Auditor switch decisions under forced auditor change: evidence from China

2016 ◽  
Vol 24 (1) ◽  
pp. 69-89 ◽  
Author(s):  
Li-Chun Kuo ◽  
Chan-Jane Lin ◽  
Hsiao-Lun Lin
Keyword(s):  
Design Methodology ◽  
Accounting Firms ◽  
Content Type ◽  
Auditor Switching ◽  
Big 4 ◽  
Audit Firms ◽  
Switching Patterns ◽  
Short Period ◽  
Auditor Change ◽  
Logistic Regressions

Purpose – From 2000 to 2007, 14 Chinese accounting firms had their audit licenses terminated or suspended for different reasons, forcing clients of these accounting firms to select new auditors within a short period of time. The purpose of this paper is to examine the auditor switching patterns and audit partner following decision of these clients and the effect of both client and (terminated or suspended) auditor characteristics on the auditor change decisions. Design/methodology/approach – By using 245 (191) clients of terminated or suspended audit firms, the authors apply logistic regressions to investigate clients’ switching decision (following decision). Findings – The empirical results indicate that state-owned enterprises tend not to switch to Big 4 audit firms; clients with dual shares tend to choose from the Big 4 for their succeeding audit firms. Moreover, companies whose preceding auditors received severe regulatory sanctions are less likely to switch to auditors of higher quality; companies who hired local auditors are more likely to follow their preceding audit partners as a result of forced auditor change. Originality/value – This study enriches forced auditor change literature by discussing both clients’ and preceding auditor’s attributes on clients’ switching and following decisions.

The effect of financial crisis on auditor conservatism: US evidence

2015 ◽  
Vol 28 (2) ◽  
pp. 160-171 ◽  
Author(s):  
Joseph Beams ◽  
Yun-Chia Yan
Keyword(s):  
Financial Crisis ◽  
Design Methodology ◽  
Environmental Changes ◽  
Accounting Firms ◽  
Content Type ◽  
Going Concern ◽  
Big 4 ◽  
Distressed Firms ◽  
Recent Financial Crisis ◽  
Auditor Conservatism

Purpose – This paper aims to examine the effect that the recent financial crisis had on auditor conservatism in the form of increased going-concern opinions. Design/methodology/approach – This study uses a sample of US’ distressed firms from 2005 to 2011 to test the change in going-concern opinions issued. This paper uses a logistic regression model to control for other predictors of going-concern opinions to determine when the financial crisis led to an increase in auditor conservatism. Findings – The authors find that auditors became more conservative in the form of issuing higher levels of going-concern opinions even after controlling for other predictors of going-concern opinions. This increased conservatism was present in both Big 4 and non-Big 4 accounting firms. The increased conservatism quickly returned to normal levels when the financial crisis eased. Originality/value – These findings add to the literature on the effects of environmental changes on audit opinions. Additionally, this study finds a difference in the timing of the reaction by large and small accounting firms, but, overall, it finds consistency in that both increased conservatism during the crisis and quickly returned to normal afterward.

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.

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.

Key audit matters: did IAASB unravel the knots of confusion in audit reports decisions?

2021 ◽  
Vol 36 (8) ◽  
pp. 1025-1052
Author(s):  
Mohamed Abdel Aziz Hegazy ◽  
Noha Mahmoud Kamareldawla
Keyword(s):  
Design Methodology ◽  
Financial Statements ◽  
Reporting Standards ◽  
Content Type ◽  
External Auditors ◽  
Big 4 ◽  
Audit Firms ◽  
Audit Reports ◽  
The Relationship ◽  
Practical Implications

Purpose This study aims to investigate how external auditors properly classify the requirements of ISA 701 for key audit matters (KAM) compared with an emphasis of matter or other matters (EOM) in ISA 706 and going concern (GC) in ISAs 706 and 570. Such investigation is important to assess whether the explanatory matters included in ISAs 701, 706 and 570 are appropriate for external auditors so they can properly classify identified audit matters as either KAM, EOM or GC matters and considering the relationship among them. Design/methodology/approach The research used questionnaires sent to a sample of external auditors in five audit firms with international affiliations including two of the Big 4 audit firms. The Z-test for two proportions is conducted to assess whether external auditors were confused when interpreting the explanatory matters included in the ISAs. Findings The research suggests that the current ISA 701 explanations may not adequately help some auditors in their aim of properly identifying all KAM from among the different matters they reach during their audit. When classifying EOM and GC, most of the external auditors misclassified them as KAM. Practical implications This is a timely study. The results have implications for standard setters and regulators through revising the explanations included in the different audit reporting standards including ISA 701 and considering the relationships among them. Originality/value According to the authors’ knowledge, this study is considered among the first that surveyed the appropriateness of the explanations included in ISAs for KAM, EOM, GC and how auditors perceive such explanations when forming their opinion about their clients’ financial statements.

How could external auditors assess the rationalization of fraud?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Rasha Kassem
Keyword(s):  
Design Methodology ◽  
Regulatory Environment ◽  
Online Questionnaire ◽  
Content Type ◽  
External Auditors ◽  
Fraud Risk ◽  
Big 4 ◽  
Audit Firms ◽  
The Board Of Directors ◽  
Practical Implications

Purpose This study aims to explore methods that external auditors can use to assess the rationalization of fraud in fraud risk assessment in auditing. Design/methodology/approach An online questionnaire was used to collect data from 150 Big 4 auditors. Findings The results reveal a total of 18 methods that auditors can use to assess the rationalization of fraud. However, some methods were recommended more than others by the auditors in this study. These methods include incorporating the assessment of rationalization into the assessment of motives for fraud and integrity, understanding the client’s business and regulatory environment, inquiring management and the board of directors about past fraud cases and observing management responses and reactions during auditors’ inquiry about fraud-related matters. Practical implications The guidance provided by this study could help enhance auditors’ skills in assessing fraud risks, which, in turn, may increase the likelihood of detecting fraud. The guide could also be helpful for audit firms in their fraud training programs. Originality/value This study is the first to explore methods for assessing the rationalization of fraud by drawing on the experience and insights of Big 4 auditors.

The “Big” Consequences of IFRS: How and When Does the Adoption of IFRS Benefit Global Accounting Firms?

2015 ◽  
Vol 91 (4) ◽  
pp. 1257-1283 ◽  
Author(s):  
Maria Wieczynska
Keyword(s):  
Financial Reporting ◽  
Regulatory Regime ◽  
Reporting Standards ◽  
Accounting Firms ◽  
Financial Reporting Standards ◽  
Auditor Switching ◽  
Ifrs Adoption ◽  
The United Kingdom ◽  
Big 4 ◽  
Audit Firms

ABSTRACT I investigate how the adoption of International Financial Reporting Standards (IFRS) affects audit markets. Specifically, I examine the effect of IFRS adoption on the likelihood and direction of auditor switching in a sample of firms from five European Union countries: the United Kingdom, Germany, Spain, Italy, and Poland during the period from 1998 through 2010. I hypothesize that IFRS adoption creates an expert advantage for global audit firms (i.e., Big 4 audit firms, Grant Thornton, and BDO) during a regime shift in reporting standards. I find that clients are more likely to switch from small to global audit firms in the year of IFRS adoption. I also hypothesize that the strength of a country's regulatory regime affects the likelihood of auditor replacement around IFRS adoption. I find that firms listed in countries with high-quality regulation and enforcement are significantly more likely to switch from small to global audit firms in the year of IFRS adoption (with the odds of the switch almost doubled when compared to non-adoption years). In weaker regulatory regimes, IFRS adoption is not associated with an increase in auditor switching. Additional tests provide evidence that global audit firms' advantage stems from their perceived IFRS expertise. Finally, the results confirm that not only Big 4, but also Grant Thornton and BDO, benefit from IFRS adoption.

The moderating effect of culture on the relationship between accountability and professional scepticism

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Medhat Endrawes ◽  
Shane Leong ◽  
Kenan M. Matawie
Keyword(s):  
Cultural Values ◽  
Design Methodology ◽  
Middle Eastern ◽  
Cognitive Effort ◽  
Planning Stage ◽  
Content Type ◽  
Big 4 ◽  
Prior Literature ◽  
The Impact ◽  
The Relationship

Purpose This study aims to examine whether accountability and culture have an impact on auditors’ professional scepticism. It also examines whether culture moderates the effect of accountability on auditors’ professional scepticism. Design/methodology/approach Three of the Big 4 firms in Australia and Egypt participated in an audit judgement experiment, which required them to indicate their beliefs about the risk of fraud and error at the planning stage of a hypothetical audit and evaluate the truthfulness of explanations provided by the client management. The authors examined whether their professional scepticism was influenced by accountability. Findings The results indicate professional scepticism differs significantly between cultures in some situations. The fact that culture influences scepticism suggests that even when auditors use the same standards (such as ISA 240 and ISA 600), they are likely to be applied inconsistently, even within the same firm. The authors, therefore, recommend that international bodies issue additional guidance on cultural values and consider these cultural differences when designing or adopting auditing standards. Originality/value To the best of the authors’ knowledge, this is the first study that examines whether culture moderates the impact of accountability on auditors’ professional scepticism using Egyptian and Australian (Middle Eastern and Western) auditors. Prior literature suggests that individuals subject to accountability pressure increase their cognitive effort and vigilance to detect fraud and error. As the authors find evidence that culture moderates accountability pressure and as accountability affects scepticism, they add to the literature suggesting that culture can influence professional scepticism.

Crowd funding in libraries: by the people and for the people

2018 ◽  
Vol 35 (10) ◽  
pp. 12-14 ◽  
Author(s):  
Sarika Sawant
Keyword(s):  
Nongovernmental Organizations ◽  
Design Methodology ◽  
Collection Development ◽  
Content Type ◽  
Success Stories ◽  
The People ◽  
Short Period ◽  
Library Professionals

Purpose Crowd funding is a method to raise funds for a specific cause or project by asking a large number of people to donate money, usually in small amounts, and usually during a relatively short period, such as a few months. This paper aims to explore the global as well as Indian crowd funding platforms and literature as well to find out the success stories of crowd funding. Design/methodology/approach General literature was reviewed. Various crowd funding platforms were scanned, especially Indian, to find the successful crowd funding stories. Findings It was found that plenty of crowd funding initiatives have been taken in India, especially to build libraries, to decorate libraries, for collection development, to provide services, etc. Nongovernmental organizations/trusts are the ones who are undertaking these initiatives. There is a need to create awareness of such activities by experienced library professionals/nonprofessionals who have done crowd funding and for them to share their experiences and practices of crowd funding among other professionals, so that others can also explore such methods. Originality/value This paper promptly presents the Indian crowd funding initiatives and the success stories.

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.

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.

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