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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
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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
Wan Mohammad Taufik Wan Abdullah
Universiti Tenaga Nasional
Suzana San
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]
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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.
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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.
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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
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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.
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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.
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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.
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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
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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.,
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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).
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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
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]
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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.
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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
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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
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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
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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).
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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
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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
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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
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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,
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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.
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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
Mohd Rizuan Abdul Kadir
Khairul Nizam Surbaini
Zulkifli Zainal Abidin
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]
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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