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Net Working Capital and the Profitability: Empirical Evidence form Amman Stock Exchange

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  • Zaher Abdel Fattah Al-Slehat
  • Bader Mustafa Al-Sharif

Abstract

This study aims to explore the extent of external auditors awareness of the requirements of the International Standard on Auditing No. 260 (Communications with those charged with governance) on audit quality and to shed light on the effectiveness of the communication process based on auditors actual experience. A mixed method approach was employed to achieve the study objectives. The analysis of 116 questionnaires concluded that the requirements of the ISA 260 enhance audit quality, but the two-way communication between Jordanian auditors and the audit committee is ineffective from external auditor’s perception. The study also found that audit committees do not support external auditor when disagreements arise between auditors and their client management on accounting treatments. The qualitative interviews confirmed the quantitative results and revealed several explanations among which: 1) lack of qualified directors, 2) lack of a clear policy in selecting board members, 3) meetings with auditors are routinely held, and 4) insufficient oversight by the securities commission. The interviews also revealed that the recent version of Jordanian corporate governance has two potential factors have been viewed to improve the effectiveness of the communication process that are, the appointment of a ‘governance liaison officer’ who, among other responsibilities, supervise and document audit committee meetings with the auditor, and the use of cumulative voting technique in selecting board members. The findings of the study could be beneficial for regulators by ensuring the best implementation of cumulative voting to increase the representation of qualified members so that the communication process will be greatly enhanced.

Suggested Citation

  • Zaher Abdel Fattah Al-Slehat & Bader Mustafa Al-Sharif, 2019. "Net Working Capital and the Profitability: Empirical Evidence form Amman Stock Exchange," International Business Research, Canadian Center of Science and Education, vol. 12(4), pages 12-20, April.
  • Handle: RePEc:ibn:ibrjnl:v:12:y:2019:i:4:p:12-20
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    References listed on IDEAS

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    1. Samet Evci & Nazan Sak, 2018. "The Effect of Working Capital Management on Profitability in Emerging Countries: Evidence from Turkey," Chapters, in: Soner Gokten & Guray Kucukkocaoglu (ed.), Financial Management from an Emerging Market Perspective, IntechOpen.
    2. Morris Lamberson, 1995. "Changes in Working Capital of Small Firms in Relation to Changes in Economic Activity," American Journal of Business, Emerald Group Publishing, vol. 10(2), pages 45-50.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    audit committees; audit quality; international standard on auditing 260; corporate communications; corporate governance;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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