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.

Corporate governance and value relevance of accounting information

2020 ◽  
Vol 36 (2) ◽  
pp. 249-262
Author(s):  
Hesham I. Almujamed ◽  
Mishari M. Alfraih
Keyword(s):  
Financial Reporting ◽  
Value Relevance ◽  
Accounting Information ◽  
Empirical Support ◽  
Board Size ◽  
Content Type ◽  
Book Value ◽  
Board Characteristics ◽  
Market Participants ◽  
The Impact

Purpose This paper aims to explore how the characteristics of the board of directors (BoD) shape earnings and book value information available to market participants. Design/methodology/approach The authors investigated the impact of board size, presence of non-executives and role duality as proxies of effective corporate governance on the value relevance of financial reporting for 178 firms on the Kuwait stock exchange in 2013. Regression analysis based on Ohlson’s (1995) valuation model was used to test hypotheses. Findings The authors found that board size was significantly associated with company value and that Kuwaiti firms with large boards increased the value-relevance of earnings and book value. The influence of role duality was positive although not significant. The presence of non-executives on the board had a negative correlation with market value (not significant). Research limitations/implications These findings deliver empirical support for the prediction that the characteristics of the BoD improve the value relevance of financial reporting. Limitations such as small sample size and one-year duration of the study did not negate the basic findings, however. Future studies will use larger samples, longer duration and additional board characteristics. Practical implications This study provides empirical support for the hypothesis that board size influences market valuation. This study may benefit managers, investors and other decision-makers. Originality/value This study delivers empirical evidence on the impact of board characteristics on the value relevance of accounting information. It will be useful for regulators and market participants monitoring the influence of board characteristics on the value relevance of accounting information.

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.

Digital corporate reporting and value relevance: evidence from the US and Japan

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yuan George Shan ◽  
Indrit Troshani
Keyword(s):  
Financial Reporting ◽  
Stock Price ◽  
Value Relevance ◽  
Accounting Information ◽  
Financial Information ◽  
Content Type ◽  
Corporate Reporting ◽  
The Us ◽  
The Impact ◽  
Corporate Financial Reporting

PurposeThe study improves current understanding concerning the implications of digital corporate reporting technology on the informativeness of accounting information.Design/methodology/approachIt looks at how XBRL, an exemplar digital corporate financial reporting technology, affects value relevance of accounting information in the US and Japan, two key jurisdictions where XBRL has been mandated. We operationalise stock price and return value relevance models to assess and compare predicted associations between selected accounting measures and market value of equity in these countries.FindingsWe predict that the selected accounting measures are more value relevant after XBRL was mandated than before. We find evidence to support our prediction for the US sample. We also predict and find that the contribution of XBRL to the value relevance of the selected accounting measures is greater in the US than in Japan. Overall, our evidence provides support that digital corporate reporting technology enhances relevance and reliability of accounting measures.Originality/valueThe study appears to be the first to have examined the impact of XBRL on value relevance whilst comparing between two major jurisdictions. The study extends emerging but limited literature concerning the benefits of digital corporate financial reporting for enhancing the communication between firms and users of financial information. The findings are useful to both users of financial information and standard setters.

scholarly journals The mediating role of human capital on the relationship between audit firm size and independent auditor’s opinion: evidence from Iranian audit firms

2016 ◽  
Vol 4 (2) ◽  
pp. 102
Author(s):  
Seyedhossein Naslmosavi ◽  
Agha Jahanzeb
Keyword(s):  
Human Capital ◽  
Firm Size ◽  
Positive Association ◽  
Audit Firm ◽  
Mediating Role ◽  
Audit Firms ◽  
Audit Reports ◽  
The Relationship

This empirical research is aimed to explore the effect of Human Capital (HC) as a mediator in the association of the size of an audit firm and independent auditor’s opinion (IAO). The respondents of this research were senior practicing auditors of audit firms with verse experience. The research has applied ANCOVA and path analysis method in SEM by utilizing LISREL to examine research questions. The results of this study revealed that HC was significantly associated to independent auditor’s opinion and it can significantly create a relationship between audit firm size and IAO and their qualities. Indeed, the link of audit firm size on IAO without HC was found to be insignificant. Furthermore, it contributed to understand that the HC of large audit firm is greater than other audit firms and the audit reports of these kinds of firms possess good quality because of positive association amid firm size and quality of auditors.

Auditor rotations and audit quality

2019 ◽  
Vol 27 (4) ◽  
pp. 639-660 ◽  
Author(s):  
Devi Sulistyo Kalanjati ◽  
Damai Nasution ◽  
Karin Jonnergård ◽  
Soegeng Sutedjo
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Stock Exchange ◽  
Multivariate Regression Analysis ◽  
Cumulative Number ◽  
Firm Level ◽  
Content Type ◽  
Audit Firm ◽  
Audit Firms ◽  
Using Data

Purpose The purpose of this paper is to investigate the association between audit rotation – at the audit partner and audit firm level – and audit quality. As mentioned in the literature, audit rotation has several benefits, and one of them is it can bring a fresh look to audit tasks and subsequently improve audit quality. Moreover, audit itself can help a client to improve its financial reporting. However, ineffective communication between predecessor and successor audit partners or audit firms, and pseudo-rotation can hamper that benefit. Design/methodology/approach This study uses multivariate regression analysis to test its hypotheses. Using data from companies listed on the Indonesia Stock Exchange, the sample consists of 688 company-year observations covering the period 2003–2016. Findings This study finds that the cumulative number of audit partner rotations is positively associated with audit quality, indicating that rotations at the audit partner level will enhance audit quality. Conversely, it finds that the cumulative number of audit firm rotations is negatively associated with audit quality. Practical implications The study’s findings may assist regulators in crafting standards regarding audit rotation. As the findings show, audit partner rotation will improve audit quality, but the audit firm rotation will decrease audit quality. As this study tries to explain the decreasing audit quality from audit firm rotation could be a consequence of ineffective communication or pseudo audit firm rotation. Regulators should try to tackle these problems. Originality/value Instead of using tenure as a proxy for a rotation, this study creates a new proxy named the cumulative number of audit partner and audit firm rotations to provide evidence on the benefits of audit rotation.

scholarly journals The extent of segmental reporting and its value relevance: cross-country evidence

2018 ◽  
Vol 8 (2) ◽  
pp. 279-299 ◽  
Author(s):  
Ghassan H. Mardini ◽  
Yasean A. Tahat ◽  
David M. Power
Keyword(s):  
Financial Reporting ◽  
Value Relevance ◽  
Annual Reports ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Equity Prices ◽  
Policy Makers ◽  
Content Type ◽  
Share Prices ◽  
Ifrs 8

Purpose The purpose of this paper is to examine the extent of segmental reporting disclosure and its value relevance to a sample of Qatari and Jordanian listed companies following the implementation review of the International Financial Reporting Standard (IFRS) 8. This was the first standard to be subjected to a post-implementation review. Annual reports are initially analyzed to investigate the level of segmental information that was published by companies in these two countries. Design/methodology/approach Using the Ohlson (1995) model, the study employs regression analysis to test the hypotheses relating to the value relevance of the segmental disclosures uncovered. In addition, one-way ANOVA and Kruskal-Wallis tests are used to investigate any variation in segmental reporting among sectors. Findings The findings indicate that the amount of segmental information disclosed by the sample firms differs across sectors. Moreover, the segmental information provided (including the number of segments and the amounts of disclosure) is value relevant and can explain the variations in firms’ share prices. Practical implications The results of the current investigation have implications for policy makers, including the International Accounting Standards Board, as well as for accounting regulators in Jordan and Qatar. They suggest that the segmental disclosures supplied under IFRS 8 are value relevant for equity prices in a developing country context. Compliance with IFRS 8 should thus be monitored to ensure that all firms provide the segmental disclosures that they are meant to supply under the terms of the standard. Originality/value This paper is one of the few to provide empirical evidence on the role of segmental reporting following the post-implementation review that was conducted for IFRS 8.

IFRS and value relevance: evidence based on Canadian adoption

2016 ◽  
Vol 12 (2) ◽  
pp. 136-160 ◽  
Author(s):  
Oliver N. Okafor ◽  
Mark Anderson ◽  
Hussein Warsame
Keyword(s):  
Empirical Evidence ◽  
Financial Reporting ◽  
Value Relevance ◽  
Accounting Information ◽  
Sensitivity Analyses ◽  
Evidence Based ◽  
Content Type ◽  
Ifrs Adoption ◽  
The Us ◽  
Us Gaap

Purpose – The purpose of this paper is to investigate whether financial information prepared and disclosed under International Financial Reporting Standards (IFRS) has incremental value relevance vs information prepared under generally accepted accounting principles (GAAP) in Canada. Design/methodology/approach – The authors employ a difference in differences methodology and estimate value relevance using: first, the adjusted R2 of regressions of stock price on book value and earnings; second, the adjusted R2 of regressions of stock returns on earnings and changes in earnings; and third, a time series incremental association return estimation. The authors use multiple models including a model similar to the Ohlson (1995) model and a modified Balachandran and Mohanram (2011) model to investigate value relevance in the period 2008-2013. Findings – The authors provide empirical evidence, based on unique Canadian environment, that accounting information prepared and disclosed under IFRS exhibits higher price and returns value relevance than accounting information prepared previously under local GAAP. Sensitivity analyses and yearly trends regressions produce collaborating evidence. Originality/value – The study provides early empirical evidence that value relevance increases in mandatory IFRS adoption, based on unique Canadian adoption. The Canadian adoption is unique because Canada: first, is the first G7 non-European country to adopt IFRS; second, had pursued a dual strategy of harmonizing with the US GAAP while supporting IFRS convergence; third, provided information environment that mitigates the problems associated with measuring the effects of IFRS adoption in the European countries where IFRS or its predecessor – international accounting standards – had permeated the reporting environment prior to the mandatory adoption in 2005; and fourth, allowed firms listed on the US exchanges to continue to use or adopt the US GAAP for financial reporting and thus, provided a group of benchmark firms drawn from the same social-political and economic environment as the treatment firms. The study clarifies prior inconsistent results from European samples.

scholarly journals Compliance With International Financial Reporting Standards and Value Relevance of Accounting Information in South Africa

2021 ◽  
Vol 12 (4) ◽  
pp. 277
Author(s):  
Unity Maqeda Putsai ◽  
Msizi Mkhize
Keyword(s):  
South Africa ◽  
Financial Reporting ◽  
Value Relevance ◽  
Stock Exchange ◽  
Accounting Information ◽  
Positive Association ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Significant Positive Association ◽  
Compliance Level

The objective of the study is to investigate the relationship between the International Financial Reporting Standard (IFRS 1) and the value relevance (VR) of accounting information. In this study forty-six companies listed on the Johannesburg Stock Exchange during the period 1993 to 2017. Panel data is used to compare the period before and after IFRS. The companies in the sample are composed of the following sectors; mining, manufacturing, banks and investment companies, real estate, general industry, retailers, construction and material, chemical and software, and computers. Based on the yearly financial reports published by public companies in South Africa, the study employed the Cookes (1992) Unweighted Disclosure Index to measure the level of compliance in South Africa. Fifty-six disclosure elements from IFRS 1 were utilized to measure the compliance level. Thereafter Ohlson (1995) Model is used with dummy variables to compare the pre-and post-IFRS period. First, the study reflected that most of the South African companies exhibit higher compliance rates ranging from 87 to 93.417 which is impressive. On the other hand, 4 companies recorded Medium level compliance that is between 60% to 79% compliance level. The findings further revealed that there is a significant positive association between compliance with IFRS 1 and the value relevance of accounting information.

Board Characteristics and Muslim Ownership Structure on Value Relevance of Accounting Information: Evidence from Malaysian Shariah Compliant Companies

2018 ◽  
Vol 15 (2) ◽  
pp. 39-53
Author(s):  
Abdelhakhem Hamed Mohamed Ali Adaa ◽  
Mustafa Mohd Hanefah
Keyword(s):  
Financial Reporting ◽  
Ownership Structure ◽  
Value Relevance ◽  
Accounting Information ◽  
Positive Association ◽  
Investment Efficiency ◽  
Corporate Reporting ◽  
The Board Of Directors ◽  
The Relationship

Corporate reporting is considered important because it provides information to assist internal and external corporate annual report users in making informed decisions. The high quality of financial reporting information is really significant, since employing this information can also lead to an increase in investment efficiency. Owners or shareholders need all necessary financial information for decision making. Nevertheless, even though they own the companies but the management is carried out by a pool of professionals – managers and directors. Thus, the directors set the directions and policies for the management team to run the company’s daily affairs. The separation between ownership and managers in firms leads to the agency problem between them. This study looks into the relationship between corporate governance characteristics (the size of the board of directors, the number of Shariah background directors, number of Muslim female in board, Muslim ownership structure) and value relevance of accounting information. Findings show a positive association between board size and value relevance of accounting information in Malaysian Shariah-compliant firms. However, there is not enough evidence to prove Shariah background members on board can enhance the value relevance of accounting information. Regarding the relationship between the presence of Muslim female directors in the board and the value relevance of accounting information, the results reveal insignificant relationship. The findings also indicate that companies with large Muslim ownership are negatively significant for value relevance of accounting information.

The impact of non-timely 10-Q filings and audit firm size on audit fees

2018 ◽  
Vol 33 (5) ◽  
pp. 503-516 ◽  
Author(s):  
Tiffany Chiu ◽  
Feiqi Huang ◽  
Yue Liu ◽  
Miklos A. Vasarhelyi
Keyword(s):  
Regression Model ◽  
Firm Size ◽  
Audit Fees ◽  
Audit Risk ◽  
Content Type ◽  
Audit Firm ◽  
Big 4 ◽  
Audit Firms ◽  
Audit Fee ◽  
The Impact

Purpose Prior studies suggest that non-timely 10-Q filings indicate higher potential risks than non-timely 10-K filings. Furthermore, larger audit firms tend to be more risk-averse and conservative about reporting. Inspired by these research streams, this paper aims to investigate the influence of non-timely 10-Q filings on audit fees and the impact of audit firm size on this association. Design/methodology/approach The cross-sectional audit fee regression model used in this study is similar to that used in prior audit fee research (Simunic, 1980; Francis et al., 2005; Hay et al., 2006; Wang et al., 2013). The model includes the following five major characteristics that would influence auditors’ fee decisions: auditee size (LNAT), complexity (REIVAT, FOREIGN, SEG), financial condition (LOSS, ROA, GROWTH, ZSCORE), special events (ICW, RESTATE, INITIAL, GC) and auditor type (BIG4). To examine the effect of non-timely 10-Q filings on audit fees, the variable NT10Q is included in the audit fee model. Findings The results indicate that when both non-timely 10-K and non-timely 10-Q filings are included in the regression model, only non-timely 10-Q filings are significantly associated with higher audit fees, suggesting that the presence of non-timely 10-Q filings signals more serious underlying problem than non-timely 10-K filings in the audit fees decision processes. In addition, we find that audit fees for firms audited by Big 4 auditors are 26.4 per cent higher when those firms file non-timely 10-Q reports, whereas there is no significant association between non-timely 10-Q filings and audit fees for firms audited by non-Big 4 auditors. Practical implications As no attention has been paid to the investigation of the impact of non-timely 10-Q filings on audit fees, with the aim of filling the gap of this specific research area, this study examines the association between non-timely 10-Q filings and audit fees and the influence of audit firm size on this association. Originality/value The contribution of this paper is threefold: first, it is the first study to examine the association between non-timely 10-Q filings and audit fees. The results show that non-timely 10-Q filings are a better and earlier indicator of audit risk than non-timely 10-K filings. Second, the results reveal that the relationship between non-timely 10-Q filings and audit fees is affected by audit firm size. Specifically, Big 4 auditors tend to charge higher audit fees in the presence of non-timely 10-Q filings, reflecting that they are more sensitive to audit risk than smaller audit firms are. Third, an examination of the quarterly effect of non-timely 10-Q filings on audit fees indicates a stronger effect from the first quarter’s non-timely 10-Q filings, compared to the second or third quarter.

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