Scale and Scope Economies in Korean Accounting Firms Around Sarbanes-Oxley Regulations

2021 ◽  
pp. 101427
Author(s):  
Sang-Lyul Ryu ◽  
Jayoun Won
Keyword(s):  
Scope Economies ◽  
Accounting Firms ◽  
Sarbanes Oxley

Audit Standard Setting and Inspection for U.S. Public Companies: A Critical Assessment and Recommendations for Fundamental Change

2009 ◽  
Vol 23 (2) ◽  
pp. 221-237 ◽  
Author(s):  
Steven M. Glover ◽  
Douglas F. Prawitt ◽  
Mark H. Taylor
Keyword(s):  
Standard Setting ◽  
The United States ◽  
Current Approach ◽  
Public Companies ◽  
Accounting Firms ◽  
Publicly Traded Companies ◽  
Sarbanes Oxley ◽  
Composition And Structure ◽  
Audit Standard ◽  
High Level

SYNOPSIS: The Sarbanes-Oxley Act of 2002 (SOX) established the Public Company Accounting Oversight Board (PCAOB) to oversee the accounting firms that audit publicly traded companies in the United States. In this commentary we outline why we believe the PCAOB’s audit standard-setting and inspection models are inefficient and dysfunctional. We assert that the Board’s ability to achieve its mission is limited by its early choices, together with its incentives, organizational composition, and structure. We support our assertions with a number of indicators of serious problems and flaws in the current approach. We also present high-level recommendations for change for policy makers, regulators, and leaders in the profession to consider in developing improved approaches to audit standard setting, inspection, and enforcement.

Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on the PCAOB Rulemaking Docket Matter No. 31: PCAOB Release No. 2010-005, Application of the “Failure to Supervise” Provision of the Sarbanes-Oxley Act of 2002 and Solicitation of Comment on Rulemaking Concepts

2011 ◽  
Vol 5 (1) ◽  
pp. C11-C15 ◽  
Author(s):  
Joseph Brazel ◽  
James Bierstaker ◽  
Paul Caster ◽  
Brad Reed
Keyword(s):  
Audit Quality ◽  
Exposure Period ◽  
Public Accounting ◽  
Accounting Firms ◽  
Accounting Firm ◽  
The Public ◽  
Sarbanes Oxley ◽  
Public Company ◽  
Auditing Standards ◽  
Supervision Practices

SUMMARY: Recently, the Public Company Accounting Oversight Board (“PCAOB” or “Board”) issued a release to address, in two ways, issues relating to the responsibilities of a registered public accounting firm and its supervisory personnel with respect to supervision. First, the release reminds registered firms and associated persons of, and highlights the scope of, Section 105(c)(6) of the Sarbanes-Oxley Act of 2002 (“the Act”), which authorizes the Board to impose sanctions on registered public accounting firms and their supervisory personnel for failing to supervise reasonably an associated person who has violated certain laws, rules, or standards. Second, the release discusses and seeks comment on conceptual approaches to rulemaking that might complement the application of Section 105(c)(6) and, through increased accountability, lead to improved supervision practices and, consequently, improved audit quality. The PCAOB provided for a 91-day exposure period (from August 5, 2010, to November 3, 2010) for interested parties to examine and provide comments on the conceptual approaches to rulemaking that might complement the application of Section 105(c)(6). The Auditing Standards Committee of the Auditing Section of the American Accounting Association provided the comments in the letter below to the PCAOB on the PCAOB Release No. 2010-005, Application of the “Failure to Supervise” Provision of the Sarbanes-Oxley Act of 2002 and Solicitation of Comment on Rulemaking Concepts.

Market Reaction to Auditor Switching from Big 4 to Third-Tier Small Accounting Firms

2010 ◽  
Vol 29 (2) ◽  
pp. 83-114 ◽  
Author(s):  
Hsihui Chang ◽  
C. S. Agnes Cheng ◽  
Kenneth J. Reichelt
Keyword(s):  
Stock Market ◽  
Audit Quality ◽  
Market Reaction ◽  
Accounting Firms ◽  
Auditor Switching ◽  
Sarbanes Oxley ◽  
Big 4 ◽  
Period 2 ◽  
Prior Literature ◽  
Second Tier

SUMMARY: After the demise of Arthur Andersen, the public accounting industry has witnessed a significant migration of public clients to second-tier (Grant Thornton and BDO Seidman) and smaller third-tier accounting firms. While prior literature documents that smaller auditors are perceived by the stock market as an inferior substitute for a Big 4 auditor, this perception appears to have changed in recent years. In this paper, we analyze market responses to auditor switching from Big 4 to smaller accounting firms during 2002 to 2006. We break our sample period into two separate periods (Periods 1 and 2) based on when regulatory changes occurred. These changes included Sarbanes-Oxley (SOX) 404 implementation, Public Company Accounting Oversight Board (PCAOB) inspections, and a tightened Form 8-K filing deadline. We find a relatively more positive stock market reaction to clients switching from a Big 4 to a smaller third-tier auditor in Period 2. This relatively more positive reaction in Period 2 reflects companies seeking better services rather than a lower audit fee, when an audit quality drop is less likely. Overall, our results suggest that companies and investors have become more receptive to smaller accounting firms.

An Analysis of SEC and PCAOB Enforcement Actions against Engagement Quality Reviewers

2010 ◽  
Vol 29 (2) ◽  
pp. 233-252 ◽  
Author(s):  
William F. Messier ◽  
Thomas M. Kozloski ◽  
Natalia Kochetova-Kozloski
Keyword(s):  
Securities And Exchange Commission ◽  
Future Research ◽  
Audit Process ◽  
Accounting Firms ◽  
Professional Skepticism ◽  
Quality Review ◽  
Sarbanes Oxley ◽  
Big 4 ◽  
Public Company ◽  
Quality Control Mechanism

SUMMARY: Engagement quality review is an integral part of the audit process. It is designed to be a quality control mechanism for assessing the quality of an audit engagement. Since the 1990s, the Securities and Exchange Commission (SEC) has increased sanctions against partners serving as engagement quality reviewers. Recently, the Public Company Accounting Oversight Board (PCAOB) issued an auditing standard on engagement quality review as required by Section 103 of the Sarbanes-Oxley Act of 2002. This practice note reports on an analysis of SEC and PCAOB enforcement actions against engagement quality reviewers (EQRs). Our results show the following: We identified 28 cases since 1993 that involve some type of sanction against an EQR. Only eight cases involved the Big 4/5 public accounting firms. All of the 28 cases involved sanctions due to violations of GAAS and 75 percent contained GAAP violations. Twenty-three cases identified GAAS violations related to a lack of due professional care. Further analysis of those cases showed that the EQR demonstrated a lack of professional skepticism in 22 cases, over-relied on management representations in 20 cases, and ignored materiality concerns in five cases. About half of the 28 cases resulted in the EQR being denied the privilege of practicing before the SEC or PCAOB for three or more years. Our findings provide important implications for practitioners and regulators, and areas for future research for those interested in engagement quality review.

Comparing the Auditor Quality of Arthur Andersen to that of the Big 4

2006 ◽  
Vol 6 (1) ◽  
pp. 135-161 ◽  
Author(s):  
Ross D. Fuerman
Keyword(s):  
Audit Quality ◽  
Public Accounting ◽  
Securities Litigation ◽  
Accounting Firms ◽  
Sarbanes Oxley ◽  
Big 4 ◽  
Auditor Quality ◽  
The Individual ◽  
Arthur Andersen

This study compares the audit quality of Arthur Andersen with that of the Big 4 accounting firms. An expanded indicator of audit quality is developed based on the law of business misconduct literature and the legal process literature. A representation of audit quality is derived from an analysis of the legal actions initiated against these five large public accounting firms from 1996 to 2004. The legal action was partitioned into three year periods. In the first period, Arthur Andersen and the Big 4 evidenced no quality differential. In the second and third periods, the Big 4, in aggregate, rated higher on the audit quality indicator than did Andersen. The robustness of these findings is substantiated using multiple logistic regression and sensitivity analysis. When the individual firms are compared with Andersen, all four evidenced higher audit quality; three of the firms are significantly higher. This suggests that Andersen represents an outlier within the audit population. However, the analysis also indicates that overall audit quality declined in the period immediately following the passage of the Private Securities Litigation Reform Act of 1995. This suggests that the Sarbanes-Oxley Act provisions directed toward remedying auditing deficiencies is justified and not an overreaction to a “few bad apples.”

On Being Professional in the 21st Century: An Empirically Informed Essay

2014 ◽  
Vol 34 (2) ◽  
pp. 167-200 ◽  
Author(s):  
Mark W. Dirsmith ◽  
Mark A. Covaleski ◽  
Sajay Samuel
Keyword(s):  
Doctoral Students ◽  
Field Research ◽  
Junior Faculty ◽  
Business Community ◽  
Theoretical Research ◽  
Professional Service ◽  
Global Business ◽  
Accounting Firms ◽  
Team Members ◽  
Sarbanes Oxley

SUMMARY The purpose of this article is to reflect on the ongoing transformation of the Big 8/6/5/4 public accounting firms, with the intent of helping primarily doctoral students and junior faculty engaged in developing their own research programs. Drawing on a variety of theoretical research traditions that we have employed in our field research spanning over 30 years, we will briefly reconsider three “moments” through which the phenomenon of the multi-discipline (or, as termed in the sociology of professions literature, the “entrepreneurial”) professional service firm has shaped both accounting firms and accountants: Moment I, in which administrative partners implemented centrally orchestrated control systems to better direct the actions of audit team members, and the response of the latter to resist, deflect, and transform such efforts; Moment II, in which the profession attempted to rebrand itself as a professional service delivery system that could offer “higher platforms of service” to a global business community, in a legal and political context shaped by regulators, U.S. presidential and congressional politicians, the lay membership of the American Institute of Certified Public Accountants (AICPA), and such laws as the Sarbanes-Oxley Act; and Moment III, in which the concept of professional entrepreneurialism became internalized within and acted upon by both individual professionals and firms, although in a manner not wholly controlled by administrative partners nor practice partners. Impressions gleaned from this reflective exercise are explored, and implications for researchers who may be contemplating field research using qualitative methods are sketched.

Decision Making in a Public Accounting Firm: An Instructional Case in Risk Evaluation, Client Continuance, and Auditor Independence within the Context of the Sarbanes-Oxley Act of 2002

2006 ◽  
Vol 21 (4) ◽  
pp. 431-447 ◽  
Author(s):  
Ambrose Jones ◽  
Carolyn Strand Norman
Keyword(s):  
Decision Making ◽  
Risk Evaluation ◽  
Auditor Independence ◽  
Public Accounting ◽  
Audit Risk ◽  
Accounting Firms ◽  
The Public ◽  
Sarbanes Oxley ◽  
Public Accounting Firms ◽  
A Current

The purpose of this case, loosely based on an actual auditor-client situation, is to study decision making by auditors in public accounting firms regarding risk management (business, engagement, and audit risk), client continuance, and auditor independence. Audit partners often face difficult decisions for which they must balance the business objectives of the firm with their professional objective of satisfying the public interest. While most studies and cases focus on client-acceptance decisions (e.g., Johnstone 2000; Gendron 2002; Knapp and Knapp 2004), an equally important decision for public accounting firms in the Sarbanes-Oxley era is whether to keep a current client. This case encourages students to consider the decision with respect to client continuance, auditor independence, and risk evaluation.

Ethics and Security under the Sarbanes-Oxley Act

2011 ◽  
pp. 254-259
Author(s):  
Thomas J. Tribunella ◽  
Heidi R. Tribunella
Keyword(s):  
Public Policy ◽  
Ethical Issues ◽  
The United States ◽  
Financial Information ◽  
Accounting Firms ◽  
Role Of Government ◽  
Sarbanes Oxley ◽  
The Impact ◽  
Arthur Andersen

The role of government, the impact of legislation, and the interaction of public policy with capital markets in the United States will be addressed in this article. In addition, we will review the ethical issues that were encountered by large accounting firms such as Arthur Andersen in their efforts to audit the financial information of clients such as Enron and Global Crossing.

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