EntraA proposed approachceto audit the securitization of financial assets processes to improve the quality of published financial reports in light of creative accounting methods–ATheoratical-Experimental study
Doctor / MagdyMeligyAbdel-Hakim
Lecturer, Department of Accounting
Faculty of Commerce - Banha University
ـJournal of Economics and Commerce – Faculty of commerce, Ain Shams university – First issue 2012
1- Research problem and questions:
The researcher studied the securitization operations and motives in the Egyptian environment tried to develop a proposed approach to audit and prevent the creative accounting practices associated with it which is reflected in the quality of published financial reports.
The problem of the research is highlighted by asking the following questions, and by trying to answer them to serve as a proposed approach to audit the securitization process of financial assets:
A. Are the published financial reports for companies dealing in securitization having the confidence of investors? What is the role of the auditor to improve the quality of those reports? What are the criteria for judging their quality?
B. Do instability in the accounting treatment of securitization operations and the potential problems in the measurement and accounting disclosure affect theiraudit and verifying their balances in the financial statements?
C. Are the auditing standards of securitization sufficient guidance for auditors to help them reduce the creative accounting practices, and fulfill their responsibilities towards the audit of procedures of the securitization operations, and whether observers needs to be more clarification guidance than what current standards offer?
D. Is it possible for a researcher to develop a proposed approach explaining the steps and stages and detailed procedures for the audit of securitization operations, to help auditors in the performance of their role and fulfilling their responsibilities? What is the acceptability of this approach in the reality of practice? What is its impact on the quality of published financial reports?
2- Research Objectives:
The main objective of the research is an attempt to develop a proposed approach to the securitization operations of the financial assets to enhance the quality of the published financial reports in the light of creative accounting practices:
The main objective is achieved through the following sub-objectives:
A. Identify the conceptual framework for securitization in terms of concept, the parties involved, methods, types and associated risks, and the impact of auditing these operations on the quality of published financial reports published.
B. Identify the measurement and disclosure of accounting for securitization problems as it represents one of the challenges faced by the auditor when auditing and verifying the balances in the financial statements.
C. Identify the steps and procedures followed by the auditor when auditing securitization operations in the light of the criteria relating thereto, and its role in helping auditors to limit the creative accounting practices.
D. Testing of the acceptance of the research sample of presented in auditors, securitization companies, the General Authority for Financial Supervision, University professors for the proposed approach of auditing the securitization operations in practice through surveying to what extent their acceptance of the steps and procedures contained in this approach.
3- The research importance:
The importance of research rises from the following:
First: scientific importance:
A. Securitization operations are still the subject of controversy and debate in the literature of accounting and auditing, due to the nature of the complexity, diversity and overlap, so the researcher is trying to establish an integrated approach to determine stages and detailed steps to audit the securitization operations and responsibility of the auditor towards it in the light of the related auditing standards.
B. With the growth of problems associated with the accounting measurement and accounting disclosure for securitization, and the multiplicity of the risks associated with them, it became more important to audit them in light of the multiplicity of creative practices by management to restore investor confidence in the published financial reports.
Second: practical importance:
A. This research copes developments and trends in accounting thoughts, where headed in the recent period to answer the question that was raised about the role of the audit in the reduction of creative accounting practices associated with securitization, as well as its role in attracting investors' confidence, especially after the financial collapses in the many global companies and the lack of investor confidence in the accounting and auditing offices.
B. The audit of securitization contributes in giving confidence to the financial information provided to current and prospective investors, enabling them to rely on it making investment decisions, providing them with the appropriate information, as well as the as a guaranttee to limit the creative accounting practices undertaken by the management.
C. An attempt to establish a proposed approach clarrifing guidelines and procedures for the auditing of securitization operations, and the statement of the auditor's responsibility for creative accounting practices of management to provide reliable information to investors and enable them to choose the best types of assets they want to invest in.
4- Research Methodology:
The research depended on both inductive and deductive, where the researcher studied some of the accounting standards for securitization operations, as well as related audit standards which define the basic considerations that must be taken by the auditors in mind when auditing the securitization operations, as the researcher used previous studies related to the subject of research and concluded from them some logical results, which he tried in their light to establish a proposed approach to audit securitization operations, based on stages and steps and detailed procedures. The researcher tested the acceptance of the research sample for this approach in the reality of practices to test the validity of the hypotheses.
5- Research hypotheses:
a) Inadequacy of the current role of the auditor in the reduction of the creative accounting practices in the processes of securitization of financial assets affects the quality of published financial reports for securitization companies.
b) Auditing procedures of securitization of financial assets are affected by the challenges faced by the auditor on the measurement and accounting disclosure.
c) The proposed approach to audit the securitization of financial assets limits the creative accounting practices and improves the quality of published financial reports for securitization companies.
6- The research plan:
The Research is divided as follows,Section I: General framework of the research, Section II: extrapolation and analysis of previous studies, laws and standards in the audit of the financial asset operations, while Section III: the role of the auditor in the reduction of creative accounting practices for securitization operations of financial assets and its impact on the quality of published financial reports, section IV: The proposed approach to audit the operations of securitization of financial assets, section V: dealt with analyzing the results of the study - the esperimental study and section VI: findings and recommendations and areas for future research
7- Findings, recommendations and proposals for future
7.1 Results:
1. The experimental study confirmed the following:
A. The Inadequacy of the current role of the auditor in the reduction of the creative accounting practices in the securitization processes of financial assets affect the quality of published financial reports for securitization companies (which validate the first hypothesis).
B. The auditing of the securitization of financial assets is effected by the challenges faced by the auditor in the measurement and accounting disclosure (which validates the second hypothesis).
C. The proposed approach to review the securitization of financial assets limits the creative accounting practices and improves the quality of published financial reports for securitization companies (which validates the third hypothesis).
2. The presence of the challenges facing the auditor when auditing the securitization of financial assets operations and these challenges return, mostly to the lack of stability in the accounting treatment for these operations and the absence of its own audit standards, as well as the flexibility available in accounting standards, which gives management the freedom to choose between accounting policies, leading to increasing the creative accounting practices for securitization operations and affecting the quality of published financial reports.
3. With the multiple approaches to the measurement and accounting disclosure for the securitization of financial assets and its relation to some aspects to personal estimates specially whenestablishing important assumptions used in measuring the value, as well as the multiplicity of risks associated with it, increased the chance of creative accounting practices and distortions in these processes which sheds more the burden on the auditor.
7/2 recommendations:
The researcher recommends the following:
1- Issuing an Egyptian auditing standard related to the auditing of the securitization of financial assets to provide guidance to auditors about auditing and their responsibility towards them, and which should be binding on all the different economic units that deal in securitization operations.
2- The expansion of the securitization of financial assets and operations in the Egyptian market with the need to provide an appropriate environment in which to deal, whether legal environment, or regulatory or other.... Because of what may result from trading in it from multiple benefits for all dealers which will be reflected on the revitalization of the Egyptian stock market.
3- Auditors should use mathematical models to be able to discover creative accountingpractices associated with the securitization of financial assets, and reduce his dependence on personal and subjective interpretations.
4- The use of the proposed approach in this research as it may contribute to provide sufficient guidance to auditors when auditing the securitization of financial assets in the absence of an Egyptian auditing standard that regulates auditing these operations procedures, especially as this approach has been tested in the reality of professional practice and confirmed by the acceptance of the research sample because of its role in improving the quality of published financial reports for securitization companies and the reduction of creative accounting practices.
5- Activate controls on management performance for securtitizationcompanies to ensure the quality of published financial reports, through the activation of the role of audit committees, governance management, , internal and external auditors, which contributes in the reduction of creative accounting practices and imparts confidence in the information content of the published financial reports.
7/3 future proposals:
1. Examine the role of the internal auditor in auditing the operations of securitization of financial assets.
2. The impact of auditing the operations of securitization of financial assets in the reduction of financial crises in the businesses.
3. The development of measurement and accounting disclosure for the operations of securitization of financial assets as an approach to improve the quality of the information contents for the published financial reports.
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