution=e1s1&_Eng_Statistic_WAR_STO
-
The carbon disclosure of the Malaysian major power producers: An
exploratory study
Journal of Business Management Volume 3 Issue 2 2014 25
ASPublicPortlet__eventId=ViewStatistic2&categoryId=8&flowId=19&showTotal=fal
se
Tenaga Nasional Berhad (2011). Annual Report 2011.
Tenaga Nasional Berhad (2012). Annual Report 2012.
Tenaga Nasional Berhad. http://www.tnb.com.my/
The World Bank. (2013). Indicators. Available at
http://data.worldbank.org/indicator
Trucost. (2006). Carbon disclosure project report 2006 -
Electric utilities 265. Available at
https://www.cdproject.net/CDPResults/CDP4_Electric_Utilities_Report.pdf
Unerman, J. (2000). Methodological issues - Reflections on
quantification in corporate social
reporting content analysis, Accounting, Auditing &
Accountability Journal. 13(5). 667-
680.
UNFCCC. (2013). Kyoto Protocol status of ratification. Available
at
http://unfccc.int/files/kyoto_protocol/status_of_ratification/application/pdf/kp_ratificat
ion_20091203.pdf
Van der Laan Smith, J., Adhikari, A., & Tondkar, R. H.
(2005). Exploring differences in
social disclosures internationally: A stakeholder perspective.
Journal of Accounting
and Public Policy. 24. 123-151.
Van Staden, C. J., & Hooks, J. (2007). A comprehensive
comparison of corporate
environmental reporting and responsiveness. The British
Accounting Review. 39. 197-
210.
Williams, S. M. (1999). Voluntary environmental and social
accounting disclosure practices
in the Asia-Pacific region: An international empirical test of
political economy theory,
The International Journal of Accounting. 34(2). 209-238.
Wiseman, J. (1982). An evaluation of environmental disclosures
made in corporate annual
reports, Accounting, Organizations and Society. 7(1). 53-63.
YTL Corporation Berhad (2012a). Annual Report 2012
YTL Corporation Berhad (2012b). Sustainability Report 2012
YTL Corporation Berhad. http://www.ytl.com.my/
YTL Power International Berhad (2012). Annual Report 2012.
YTL Power International Berhad.
http://www.ytlpowerinternational.com/
-
The congruity between expectations and perceptions of internship
attachment: Exploratory study of accounting
interns
Journal of Business Management Volume 3 Issue 2 2014 26
THE CONGRUITY BETWEEN EXPECTATIONS AND PERCEPTIONS OF
INTERNSHIP ATTACHMENT: EXPLORATORY STUDY OF ACCOUNTING
INTERNS
Juliana Anis Ramli
[email protected]
Mohd Rizuan Abdul Kadir
[email protected]
Khairul Nizam Surbaini
[email protected]
Zulkifli Zainal Abidin
[email protected]
Universiti Tenaga Nasional
ABSTRACT
This study attempts to examine whether the expected benefits of
internship perceived by
accounting students are actually achieved during the industrial
training. The current study
employed questionnaire survey where self-administered
questionnaires were distributed to
accounting students from both public and private universities.
The findings suggest that the
students were somewhat agreed with the notion that an internship
is an effective tool in
developing career-related skills and as the fulfillment of
universitys requirement, except for
the fringe benefits, fair treatment and lack of social time.
Overall, Malaysian accounting
students were satisfied with the internship process since
majority of the students perceptions
towards internship outweighed their expectations. This indicates
congruity between what they
expected and actually gained during the internship would benefit
them for the future
employment. The limitation of the study is further discussed in
this study.
Keywords: internship, accounting, expectation, perception,
congruity
INTRODUCTION
In the era of rapid global changes, the business has become more
complex and the ever-
increasing competitions among the industry player has led to the
growing attention to
enhance the competency of potential generations to face
challenges ahead in the accounting
profession. In recent unemployment statistic published by
Department of Statistics, it was
reported that the unemployment rate has decreased from 3.3 per
cent in last December 2012
to 3.0 per cent in April 2013 (Department of Statistics, 2013).
Even though the rate is
showing a small reduction, this issue can still be an issue to
the unemployed graduates who
are unable to be absorbed to the employment due to the mismatch
in meeting the employers
needs. Among the contiburing factors that lead to this
unemployment are poor English
mailto:[email protected]:[email protected]:[email protected]:[email protected]
-
The congruity between expectations and perceptions of internship
attachment: Exploratory study of accounting
interns
Journal of Business Management Volume 3 Issue 2 2014 27
communication skills, imbalance of job specifications, and the
inability of compe