An examination of reduced audit quality practices within the beyond the role stress model

2018 ◽  
Vol 33 (8/9) ◽  
pp. 736-759 ◽  
Author(s):  
Kenneth J. Smith ◽  
David J. Emerson ◽  
Charles R. Boster
Keyword(s):  
Audit Quality ◽  
Role Stress ◽  
Job Outcomes ◽  
Job Stressors ◽  
Satisfaction Scale ◽  
Accounting Firms ◽  
Content Type ◽  
Quality Practices ◽  
Staff Burnout ◽  
Item Scale

Purpose The purpose of this paper is to investigate the role stress model originally developed by Fogarty et al. (2000) using more refined measures, a context-specific performance metric and a targeted respondent group. The investigation uses a sample of working professional auditors to investigate the associations between job stressors, burnout and job outcomes using an industry-specific measure of job performance. Design/methodology/approach The analyses use structural equations modeling procedures to examine a model that postulates that burnout will mediate the relations between job stressors and job outcomes. The data for the study come from 293 survey instruments completed by auditors working at the offices of 11 public accounting firms. A parsimonious job satisfaction scale based on Churchill et al.’s (1985) 27-item scale is developed using classical test-item analysis and is incorporated into the analysis. Findings The results suggest three significant items of note. First, although prior research has found that burnout partially mediates relations between job stressors and job outcomes, this study shows that burnout fully mediates these associations. Second, the study provides support for the reduced audit quality practices (RAQP) scale as an audit-specific construct for job performance. Finally, results show that the 27-item job satisfaction scale can successfully be reduced to a six-item scale. Research limitations/implications While this study is subject to the limitations inherent to all cross-sectional studies that use self-report instruments, the results further the knowledge related to the role stress paradigm in auditor work settings. Practical implications This study’s findings provides a cogent argument for human resource managers at public accounting firms to monitor staff burnout levels and implement interventional strategies (Jones III et al., 2010) when these levels become excessive. Efforts to mitigate staff burnout levels may decrease the likelihood of staff engagement in dysfunctional audit practices and the associated costs to the firm and the individual(s) involved. Originality/value The findings also demonstrate the superiority of the RAQP scale in terms of explaining variance in auditor performance when compared to the modified performance measures utilized in prior research.

The effect of the financial crisis on audit quality: European evidence

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Maria I. Kyriakou
Keyword(s):  
Financial Crisis ◽  
Audit Quality ◽  
Ordinary Least Squares ◽  
Least Squares Regression ◽  
Cross Sectional ◽  
Accounting Firms ◽  
Content Type ◽  
Financial Firms ◽  
The Impact ◽  
Big Four

Purpose This paper aims to examine the impact of the recent financial crisis on audit quality by analysing discretionary accruals. Design/methodology/approach This study considers a sample of German, French, Italian and Spanish non-financial firms from 2005 to 2013 to investigate the auditor’s independence. It uses a cross-sectional and time-series ordinary least squares regression model to control for other predictors of the auditor’s independence when the financial crisis produces a decrease in audit quality. Findings The proportion of the non-financial firms having lower audit quality was higher during the financial crisis. In addition, during the crisis auditors were less likely to provide a higher audit quality for these non-financial firms. The level of audit quality returned to normal levels during the post-crisis years when the crisis had ceased. Originality/value These findings contribute to the literature on the impact of economic and financial changes on audit quality. In addition, this research finds that the Big Four accounting firms provide a higher audit quality in different circumstances from non-Big Four accounting firms, and that audit quality decreased during the crisis and returned to normal in the post-crisis period.

Resilience as a coping strategy for reducing auditor turnover intentions

2020 ◽  
Vol 33 (3) ◽  
pp. 483-498
Author(s):  
Kenneth J. Smith ◽  
David J. Emerson ◽  
Charles R. Boster ◽  
George S. Everly, Jr
Keyword(s):  
Job Satisfaction ◽  
Turnover Intentions ◽  
Role Stress ◽  
Structural Equations ◽  
Negative Association ◽  
Public Accounting ◽  
Accounting Firms ◽  
Content Type ◽  
Public Accounting Firms ◽  
Resilience Training

Purpose The purpose of this paper is to examine the potential counteracting influence of individual resilience levels on the tendency of role stressors, stress arousal and burnout to reduce job satisfaction and increase turnover intentions. Design/methodology/approach This study surveys 332 auditors from the offices of nine public accounting firms. The structural equations modeling procedures examine an expanded role stress model to assess the nature and extent of the role that resilience plays in reducing stress, burnout, job dissatisfaction and turnover intentions. Findings Resilience has a significant direct negative association with stress arousal and burnout, a significant indirect positive association with job satisfaction and a significant indirect negative association with turnover intentions. Research limitations/implications As a cross-sectional study that incorporates self-report instruments, no definitive statements can be made about causality. However, the results extend the extant knowledge related of the role of resilience as a coping mechanism within the role stress paradigm in auditor work settings. Practical implications This study’s findings suggest the potential value of resilience training programs at public accounting firms to reduce staff burnout. In turn, reduced burnout has an increased likelihood ceteris paribus of increasing job satisfaction and reducing auditor turnover intentions. Originality/value This study’s findings suggest that resilience training for public accounting staff to reduce burnout may provide the organizational and personal benefits associated with enhancing job satisfaction and decreasing turnover intentions.

JOB BURNOUT DAN REDUCED AUDIT QUALITY PRACTICES (RAQP) DALAM PERSPEKTIF ROLE STRESS

SIMAK ◽  
2019 ◽  
Vol 17 (01) ◽  
pp. 42-83
Author(s):  
Richard Wiratama ◽  
Suwandi Ng ◽  
Lukman Lukman
Keyword(s):  
Role Conflict ◽  
Role Ambiguity ◽  
Audit Quality ◽  
Job Burnout ◽  
Role Overload ◽  
Public Accounting ◽  
Accounting Firms ◽  
Accounting Firm ◽  
Role Stressors ◽  
Quality Practices

The purpose of this study were to investigate the influence of role stressors (role ambiguity, role conflict, and role overload) to the reduced audit quality practices (RAQP) were tested both directly and indirectly through the variable job burnout. Respondents in this study are auditors who working in 15 Public Accounting Firms at Sulawesi, Papua, and Maluku. Data collection procedures in the study were taken directly (Administered Personality Questionnaires) in Public Accounting Firm located in Makassar, while the public accounting firm which the outside of Makassar were spread by sending questionnaires (Mail Questionnaires). Data were analyzed using the path analysis. The results of this study indicate that role stressors (role ambiguity, role conflict, and role overload) have a positive and significant effect on job burnout and also job burnout has a positive and significant effect on reduced audit quality practices (RAQP). The direct influence of role stressors (role ambiguity, role conflict, and role overload) have a positive but not high enough to have a strong influence on reduced audit quality practices (RAQP). Implications practice of this research are as learning profession Public Accountants and auditors to take preventive actions and improvements on stress due to role stressors.

Does the use of honorific appellations in audit reports connote higher financial misstatement risk? Evidence from China

2018 ◽  
Vol 26 (2) ◽  
pp. 154-181 ◽  
Author(s):  
Feng Chen ◽  
Xingqiang Du ◽  
Shaojuan Lai ◽  
Mary Ma
Keyword(s):  
Audit Quality ◽  
Positive Association ◽  
Auditor Independence ◽  
Accounting Firms ◽  
Content Type ◽  
Public Firms ◽  
Financial Misstatements ◽  
Financial Misstatement ◽  
Chinese Auditors ◽  
Audit Reports

Purpose From the sociolinguistic perspective, the purpose of this paper is to examine whether the honorific and actual-name appellations that Chinese auditors use to address clients in audit reports connote differential financial misstatement risk. Specifically, the authors hypothesize that auditors’ use of honorifics signals their inferior social status relative to their clients, thereby leading to compromised auditor independence, lower audit quality, and higher financial misstatement risk. Design/methodology/approach The authors use a sample of manually coded appellation data from audit reports of Chinese public firms between 2003 and 2012 to conduct the research. Findings The authors find significantly greater financial misstatements, both in terms of likelihoods and magnitudes, for companies addressed by honorifics than for those addressed by actual names. Moreover, compared to auditors’ consistent honorific usage, discretionary honorific usage has a stronger positive association with misstatements. The authors further show that the positive association between honorific usage and client misstatement risk weakens when the audit firm is a Top 10 accounting firms in China, is an industry specialist, is formed as a partnership, or resides in a more concentrated audit market. Originality/value This study contributes to the sociolinguistics literature in accounting and provides evidence supporting the reform proposed by the International Auditing and Assurance Standards Board to enhance the usefulness of audit reporting.

The effect of audit engagement partner professional experience on audit quality and audit fees: early evidence from Form AP disclosure

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Chenyong Liu ◽  
Chunhao Xu
Keyword(s):  
Fixed Effects ◽  
Audit Quality ◽  
Early Stage ◽  
Audit Fees ◽  
Least Square ◽  
Professional Experience ◽  
Accounting Firms ◽  
Content Type ◽  
Big 4 ◽  
The Relationship

PurposeThe purpose of this study is to examine the effect of audit engagement partner's professional experience on audit quality. The authors also investigate the relationship between the audit partner's experience and audit fees in both Big 4 and non-Big 4 accounting firms.Design/methodology/approachSince the Public Company Accounting Oversight Board (PCAOB) officially enacted Rule 3211 in 2017, US accounting firms are required to disclose detailed information of engagement partners in Form AP (PCAOB, 2015b). The authors obtained a sample of 2,283 audit partners from Form AP and hand collected their individual professional experience data through Certified Public Accountant (CPA) database, corporate disclosure and social media sites (e.g. Linkedin). Econometric models with fixed effects are used in this study to test our hypotheses. Two-stage least square (2SLS) model is used in the robustness test.FindingsThe authors find that the relationship between audit engagement partner's professional experience and audit quality is concave. It indicates that audit quality is increasing during the early stage of engagement partners' career and then decreases as the partners approaching the late-career phase. Further, the authors find that partner's professional experience is positively associated with audit fees in non-Big 4 accounting firms but not significantly associated with audit fees in Big 4 accounting firms.Practical implicationsThe finding of how auditor experience impacts audit quality can be useful for accounting firms to better plan their staffing in auditing engagements. This study’s results are also helpful for small accounting firms to optimize their pricing strategy.Originality/valueThis study provides new empirical evidence about the relation between auditor professional experience and audit quality. Furthermore, the authors extend the literature of audit fee determinants by testing the joint effects of audit firm-level factors and auditor individual-level professional experience on audit fees.

The relationship between non-audit fees and audit quality: dealing with the endogeneity issue

2015 ◽  
Vol 25 (6) ◽  
pp. 777-795 ◽  
Author(s):  
Pedro Carmona ◽  
Alexandre Momparler ◽  
Carlos Lassala
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Listed Companies ◽  
Auditor Independence ◽  
Public Accounting ◽  
Accounting Firms ◽  
Content Type ◽  
Consulting Services ◽  
Public Accounting Firms ◽  
Abnormal Accruals

Purpose – The purpose of this paper is to explore whether the provision of non-audit services (NAS) by public accounting firms undermines audit quality. The study addresses this question by testing for an association between the provision of consulting services and auditor independence in listed companies. Design/methodology/approach – The authors study if the magnitude of non-audit fees explains variations in earnings management by looking at the joint determination of non-audit fees, audit fees, and abnormal accruals using the SURE-regression estimation method. Findings – Evidence from tested models suggests that audit services quality is uncompromised by the provision of NAS. In other words, high non-audit fees do not necessarily result in poor quality financial reporting. Research limitations/implications – A different research methodology and a different sample (e.g. non-listed companies) may lead to differing results. As the paper analyses only one country, generalizability of the results might be a limitation. There is no need to increase legal restrictions on the provision of consulting services by public accounting firms in order to better safeguard audit quality. Practical implications – Consulting clients may be more confident to hire both audit and NAS with the same firm and can make a case before the general Shareholders’ meeting. By providing both audit and NAS, consulting firms obtain knowledge spillovers and synergies while appealing highly qualified professionals. Originality/value – The use of simultaneous equations (SURE-regression) to establish the auditor-client relation allows us to better model theoretical relations between audit fees, non-audit fees, and abnormal accruals. Likewise, joint modeling takes account of correlations between the error terms of the individual models, yielding more efficient estimates than ordinary least squares. Performing this analysis in a non-Anglo-American country with low litigation risk is also a valuable contribution to extant literature.

Turnover in public accounting firms: a literature review

2020 ◽  
Vol 35 (2) ◽  
pp. 294-321 ◽  
Author(s):  
Hossein Nouri ◽  
Robert James Parker
Keyword(s):  
Audit Quality ◽  
Role Theory ◽  
Future Research ◽  
Extensive Literature ◽  
Public Accounting ◽  
Accounting Firms ◽  
Content Type ◽  
Public Accounting Firms

Purpose This paper reviews and synthesizes the extensive literature that investigates turnover in public accounting firms. Design/methodology/approach This paper initially identifies turnover studies by searching two commonly used business databases, ABI and Business Source. Subsequently, references in these studies are examined. Over 100 published studies of accounting firms are identified. Findings Prior turnover studies can be classified by the underlying theory: psychological attachment; role theory; mentoring; and organizational justice. Using these theories, prior research has examined a wide variety of issues such as the role of gender in turnover. Practical implications Turnover is a significant and long-term problem in accounting firms. Practitioners and researchers have long noted that firms lose the costs of training employees who leave the firm. Recently, many in the auditing field have recognized that employee turnover may reduce audit quality. This paper summarizes prior turnover research, which may provide guidance to future researchers and managers of accounting firms. Originality/value This study fills a void in the accounting literature, which is missing a comprehensive and up to date review of prior studies of turnover in accounting firms. Opportunities for future research are also explored. While much has been learned, some theoretical and methodological issues remain unresolved.

scholarly journals Investigating the backstage of audit engagements: the paradox of team diversity

2019 ◽  
Vol 32 (2) ◽  
pp. 378-400
Author(s):  
Firdaus Amyar ◽  
Nunung Nurul Hidayah ◽  
Alan Lowe ◽  
Margaret Woods
Keyword(s):  
Qualitative Methodology ◽  
Audit Quality ◽  
Team Leaders ◽  
Content Type ◽  
Team Diversity ◽  
Quality Practices ◽  
Data Collection And Analysis ◽  
Paradox Theory ◽  
Audit Team

Purpose There has been very little qualitative “fieldwork” of audit practice. This is especially the case in relation to investigations into how audit engagements proceed. The purpose of this paper is to engage with audit practice in order to explore and explain the internal dynamics and paradoxical conditions within audit engagement teams. Design/methodology/approach The research adopts a qualitative methodology, framed around an intensive case study that involves several methods of data collection and analysis including interviews, observation and document analysis. The authors observe audit team practices, work programmes and organisation including observations of individual and teams involved in audit engagements. Findings Using the lens of paradox theory, the authors explore the backstage of audit work, where audit teams are challenged with recurring contradictory requirements and opposing demands. The authors provide insight on the complexity associated with inadequate resourcing and planning that tend to stimulate the emergence of paradoxes in audit engagement work in a government audit context. As a result, the authors identify the occurrence of cascading reduced audit quality practices (RAQP) as the teams respond to the paradoxes they face. Originality/value The authors reveal the interlinked and cumulative coping strategies, namely, downplaying responsibility and downscaling audit processes. These strategies are performed concurrently by team leaders and audit members to manage paradoxical tensions. The authors also identified superficial audit supervision as another type of RAQP performed by team leaders.

An Analysis of Cross-Sectional Differences in Big and Non-Big Public Accounting Firms' Audit Programs

2006 ◽  
Vol 25 (1) ◽  
pp. 27-48 ◽  
Author(s):  
Hans Blokdijk ◽  
Fred Drieenhuizen ◽  
Dan A. Simunic ◽  
Michael T. Stein
Keyword(s):  
Risk Assessment ◽  
Empirical Evidence ◽  
Audit Quality ◽  
Audit Fees ◽  
Public Accounting ◽  
Accounting Firms ◽  
Big 5 ◽  
Public Accounting Firms ◽  
Audit Approach ◽  
Control Risk

A significant body of prior research has shown that audits by the Big 5 (now Big 4) public accounting firms are quality differentiated relative to non-Big 5 audits. This result can be derived analytically by assuming that Big 5 and non-Big 5 firms face different loss functions for “audit failures” and is consistent with a variety of empirical evidence from studies of audit fees, auditor changes, and the stock price reaction to audited earnings. However, there is no existing evidence (of which we are aware) concerning the underlying production differences between Big 5 and non-Big 5 audits. As a result, existing empirical evidence cannot distinguish between the possibility that Big 5 audits are simply perceived to be different (e.g., by investors) or actually differ in how they are produced. Our research objective is to identify the production characteristics of audit engagements that may explain the differences in expected audit quality between Big 5 and non-Big 5 firms. In this archival study, we examine the total audit effort and the allocation of effort to four audit phases—planning, (control) risk assessment, substantive testing, and completion—for a cross-section sample of 113 audits of Dutch companies in 1998/99 by 14 public accounting firms. We find that, after controlling for client characteristics: (1) both types of auditors exert about the same amount of total audit effort; (2) Big 5 auditors allocate relatively more effort to planning and (control) risk assessment, and relatively less to substantive testing and completion; and (3) client size, use of the business-risk-based audit approach, and reliance on client internal controls affect audit hours differently for the two auditor types. We conclude that the Big 5 firms actually produce a higher audit quality level, and that this quality difference is related to how audit hours are deployed in a more contextual and less procedural audit approach.

Earnings management and ownership structure in emerging market

2017 ◽  
Vol 43 (10) ◽  
pp. 1117-1136 ◽  
Author(s):  
Naima Lassoued ◽  
Mouna Ben Rejeb Attia ◽  
Houda Sassi
Keyword(s):  
Emerging Markets ◽  
Earnings Management ◽  
Ownership Structure ◽  
Audit Quality ◽  
Emerging Market ◽  
Middle Eastern ◽  
Convincing Evidence ◽  
Loan Loss ◽  
African Countries ◽  
Content Type

Purpose The purpose of this paper is to investigate whether ownership structure affects earnings management in the banking industry of emerging markets. Design/methodology/approach The empirical study is conducted using a sample of 134 banks from 12 Middle Eastern and North African countries. Econometrically speaking, the study used a panel data regression analysis. Findings The authors found convincing evidence that banks with more concentrated ownership use discretionary loan loss provisions to manage their earnings. The authors also found that state and institutional owners encourage earnings management, while family owners reduce this practice. Practical implications The findings would be valuable for investors since they should take into account ownership structure in order to reach a better investment decision. Moreover, regulatory reforms in emerging markets should push for more transparency about ownership structure, high levels of supervision, and external audit quality. Originality/value This study presents international evidence on the prominent role of owners in earnings management in emerging markets with weak shareholder rights protection.

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