Benford’s Law: an instrument for selecting tax audit targets?

We consider whether Benford’s Law can be used to improve target selection prior to the start of on-site tax audits, thus increasing effectiveness and efficiency of fiscal enforcement. Laboratory experiments are conducted to obtain manipulated data and compare these to data which are known to be unmanipulated. We find that Benford’s Law can be used as a tool for audit selection, but that auditors must be cautious to ensure that Benford’s Law can be expected to apply to unmanipulated data of the prospective audit target. We also find that subjects cannot adapt sufficiently to Benford’s Law during tax fraud activity.

The role of the audit committee in Thailand: a mature monitoring mechanism or an evolving process?

Following the East Asia financial crisis of 1997 in common with other countries, Thailand mimicked a series of governance measures, including the mandatory formation of audit committees (AC), that were designed in western developed nations with diffuse share ownership, although evidence about the success of these measures in developed nations is mixed. This research contributes to understanding of the role of ACs in a non-English speaking developing country, where share ownership is concentrated, rather than diffuse. It examines the perceptions of audit committee members, investors and analysts about the roles ACs perform and the importance of these roles. To obtain a large number of responses we have used a questionnaire survey method. We adopt Spira’s (Corporate Governance: an International Review 6(1):29–38, 1998) model of evolutionary development of ACs in which they are characterised as developing along a continuum from an ‘infant’ to a ‘mature’ stage of development, although such development need not be linear. The majority of our participants report that ACs perform roles that are in line with international guidelines, but this appears to reflect a passive role in terms of complying with, rather than developing guidance and regulation. Our evidence reveals that the ACs placed greater emphasis on internal control systems, including internal audit and review of audit fees, than on roles associated with external audit and financial statements, indicative of an early stage in the process of evolutionary development.