The Impact of Audit Quality on Stock Prices in Japan: Based on the Cases of Accounting Fraud in Kanebo, Olympus, and Toshiba

Utari Siswandari, Siti Maghfiroh, Warsidi Warsidi

Abstract


The title of the research is: The Impact of Audit Quality on Stock Prices in Japan: Based on the Case of
Accounting Fraud in Kanebo, Olympus, and Toshiba. The research studies the chronologicals of the
three major accounting scandals occurred in Japan: Kanebo and ChuoAoyama, Olympus and KPMG
Azsa, and Toshiba and Ernst & Young ShinNihon. Which all of the external auditors are part of Big-4
audit company in Japan. This research uses the events as evidence to highlight the importance of audit
quality and how it influences the stock prices. The worse the audit quality, the more it is for investors to
lose their confidence and trust on the company‘s financial statements, which would influence the stock
price to decline due to investor sentiment caused be loss of confidence in the stock markets. Through
analyzing and describing based on each significant event of each scandal, we have a better grasp on the
matter. The research uses Case Study Method that helps the author to determine which specific event
would cause market reaction in the form of changes in stock prices, with the purpose of providing
evidences that support this research. This research tries to explain that audit quality plays crucial role in
determining the sentiment of the investors, considering that fraud, misstatement, or error in the financial
statements can be detected and prevent providing poor audit quality if the auditors are unable to
implement the core functions and understand what are the indicators of audit quality.
Keywords: Audit Quality; Fraud; Stock Market; Case Study; Japan.


Full Text:

PDF

References


Accountancy Age. (2005). Japanese Company in £1bn Accounting Scandal. Retrieved from:

https://www.accountancyage.com/2005/04/14/japanese- company-in-1bn-accounting-scandal/

Brunelli, S., Carlino, C., Castellano, R., & Giosi, A. (2020). Going concern modifications and related

disclosures in the Italian stock market: do regulatory improvements help investors in capturing

financial distress? Journal of Management & Governance, 1-41.

DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of Accounting and Economics, 3(3),

–19.

Franz, D. R., Crawford, D., & Johnson, E. N. (1998). The Impact of Litigation against an Audit Firm on

the Market Value of Nonlitigating Clients. Journal of Accounting, Auditing & Finance, 13(2),

–134.

Frendy, & Hu, D. (2014). Japanese stock market reaction to announcements of news affecting auditors‘

reputation: The case of the Olympus fraud. Journal of Contemporary Accounting & Economics,

, 206-224.

Hussainey, Khaled. (2009). The Impact of Audit Quality on Earnings Predictability. Managerial Auditing

Journal. 4(24), 340-351.

Inagaki, K. (2015). Accounting scandal set to shake up ToshibaFinancial Times. Retrieved from:

https://www.ft.com/content/b209abac-2bc0-11e5-acfb-cbd2e1c81cca Japanese securities research institute. (2014, June). Securities Market Japan in 2014. Retrieved from:

https://www.jsri.or.jp/publish/english/pdf/english_07.pdfKasai, Naoki. (2014). Ownership

Structure, Audit Fees, and Audit Quality in Japan. Retrieved from:

http://hdl.handle.net/10441/13708.

Konishi, T. (2010). Fraud by Certified Public Accountants in Japan and the United States. Asian Journal

of Criminology, 5(2), 99-107. https://doi.org/10.1007/s11417-010-9089-0

Kyodo News Service. (2011). Olympus Dismisses Woodford as President, Demotes Him to

Director. Japan Economic Newswire, Tokyo.

Kyodo News Service. (2011). Ousted Olympus President Had Called for Chairman‘s Resignation. Japan

Economic Newswire, Tokyo.

Kyodo News Service. (2011). FOCUS: Olympus Mired in ex-CEO‘s Accusations of Questionable

Payments. Japan Economic Newswire, Tokyo. Matsukawa, B. (2020). Too close? Japanese

companies reluctant to change auditors. Nikkei Asia.

McConnell, D. K. Jr. (1983). Public Company Auditor Changes and Big Eight Firms: Disagreements

and other Issues. Michigan. Ann Arbor: UMI Research Press.

Melody, William H. (2006). Liberalising Telecommunication Markets: A Framework for Assessment.

ICT Governance for Poverty Reduction. Retrieved from: https://idl-bncidrc.

dspacedirect.org/bitstream/handle/10625/41874/129521.pdf

Prusa, Igor. (2016). Corporate Scandal in Japan and the Case Study of Olympus. Electronic Journal of

Contemporary Japanese Studies, 16(3), 5-9. Retrieved from:

https://www.japanesestudies.org.uk/ejcjs/vol16/iss3/prusa.html

Riyatno. (2007). Public Accounting Company Size Effect on Earnings Response Coefficients. Journal of

Journal of Financial and Business, 5(2).

Siong, Ken. (2011). Draft Paper − Audit Quality: An International Framework. IAASB CAG

Agenda. Retrieved from:

https://www.ifac.org/system/files/meetings/files/20110912-IAASBCAG- AgendaItemC1-

AuditQuality-Draft-Fwk-Paper-V1-01.pdf

Sulaiman, Noor Adwa. (2018). Perspectives on Audit Quality: An Analysis. Asian Journal of Accounting

Perspectives. 11(1), 1-27.

The Institute of Chartered Accountants in England and Wales. (2002, November) Audit quality.

Retrieved From: https://www.icaew.com/-/media/corporate/files/technical/audit-andassurance/

audit-quality/audit- quality-forum-shareholder-involvement/audit-quality-fullversion.

ashx?la=en

Uranaka, Taiga and Takahiko Wada. (2015, December). Japan fines Ernst & Young Affiliate $17.4 million

over Toshiba audit. Reuters, p. 1. Retrieved from: https://www.reuters.com/article/ustoshibaaccounting-

ernstid USKBN0U505S20151222


Refbacks

  • There are currently no refbacks.