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KPR celebrates the season with the return of Big Band Christmas
LAWRENCE – Kansas Public Radio welcomes back its Big Band Christmas holiday jazz concert after a two-year hiatus. Join KPR staff members at Liberty Hall at 8 p.m. Dec. 10. Doors will open at 7 p.m. for the event featuring the Kansas City Jazz Orchestra.
Controversial internal control audits improve operational efficiency for small firms, study finds
LAWRENCE — The November collapse of cryptocurrency exchange FTX serves as a lesson of what happens when a corporation avoids internal audits of its own financial operations. A new article from a University of Kansas professor of business examines how such audits often affect firms’ operational efficiency — and why these controversial practices are not always performed.
Law expert argues in print, before judges to follow arbitration precedent, not ‘outlier’ rulings
LAWRENCE — Courts have long held that a U.S. Bankruptcy Code provision permitting “rejection” of some contracts does not prevent enforcement of arbitration agreements against the bankruptcy estate. And even though a 2019 Supreme Court decision indirectly supports that same approach, a more recent lower court held to the contrary, leaving the law unsettled. A University of Kansas professor has written an article and spoken at judicial and academic conferences urging courts to follow the many precedents enforcing arbitration agreements notwithstanding “rejection” in bankruptcy
Full stories below.
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Contact: Emily Fisher, Kansas Public Radio, 785-864-0190, [email protected], @kprnews
KPR celebrates the season with the return of Big Band Christmas
LAWRENCE – Kansas Public Radio welcomes back its Big Band Christmas holiday jazz concert after a two-year hiatus. Join KPR staff members at Liberty Hall at 8 p.m. Saturday, Dec. 10. Doors will open at 7 p.m.
The concert will feature a night of swingin’ Yuletide favorites with the Kansas City Jazz Orchestra, an internationally acclaimed performing arts group providing jazz entertainment and education to the Kansas City area and beyond. Formed in 2003, the ensemble brings together 19 of the best musicians that the city has to offer, including direction from bandleader and trumpeter Clint Ashlock.
KPR also invites all attendees to support Just Food, Lawrence’s community food pantry, with a donation on the night of the concert. There will be a barrel to collect nonperishable goods present at Liberty Hall, and each donor will receive a KPR 70th anniversary commemorative pin as thanks for their contribution.
Don’t delay; this event has been known to sell out. Tickets are available for purchase at Ticketmaster.com or at the Liberty Hall box office. A service charge may be added to the order. Tickets can be purchased on the night of the concert, if available. The Liberty Hall box office is cash only.
The event is made possible through Dr. Stephen Chronister of Healing Smiles of Topeka and Kring’s Interiors.
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Contact: Jon Niccum, KU News Service, 785-864-7633, [email protected]
Controversial internal control audits improve operational efficiency for small firms, study finds
LAWRENCE — The November collapse of cryptocurrency exchange FTX serves as a lesson of what happens when a corporation avoids internal audits of its own financial operations.
A new article examines how such audits often affect firms’ operational efficiency — and why these controversial practices are not always performed.
“Regulators keep exempting more firms from complying with internal control audits because of the costs,” said Chan Lin, the C.A. Scupin Professor at the University of Kansas School of Business.
“Not only is the cost high, but firms don’t feel it has value. They assume since management is doing the internal control evaluation themselves, the auditor opinion does not matter. That’s why it’s controversial.”
Her article titled “Does the Presence of an Internal Control Audit Affect Firm Operational Efficiency?” observes how auditors’ evaluation and report of Internal Control over Financial Reporting (ICFR) affect firm operational efficiency. While prior research indicates the strength of these controls is positively associated with economic benefits, this study finds that small firms with ICFR audits have significantly higher overall efficiency than those with only management ICFR reports. It appears in Contemporary Accounting Research.
Co-written by Andrew Imdieke of the University of Notre Dame and Shan Zhou of the University of Sydney, Li’s study is based on a sample of firms with market values less than or equal to $150 million from 2007 to 2019. It compares operational efficiency between firms that have ICFR audits and those that show improved efficiency, after monitoring for internal control quality and firm fixed effects. This also finds improvements are reflected in inventory turnover and corporate innovation.
“We look at the internal control audit and the firm’s operational efficiency,” Li said.
“Our argument is the managers should rely on the numbers produced from the financial reporting system to make operational decisions. If the numbers generated from the internal financial reporting system is of high quality, then the management relying on that information will make better operational decisions.”
The team observed two mechanisms through which the ICFR audit could affect operational efficiency: Auditors detect Internal Control Material Weakness (ICMWs) that would otherwise go unnoticed, and auditors provide managers with best practice recommendations to their internal control system during the ICFR evaluation process.
“We also find the positive effect on the operational efficiency is manifested through the increased improvement in inventory turnover and innovation,” she said.
Surprisingly, Li determined the internal control audit will decrease the efficacy of SG&A (Selling, General and Administrative Expenses).
“This could partially be attributed to higher audit fees when you have to have an internal control audit,” she said.
In 2020, the SEC adopted amendments of the definitions of “accelerated filer” and “large accelerated filed” that exempts a greater number of smaller issuers from complying with Section 404(b) of the Sarbanes-Oxley Act (which requires management of public companies to assess the effectiveness of the internal control of issuers for financial reporting). The new requirements exempt firms with a public float between $75 million and $700 million from internal control audits as long as the firm’s revenues are below $100 million.
Her team revealed that exempted firms still realized operation efficiency benefits from their past ICFR audits. Therefore, the removal of the mandate may hinder similar firms from realizing ICFR benefits in the future.
Li earned a doctorate in accounting from KU. She’s worked at the university for the last three years, where she specializes in archival auditing, corporate governance and internal control.
“The lesson here is simple: internal audit does have its value,” Li said. “So when the regulators exempt more firms from complying with internal control audits, they may adversely affect operational efficiency.”
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Contact: Mike Krings, KU News Service, 785-864-8860, [email protected], @MikeKrings
Law expert argues in print, before judges to follow arbitration precedent, not ‘outlier’ rulings
LAWRENCE — For decades, courts have held that a U.S. Bankruptcy Code provision permitting “rejection” of some contracts does not prevent enforcement of arbitration agreements against the bankruptcy estate. And even though a 2019 Supreme Court decision indirectly supports that same approach, a more recent lower court held to the contrary, leaving this intersection of bankruptcy and arbitration law unsettled. A University of Kansas expert in both bankruptcy and arbitration law has written an article and spoken at judicial and academic conferences urging courts to follow the many precedents enforcing arbitration agreements notwithstanding “rejection” in bankruptcy, instead of the more recent contrary decision.
Stephen Ware, the Frank Edwards Tyler Distinguished Professor of Law at KU, has written a detailed analysis of the interplay between the Federal Arbitration Act and Bankruptcy Code section 365, which concludes that enforcement of arbitration agreements should continue notwithstanding rejection under 365. The article is forthcoming in the American Bankruptcy Law Journal, which is edited by bankruptcy judges.
While most courts have long held, as one recently put it, that “the bankruptcy code does not render arbitration clauses in rejected executory contracts inoperative,” in 2021 a bankruptcy court held to the contrary and thus refused to enforce an arbitration agreement. Ware explains that this sort of division among courts can occur not because a judge rebels against a statute or prior courts’ rulings, but because the judge was not aware of how those prior courts ruled and the lawyers in the case did not make the judge aware.
Ware said he hopes his article would make it easier for lawyers to present those earlier cases’ reasoning to judges in future cases involving the interplay between the Federal Arbitration Act and Bankruptcy Code 365.
“Law professors can write purely academic articles for other scholars, but I especially like to write articles that are also useful to practicing lawyers and judges,” Ware said. His earlier scholarship has been cited by at least 33 cases, including one by the Supreme Court.
The importance of reconciling the Bankruptcy Code with the Arbitration Act was recognized by the National Conference of Bankruptcy Judges, which devoted its annual symposium this year to the interplay between these two federal statutes. Ware was one of just four experts the NCBJ brought to its annual conference to discuss the topic before a large audience of bankruptcy judges from across the nation.
“Judges are busy, so the opportunity to address so many of them and to respond to their questions in real time was really special,” Ware said.
In preparation for that annual conference of bankruptcy judges, Ware also presented a draft of his research to an audience of law professors at this year’s Central States Law Schools Association conference.
While the interplay between the Federal Arbitration Act and Bankruptcy Code 365 seems like a specialized technical issue of law, Ware explains that it boils down to something every first-year law student learns: Money damages are the usual remedy for breach of contract, but in some exceptional cases, courts order the breaching party to do what it promised to do, so-called “specific performance.” And Ware explains that the Federal Arbitration Act puts the promise to arbitrate in that exceptional category, so bankruptcy courts ordering parties to arbitration is consistent with how other cases under Bankruptcy Code 365 order specific performance against the bankruptcy estate when non-bankruptcy law insists that money damages cannot be calculated, so the only workable remedy for breach is specific performance.
“Arbitration agreements are separable executory contracts specifically enforceable, despite rejection under (Federal Bankruptcy Code) 365…,” Ware wrote. “Bankruptcy law harmonizes with the FAA by treating the right to compel arbitration as it treats other rights non-bankruptcy law protects only with equitable remedies,” such as specific performance. “A long line of cases recognizes and applies this.”
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