scholarly journals Auditors’ professional and organizational identities and commercialization in audit firms

2018 ◽  
Vol 31 (2) ◽  
pp. 374-399 ◽  
Author(s):  
Pernilla Broberg ◽  
Timurs Umans ◽  
Peter Skog ◽  
Emily Theodorsson
Keyword(s):  
Professional Identity ◽  
Customer Orientation ◽  
Linear Regression Analysis ◽  
Positive Association ◽  
Process Orientation ◽  
Content Type ◽  
Organizational Identities ◽  
Big 4 ◽  
Audit Firms ◽  
New Instrument

Purpose The purpose of this paper is to explain how auditors’ professional and organizational identities are associated with commercialization in audit firms. Unlike previous studies exploring the consequences of commercialization in the firms, the study directs its attention toward the potential driver of commercialization, which the authors argue to be the identities of the auditors. Design/methodology/approach The paper is based on 374 responses to a survey distributed to 3,588 members of FAR, the professional association of accountants, auditors and advisors in Sweden. The study used established measures of organizational and professional identity and introduced market, customer and firm process orientation as aspects of commercialization. The study explored the data through descriptive statistics, principle component analysis and correlation analysis and tested the hypotheses with multiple linear regression analysis. Findings The findings indicated that the organizational identity of auditors has a positive association with three aspects of commercialization: market orientation, customer orientation and firm process orientation. Contrary to the arguments based on prior literature, the study has found that the professional identity of auditors is also a positively associated with commercialization. This indicates a change of the role of professional identity vis-à-vis commercialization of audit firms. The positive association between professional identity and commercial orientation could indicate the development of “organizational professionalism.” The study also found differences between the association between professional identity and commercialization in Big 4 and non-Big 4 firms. While in Big 4 firms, professional identity is positively associated only with the firm’s process orientation, in non-Big 4 firms, professional identity has a positive association with all three aspects of commercialization. Originality/value The paper provides insight into how auditors’ identities have influenced commercialization of audit firms and into the normalizing of commercialization within auditing. The study also developed a new instrument for measuring commercialization, one based on market, customer and firm process orientation concepts. This paper suggests that this instrument is an alternative to the observation through proxies.

Audit firms and industry specialization in an emerging economy

2018 ◽  
Vol 14 (3) ◽  
pp. 338-362
Author(s):  
Karim Hegazy ◽  
Mohamed Hegazy
Keyword(s):  
Financial Services ◽  
Capital Investment ◽  
Emerging Economy ◽  
Annual Reports ◽  
Brand Name ◽  
Industry Specialization ◽  
Content Type ◽  
Audit Firm ◽  
Big 4 ◽  
Audit Firms

PurposeThis study aims to investigate the implications of audit industry specialization on auditor’s retention and growth within an emerging economy. Factors such as whether the firm is a Big 4, a firm with international affiliation, a local firm and the type of industry were studied to analyse the reasons behind audit firm retention and growth.Design/methodology/approachThis research is based on a field study related to audit firms providing services to listed companies in an emerging economy. The sample includes the top 100 publicly held companies’ in the Egyptian stock market during 2006-2011 for which their annual reports are analysed to determine the audit firms’ retention and growth. An assessment of the continuity of the auditors and the increase in the number of audit clients were also measured.FindingsThe results confirm that industry specialization has an important effect on the auditor’s retention, especially for industries where capital investment is significant such as buildings, construction, financial services, housing and real estate. Big 4 audit firms retained their clients because of their industry specialization and brand name. Evidence was found that good knowledge of accounting and auditing standards resulted in audit firms with international affiliation competing with the Big 4 for clients’ retention and growth.Originality/valueThis study contributes to the existing literature, as it is among the first to provide empirical evidence on auditor retention, growth and auditor’s dominance in an emerging economy such as Egypt.

Narratives of the Big-4 transparency reports: country effects or firm strategy?

2019 ◽  
Vol 34 (8) ◽  
pp. 951-985
Author(s):  
Ana Zorio-Grima ◽  
Pedro Carmona
Keyword(s):  
Content Analysis ◽  
Voluntary Disclosure ◽  
Methodological Approach ◽  
Firm Strategy ◽  
Future Research ◽  
Content Type ◽  
Country Effects ◽  
Big 4 ◽  
Audit Firms ◽  
The Uk

Purpose The purpose of this paper is to examine whether audit firms use transparency reports (TRs) as a tool to standardize their brand image or whether the semantic and content analysis in these reports indicates a higher importance of country effects. Design/methodology/approach The sample includes 28 TRs published in English by the Big-4 audit firms from five EU countries (the UK, Ireland, Luxemburg, Hungary and Malta), as well as in the USA and Australia. Findings Using content analysis, this research finds that there is variation in the language used in TRs both across audit firms and jurisdictions. Most TRs from different countries of the same firm tend to be clustered, suggesting that audit firms use transparency reporting as a strategy to differentiate themselves from their competitors. In fact, EY and KPMG seem to have more standardized internal procedures and standardized information. Regarding country effects, the results indicate that TRs in the UK are longer and show more detailed information. Originality/value Overall, this research is innovative in the sense that it applies a new methodological approach to an emerging topic such as audit transparency reporting. It identifies emerging topics of voluntary disclosure, such as financial data of the firm, gender and ethnic origin of employees, community involvement or sanctions, among other topics of interest which might be explored in detail by future research to understand the construction of the profession.

The role of audit quality in firm valuation

2016 ◽  
Vol 58 (5) ◽  
pp. 575-598 ◽  
Author(s):  
Mishari M. Alfraih
Keyword(s):  
Audit Quality ◽  
Value Relevance ◽  
Accounting Information ◽  
Institutional Setting ◽  
Content Type ◽  
Book Value ◽  
Big 4 ◽  
Audit Firms ◽  
Audit Team

Purpose The purpose of this paper is to examine the effect of audit quality on the value relevance of earnings and book value. Because joint audit is mandated for all Kuwait Stock Exchange-listed firms, it is hypothesized that the higher the quality of the audit team (as measured by the number of Big 4 audit firms in the joint audit team), the higher the value relevance of earnings and book values for equity valuation. Design/methodology/approach Consistent with prior research, the value relevance of earnings and book value is measured by the adjusted R2 derived from the Ohlson’s 1995 regression model. The number of Big 4 audit firms represented on the firm’s audit team is used as a proxy for audit quality. Three tiers of audit quality exist, namely, two non-Big 4 audit firms, one Big 4 and one non-Big 4 audit firms or two Big 4 audit firms. To address this paper’s objective, the association between audit quality and the value relevance of earnings and book value were examined using four approaches. The final sample consists of 1,836 firm-year observations and covers fiscal years from a 12-year period (2002-2013). Findings Taken together, the four approaches used collectively provide empirical evidence that audit quality positively and significantly affects the value relevance of accounting measures to market participants. Importantly, the results reveal significant variations in the value relevance of earnings and book value jointly across the three possible auditor combinations. Research limitations/implications Although using auditor size as a proxy for audit quality is well established in the auditing literature, a limitation of that proxy is that it measures audit quality dichotomously, which implicitly assumes a homogeneous level of audit quality within each group. Practical implications The findings show the importance of high-quality and rigorous external audits in improving the value relevance of accounting information. Originality/value This study contributes to the extent literature on audit quality by exploring the role of audit quality in a unique institutional setting that imposes mandatory joint audits. Although prior studies have investigated the effect of joint audit pair choice on earnings management and audit fee premium, this study is the first to investigate the effect of joint audit pair choice on the value relevance of accounting information.

Auditors’ judgment subordination and the theory of planned behavior

2020 ◽  
Vol 35 (8) ◽  
pp. 1189-1211
Author(s):  
Dominic Cyr ◽  
Sylvie Héroux ◽  
Richard Fontaine
Keyword(s):  
Theory Of Planned Behavior ◽  
Planned Behavior ◽  
Design Methodology ◽  
Cash Flows ◽  
Content Type ◽  
Audit Firm ◽  
Factors Associated ◽  
Big 4 ◽  
Audit Firms ◽  
Practical Implications

Purpose The purpose of this paper is to examine circumstances under which auditors subordinate their judgment. More specifically, the authors investigate factors associated with auditors’ propensity to accept client-preferred accounting methods that conform to accounting standards but do not faithfully represent the entity’s financial position, financial performance and cash flows. Design/methodology/approach Based on the theory of planned behavior (TPB), the authors developed a survey that was sent to auditors at a non-Big 4 audit firm. Findings Main results suggest that auditors tend to agree with a client’s preferred accounting method when they anticipate little fallout from this decision, they believe they can easily justify the method, and they perceive that colleagues, shareholders and creditors would also agree with the decision. Practical implications Results benefit auditing standard setters and regulators and are relevant for accounting institutes and audit firms because practitioners can learn about circumstances under which auditors subordinate their judgment. Originality/value This study contributes to the audit literature by using the TPB to identify factors associated with auditors’ judgment subordination. In addition, it applies the TPB in a context where a client-preferred accounting method is considered acceptable but is not the most appropriate in light of the audited entity’s specific circumstances.

How do audit fees change? Effects of firm size and section 404(b) compliance

2019 ◽  
Vol 34 (4) ◽  
pp. 393-437
Author(s):  
Alexey Lyubimov
Keyword(s):  
Audit Fees ◽  
Section 404 ◽  
Content Type ◽  
Control Effectiveness ◽  
Big 4 ◽  
Audit Firms ◽  
Audit Fee ◽  
Second Tier ◽  
Changes Over Time ◽  
Over Time

Purpose The purpose of this paper is to investigate the effect of the size of the audit firm and compliance with Section 404(b) on how audit fees change over time. Design/methodology/approach This study uses panel data and an OLS regression to examine the relationship between audit fee changes, firms’ size and Section 404(b) compliance. Findings Section 404(b)-compliant companies experience a larger change in audit fees if they are audited by Big 4 firms than second-tier firms. Second-tier audit firms increase the fees primarily for the companies which do not comply with Section 404(b). Practical implications Regulators have been concerned with the Big 4 fee premium for four decades. This study informs regulators that the Big 4 continue increasing their fees at a higher rate than second-tier firms for their Section 404(b)-compliant clients (even though recent research shows that second-tier firms have increased quality to match the Big 4). This suggests that the Big 4 fee premium increases for this subset of clients, adding to the regulatory concerns. Originality/value While prior research has established the existence of the Big 4 fee premium, little is known about how this premium changes over time. Prior research shows that audit fees increase when internal controls are weak; however, little is known about how Section 404(b) compliance (once control effectiveness is controlled) affects fee changes. This paper addresses these voids in research.

scholarly journals The application of business risk audit methodology within non-Big-4 firms

2015 ◽  
Vol 13 (2) ◽  
pp. 226-246 ◽  
Author(s):  
Imad Kutum ◽  
Ian Fraser ◽  
Khaled Hussainey
Keyword(s):  
Quantitative Methods ◽  
Business Risk ◽  
Content Type ◽  
Audit Firm ◽  
Qualitative And Quantitative Methods ◽  
Big 4 ◽  
Audit Firms ◽  
Major Disadvantage ◽  
The Usa ◽  
The Uk

Purpose – This paper aims to explore the application of the business risk audit (BRA) approach within non-Big-4 audit firms in the USA, the UK and Canada. This paper focuses on the motivation for adopting this approach for non-Big-4 audit firms in the three countries, and the advantages, disadvantages and aftermath of applying this method. Design/methodology/approach – A combination of qualitative and quantitative methods to obtain the data necessary to address the research questions was used. Findings – It is found that non-Big-4 audit firms in the three countries have adopted BRA; their motivation was primarily to follow the standards in each country, and the general trend in the industry. The advantages identified are consistent with previous research; a direct benefit was noted for audit effectiveness and risk management for both clients and auditors. One major disadvantage of applying BRA is the cost burden to both the audit firm and their clients. Some of the interviewees claimed that this method is better suited to large firms and large audits. Originality/value – This is an innovative study that addresses a contemporary auditing issue. The majority of the audit research studies concentrate on the big audit firm practices; this study is the first to examine the application of audit practices within smaller audit firms.

Auditor's report, auditor's size and value relevance of accounting information

2020 ◽  
Vol 21 (4) ◽  
pp. 721-739
Author(s):  
Ahmad Abdollahi ◽  
Yasser Rezaei Pitenoei ◽  
Mehdi Safari Gerayli
Keyword(s):  
Financial Reporting ◽  
Firm Size ◽  
Value Relevance ◽  
Accounting Information ◽  
Positive Association ◽  
Alternative Measure ◽  
Policy Makers ◽  
Content Type ◽  
Audit Firm ◽  
Audit Firms

PurposeThe present study sets out to examine the effect of auditor's report and audit firm size on the value relevance of accounting information of the companies listed on the Tehran Stock Exchange during the years 2008–2017.Design/methodology/approachThe study includes a sample of 1,530 firm-year observations drawn from the listed companies, and the research hypotheses were analyzed using multivariate regression model based on panel data.FindingsThe findings reveal that auditor's report and audit firm size are positively and significantly correlated with two indicators of the value relevance of accounting information including value relevance of earnings and book value per share. Also our results exhibit robustness to the alternative measure of auditor's attributes.Research limitations/implicationsAs far as we know, this is the first study to analyze the association between auditor's attributes and value relevance of accounting information in emerging capital markets, thereby generating certain implications for investors, managers, capital market policy makers and audit profession regulators in general and those in emerging markets in particular.Practical implicationsOur findings have implications for policy makers, regulators, managers and investors. Our evidence on the positive association between auditor's size and value relevance of accounting information should help policy makers and regulators which they improve value relevance of accounting information and financial reporting by integrating small audit firms and setting up larger audit firms.Originality/valueA rise in the value relevance of accounting information deserves further attention while drawing investment, selling the stocks of existing firms and increasing investor's decision-making ability. The way how auditor's attributes can promote the value relevance of accounting information is still open to new research.

Online investment forum and the market response around earnings announcement in the Chinese stock markets

2019 ◽  
Vol 27 (4) ◽  
pp. 615-631 ◽  
Author(s):  
Qian Hao ◽  
Dayong Dong ◽  
Keke Wu
Keyword(s):  
Linear Regression Analysis ◽  
Earnings Announcements ◽  
Positive Association ◽  
Online Discussions ◽  
Policy Implications ◽  
Internet Service ◽  
Earnings Announcement ◽  
Content Type ◽  
Earnings Surprise ◽  
The Impact

Purpose This paper aims to study the following two questions. Do earnings announcements stimulate investors to participate in online discussions? Does online investment forum participation affect the market’s reaction to earnings news? Design/methodology/approach The authors collect all the online posts, which were related to the internet service companies and posted in a Chinese financial forum, guba.eastmoney.com (Guba), during the period between June 30, 2008 and December 31, 2015. Multiple linear regression analysis is used to test the questions. Findings The study finds that the earnings announcements induce online discussion. In addition, before the earnings announcement, online posting activity does not affect earnings response coefficient but can weaken the positive association between the magnitude of the upcoming earnings surprise and abnormal trading volume. In contrast, after the earnings announcement, online forum participation can facilitate the incorporation of earnings surprise into the price. Originality/value This study contributes to the literature studying the impact of social media on market reaction to earnings news by providing evidence that the price discovery process can be affected by the online investment forum. Several policy implications are also provided.

The resolution of audit-detected misstatements

2019 ◽  
Vol 20 (1) ◽  
pp. 41-62
Author(s):  
Klaus Ruhnke ◽  
Martin Schmidt
Keyword(s):  
Financial Statements ◽  
The European Union ◽  
Client Characteristics ◽  
Content Type ◽  
Big 4 ◽  
Audit Firms ◽  
Potential Factors ◽  
Using Data ◽  
The Individual ◽  
Individual Adjustment

Purpose The value of an audit lies in its ability to detect and correct misstatements in financial statements. The purpose of this paper is to investigate the resolution of detected misstatements. Design/methodology/approach Using data on a large sample of audit adjustments by a German Big 4 audit firm, this paper reports an analysis of the factors that influence the resolution of detected misstatements at the engagement level and at the level of the individual adjustment. Findings The auditor’s book-or-waive decision is influenced by client characteristics and characteristics of the audit adjustments that can be linked to client as well as auditor incentives to oppose (require) the recording of adjustments. Offsetting effects of the detected adjustments on client income play a key role in auditors’ decisions. Research limitations/implications The results may not be generalizable to Non-Big 4 audit firms. The sample includes unlisted firms which are subject to mandatory audits in the European Union. Other potential factors may not have been captured in the study. Practical implications The findings suggest that standard-setters and audit practice should give more attention to the offsetting effects of audit adjustments on income. The analyses at the two different levels could help practitioners to better structure their book-or-waive decisions. Originality/value In contrast to prior studies, the authors analyze the resolution of misstatements at the engagement level and the level of the individual adjustment. This design makes a methodological contribution by expanding the level of analysis of auditors’ book-or-waive decisions to include the engagement level. It further allows examining offsetting effects of different adjustments on client income, as well as the number and the total amount of detected adjustments.

scholarly journals Lost revenues associated with going concern modified opinions in the Swedish audit market

2014 ◽  
Vol 15 (2) ◽  
pp. 197-214 ◽  
Author(s):  
Jan Svanberg ◽  
Peter Öhman
Keyword(s):  
Practical Implication ◽  
Test Group ◽  
Small Companies ◽  
Content Type ◽  
Going Concern ◽  
Auditor Switching ◽  
Audit Market ◽  
Big 4 ◽  
Audit Firms ◽  
First Time

Purpose – The purpose of this paper is to examine the costs to audit firms in terms of lost revenues of losing small clients due to auditor switching or client bankruptcy after issuing first-time going concern modified opinions. Design/methodology/approach – A population of small Swedish companies receiving first-time going concern modified opinions in 2009 was examined to determine the effects two years later compared with a matched sample of financially stressed companies that had not received going concern modified opinions. Findings – The results indicate that both auditor switching and client bankruptcy are positively related to receipt of going concern modified opinions. Furthermore, the authors find empirical evidence that auditors issuing first-time going concern modified opinions lose proportionately more fees through auditor switching and client bankruptcy than do auditors not issuing such opinions to financially stressed clients. Finally, the authors found that the going concern modified opinions issued by Big 4 firms are no more harmful to clients than are those issued by other audit firms. Research limitations/implications – The authors recognize a limitation of this study regarding the choice of control companies. Although the authors attempted to find similarly sized and similarly financially stressed companies from the same industries as those companies in the test group, the authors may have missed other variables relevant to auditor switching or client bankruptcy. Practical implications – A practical implication for the audit profession is the increased awareness of the fact that the financial dependence issues reported in this study extend to auditors with small client companies. Originality/value – This is the first study to examine fees lost due to auditor switching and client bankruptcy caused by going concern modified opinions in a population of small companies. It contributes to the mixed evidence presented in previous research as to the extent to which going concern modified audit opinions are self-fulfilling prophecies.

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