Mandatory audit firm rotation: a critical composition of practitioner views from an emerging economy

2020 ◽  
Vol 35 (7) ◽  
pp. 861-896
Author(s):  
Michael Harber ◽  
Warren Maroun
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Unintended Consequences ◽  
Policy Implications ◽  
Chief Financial Officers ◽  
Structured Interviews ◽  
Design Data ◽  
Content Type ◽  
Audit Firm ◽  
Mandatory Audit Firm Rotation

Purpose This study aims to address an acknowledged gap in the literature for the analysis of experienced practitioner views on the effects and implications of mandatory audit firm rotation (MAFR). Design/methodology/approach Using an exploratory and sequential design, data was collected from South African regulatory policy documents, organisational comment letters and semi-structured interviews of practitioners. These findings informed a field survey, administered to auditors, investors, chief financial officers (CFOs) and audit committee members of Johannesburg Stock Exchange (JSE) listed companies. Findings Practitioners expressed considerable pushback against the potential efficacy of MAFR to improve audit quality due to various “switching costs”, notably the loss of client-specific knowledge and expertise upon rotation. In addition, the cost and disruption to both the client and audit firm are considered significant and unnecessary, compared to audit partner rotation. The audit industry may suffer reduced profitability and increased strain on partners, leading to a decline in the appeal of the profession as a career of choice. This is likely to have negative implications for audit industry diversity objectives. Furthermore, the industry may become more supplier-concentrated amongst the Big 4 firms. Practical implications The findings have policy implications for regulators deciding whether to adopt the regulation, as well as guiding the design of policies and procedures to mitigate the negative effects of adoption. Originality/value The participants are experienced with diverse roles concerning the use, preparation and audit of financial statements of large exchange-listed multinational companies, as well as engagement in the auditor appointment process. The extant literature presents mixed results on the link between MAFR and audit quality, with most studies relying on archival and experimental designs. These have a limited ability to identify and critique the potential’s witching costs and unintended consequences of the regulation. Experienced participants responsible for decision-making within the audit, audit oversight and auditor appointment process, are best suited to provide perspective on these effects, contrasted against the audit regulator’s position.

Voluntary audit committees, auditor selection and audit quality: evidence from Taiwan

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mao-Feng Kao ◽  
Min-Jeng Shiue ◽  
Chien-Hao Tseng
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Audit Committees ◽  
Firm Level ◽  
Content Type ◽  
Audit Firm ◽  
Empirical Results ◽  
Initial Stage ◽  
Auditor Selection ◽  
The Individual

Purpose This study aims to examine the Taiwan setting, where audit partners’ names are presented in the audit report and where audit committee formation is voluntary in the initial stage of audit committee reform. This paper investigates the effects of the formation of voluntary audit committees on the selection of individual audit partners, and, in turn, the audit quality. This contrasts with previous studies investigating the relationship between audit committees and auditor selection at the audit firm level. Design/methodology/approach This paper samples all of Taiwan’s publicly listed firms for the period 2007–2012 and uses Heckman’s (1979) two-stage estimation model to achieve our objectives. Findings Using different characteristics of individual engagement partners as proxies for a higher quality auditor, the main empirical results show that voluntary audit committee formation is positively related to an industry specialist lead partner and a lead partner that has a larger number of clients. In addition, this paper also finds that voluntary audit committee formation has a positive impact on audit quality (proxied by discretionary accruals). The results suggest that the voluntary formation of an audit committee contributes positively to both auditor selection and audit quality. Furthermore, an additional test shows that the main empirical results are robust to a validity threat that firms that have good corporate governance prior to the formation of voluntary audit committees tend to select high-quality audit partners. Originality/value The paper contributes to the audit committee literature in the following ways: this paper takes advantage of Taiwan’s unique setting, where forming an audit committee is not compulsory in the initial stage of audit committee reform, to investigate the voluntary audit committee, auditor selection and audit quality; this paper expands on Abbott and Parker’s (2000) study of audit committee characteristics and auditor selection at the audit firm level by examining this relationship at the individual audit partner level; this paper responds to the call by Church et al. (2008) and DeFond and Francis (2005) who propose more studies on audit quality at the individual engagement partner level.

Auditor Tenure and the Pricing of Discretionary Accruals in the Post-SOX Era

2012 ◽  
Vol 12 (1) ◽  
pp. 1-15 ◽  
Author(s):  
David S. Jenkins ◽  
Uma K. Velury
Keyword(s):  
Audit Quality ◽  
Discretionary Accruals ◽  
Data Availability ◽  
Policy Implications ◽  
Significant Relation ◽  
Audit Firm ◽  
The Public ◽  
Auditor Tenure ◽  
Accruals Quality ◽  
Mandatory Audit Firm Rotation

ABSTRACT This study empirically examines the public policy implications of mandatory audit firm rotation in the context of the relation between auditor tenure and the market's perception of discretionary accruals quality in the pre- and post-SOX periods. Consistent with prior research, the pre-SOX results support the effects of auditor learning and auditor closeness on the relation between auditor tenure and audit quality. We further demonstrate that in the post-SOX period, there is no significant relation between auditor tenure and the pricing of discretionary accruals. The post-SOX results indicate that the market's perception of auditor tenure as a significant determinant of audit quality may have diminished in the environment of increased regulation under SOX. The findings further imply that ongoing consideration of a policy that mandates periodic audit firm rotation may no longer be essential with the passage of SOX. Data Availability: Data used in this study were obtained from publicly available sources identified in the text.

scholarly journals Will mandatory audit firm rotation reduce audit market concentration in South Africa?

2021 ◽  
Vol 52 (1) ◽  
Author(s):  
Nicolene Wesson
Keyword(s):  
South Africa ◽  
South African ◽  
Audit Quality ◽  
Market Concentration ◽  
Unintended Consequences ◽  
Calculated Concentration ◽  
Audit Firm ◽  
Audit Market ◽  
Big 4 ◽  
Mandatory Audit Firm Rotation

Purpose: Deconcentrating the audit market was one of the stated objectives of the proposed mandatory audit firm rotation (MAFR) ruling in South Africa. With MAFR being a contentious topic, this study aimed to explore the possible effect of MAFR on audit market concentration in South Africa in anticipation of the implementation thereof in 2023.Design/methodology/approach: A sample of 415 South African listed companies was studied for the period 2010–2018. Data were mainly captured from annual reports. Descriptive statistics and significance testing were performed on calculated concentration ratios and identified audit firm rotations.Findings/results: South African audit market concentration mirrored empirical evidence from most developed countries – with Big 4 audit firms dominating the audit market, whilst a monopoly within the Big 4 audit firm grouping was also evident. Based on observed audit firm concentration and audit firm rotation behaviour, it was anticipated that MAFR might further increase audit market concentration. A concerning result was the sheer scale of audit firm rotations to be carried out in anticipation of MAFR in 2023.Practical implications: This study identified the impairment of audit quality and increased costs as possible unintended consequences of MAFR in South Africa.Originality/value: This study contributed to the limited body of knowledge on the possible effect of MAFR in South Africa. This study proposed alternatives to MAFR and recommended areas for future research to support evidence-based decisions on remedies to address audit quality and audit market concentration in South Africa.

Audit quality: what’s important to users of audit services

2014 ◽  
Vol 29 (9) ◽  
pp. 776-799 ◽  
Author(s):  
Alan Kilgore ◽  
Graeme Harrison ◽  
Renee Radich
Keyword(s):  
Conjoint Analysis ◽  
Audit Committee ◽  
Audit Quality ◽  
Relative Importance ◽  
Content Type ◽  
Audit Firm ◽  
Fund Managers ◽  
Audit Team ◽  
Adaptive Conjoint Analysis ◽  
Firm Attributes

Purpose – This paper aims to investigate the relative importance of audit-team and audit-firm attributes in perceptions of audit quality by two groups of users of audit services: audit committee chairs/members (“insiders”) and financial analysts/fund managers (“outsiders”). Design/methodology/approach – Using a survey questionnaire, data are gathered from 39 audit committee chairs/members and 42 financial analysts/fund managers and analysed using adaptive conjoint analysis. Findings – The findings reveal that both groups perceive audit-team attributes as relatively more important than audit-firm attributes. This is consistent with expectations for “insiders”, but inconsistent with expectations for “outsiders”. Differences are also found in the internal ratings of some of the attributes, with “insiders” and “outsiders” placing different relative importance on some attributes. Research limitations/implications – The usual set of limitations that are present in a survey method also apply in this study, i.e. surveys rely on reports of behaviours rather than observations and are therefore susceptible to measurement error. A further limitation is that, in using adaptive conjoint analysis, the number of attributes that may be included in the survey is restricted and, consequently, the attributes selected may not be comprehensive or fully representative. Originality/value – The study extends the scope of prior studies by examining the relative importance of audit-team and audit-firm attributes in perceptions of audit quality. In using conjoint analysis, the study makes a unique and innovative contribution by providing direct evidence on the relative importance of attributes in perceptions of audit quality for different users of audit services. The findings have implications for regulators and the accounting profession concerned with improving confidence in corporates and for audit firms in monitoring and promoting the quality of their audit services.

Leaving a joint audit system: conditional fee reductions

2014 ◽  
Vol 29 (2) ◽  
pp. 131-152 ◽  
Author(s):  
Claus Holm ◽  
Frank Thinggaard
Keyword(s):  
Audit Quality ◽  
Theory Development ◽  
Future Research ◽  
Research Approach ◽  
Content Type ◽  
Audit Firm ◽  
Audit System ◽  
Interaction Terms ◽  
Audit Firms ◽  
Audit Fee

Purpose – The authors aim to exploit a natural experiment in which voluntary replace mandatory joint audits for Danish listed companies and analyse audit fee implications of using one or two audit firms. Design/methodology/approach – Regression analysis is used. The authors apply both a core audit fee determinants model and an audit fee change model and include interaction terms. Findings – The authors find short-term fee reductions in companies switching to single audits, but only where the former joint audit contained a dominant auditor. The authors argue that in this situation bargaining power is more with the auditors than in an equally shared joint audit, and that the auditors' incentives to offer an initial fee discount are bigger. Research limitations/implications – The number of observations is constrained by the small Danish capital market. Future research could take a more qualitative research approach, to examine whether the use of a single audit firm rather than two has an effect on audit quality. The area calls for further theory development covering audit fee and audit quality in joint audit settings. Practical implications – Companies should consider their relationship with their auditors before deciding to switch to single auditors. Fee discounts do not seem to reflect long-lasting efficiency gains on the part of the audit firm. Originality/value – Denmark is the first country to leave a mandatory joint audit system, so this is the first time that it is possible to study fee effects related to this.

The impact of audit committee characteristics on internal audit professionalization: empirical evidence from Greece

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Christina Vadasi ◽  
Michalis Bekiaris ◽  
Andreas G. Koutoupis
Keyword(s):  
Empirical Evidence ◽  
Audit Committee ◽  
Audit Quality ◽  
Research Question ◽  
Internal Audit ◽  
Audit Committees ◽  
Annual Reports ◽  
Substantial Impact ◽  
Content Type ◽  
The Impact

Purpose This paper aims to provide empirical evidence of the association between audit committee characteristics and internal audit quality through internal audit professionalization. Design/methodology/approach The investigation of the research question was based on 45 usable responses that were received from a survey of chief audit executives from firms listed on the Athens Stock Exchange and combined with publicly available information from annual reports. Findings The results indicate that audit committee characteristics (independence, diligence through frequent meetings and interaction with internal audit through valuation) influence internal audit professionalization. In addition, they demonstrate that internal audit professionalization is also influenced by CEO duality and firm’s external auditor. Practical implications The findings of this study have implications for audit committees wishing to improve their overall effectiveness, by identifying areas with substantial impact on internal audit quality. Moreover, regulators of corporate governance bodies can also benefit from the results to strengthen audit committee’s efficiency regarding internal audit function oversight. Originality/value The results add to the literature on the discussion of internal audit professionalization and complement the work of other researchers in the field of audit committee’s impact on internal audit quality/effectiveness. This study attempts to fill a gap in the literature on the effect of audit committee characteristics on internal audit professionalization, an element introduced from an institutional theory perspective.

scholarly journals Pengaruh Ukuran Perusahaan Dan Corporate Governance Terhadap Manajemen Laba Di Industri Perbankan Indonesia

2021 ◽  
Vol 9 (1) ◽  
pp. 111-120
Author(s):  
Karina Karina ◽  
Sutarti Sutarti
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Audit Committee ◽  
Banking Sector ◽  
Audit Quality ◽  
Stock Exchange ◽  
Governance Mechanisms ◽  
Audit Firm ◽  
Corporate Governance Mechanisms ◽  
Size Firm

The purpose of this research is to provide empirical evidence of the affect of ownership concetration, firms size, and corporate governance mechanisms on earnings management. Ownership concetration was measure by the biggest stock of individual or organization, firms size was measure by natural logaritma of net assets, and corporate governance mechanisms were measure by three variabels (composition of board of commisioner, audit quality were measure by industry specialize audit firm, and composition of audit committee). Earnings management was measure by discretionary accruals use Modified Jones Method. The population of this research is 41 companies in the banking sector which were listed in Indonesian Stock Exchange (IDX). The research data were collected from banking companies financial statement for the period of 2016 to 2018. Based on purposive sampling method. The reseacrh hypotesis were tested using multiple regression analysis. The results of this research show that firm size, firm of commissioner and proportion of commissioner have significant relationships with earnings management. Next, variables composition of board of commissioner, ownership concetration and specialize audit firm have no significant relationship with earnings management. Keywords: ownership concetration, firms size, corporate governance, earnings management

Market-mediated authenticity in culturally themed culinary space

2018 ◽  
Vol 21 (3) ◽  
pp. 353-374 ◽  
Author(s):  
Nilanjana Sinha ◽  
Himadri Roy Chaudhuri ◽  
Jie G. Fowler ◽  
Sitanath Mazumdar
Keyword(s):  
Service Providers ◽  
Participant Observation ◽  
Cultural Continuity ◽  
Structured Interviews ◽  
Design Data ◽  
Global Marketplace ◽  
Content Type ◽  
Four Dimensions ◽  
Provider Perspectives ◽  
Cultural Boundaries

PurposeThis paper aims to explore authenticity as a multidimensional construct from both consumer and service provider perspectives in the context of culturally themed restaurants in Kolkata, India.Design/methodology/approachUtilizing a phenomenological design, data have been collected through participant observation, photographs and semi-structured interviews in Bengali-themed restaurants over a two-year period.FindingsBy articulating the processes and dimensions that operate behind the narrative of authenticity, the findings display the interaction between market/cultural forces and the perception of authenticity. These reveal that authenticity embraces four major categories, namely, traditional, staged-form, postmodern and constructivist.Research limitations/implicationsThis study provides insights into the collective role of both consumers and service providers in mediating perceptions of authenticity. Theoretically, this study contributes to the literature by articulating four dimensions of authenticity.Practical implicationsPractically, this study assists marketers with insights into the balance of authenticity and the commoditization of culture.Originality/valueAs globalization weakens cultural boundaries and jeopardizes regional identities, there is a need for reassuring cultural continuity that upholds ethnic legacy for local consumers. Thus, this study provides theoretical and practical insights for both researchers and practitioners concerned about maintaining authenticity in a global marketplace.

Big data and data analytics in auditing: in search of legitimacy

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Federica De Santis ◽  
Giuseppe D’Onza
Keyword(s):  
Big Data ◽  
Data Analytics ◽  
Audit Quality ◽  
Empirical Studies ◽  
Innovation Process ◽  
Structured Interviews ◽  
Senior Managers ◽  
Content Type ◽  
Audit Strategy ◽  
Audit Standards

Purpose This study aims to analyze the utilization of big data and data analytics (BDA) in financial auditing, focusing on the process of producing legitimacy around these techniques, the factors fostering or hindering such process and the action auditors take to legitimate BDA inside and outside the audit community. Design/methodology/approach The analysis bases on semi-structured interviews with partners and senior managers of Italian audit companies. Findings The BDA’s legitimation process is more advanced in the audit professional environment than outside the audit community. The Big Four lead the BDA-driven audit innovation process and BDA is used to complement traditional audit procedures. Outside the audit community, the digital maturity of audit clients, the lack of audit standards and the audit oversight authority’s negative view prevent the full legitimation of BDA. Practical implications This research highlights factors influencing the utilization of BDA to enhance audit quality. The results can, thus, be used to enhance the audit strategy and to innovate audit practices by using BDA as a source of adequate audit evidence. Audit regulators and standards setters can also use the results to revise the current auditing standards and guidance. Originality/value This study adds to the literature on digital transformation in auditing by analyzing the legitimation process of a new audit technique. The paper answers the call for more empirical studies on the utilization of BDA in financial auditing by analyzing the application of such techniques in an unexplored operational setting in which auditees are mainly medium-sized enterprises and family-run businesses.

Audit committee oversight of external audit: an examination of structural power and behavioural tactics

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Noor Adwa Sulaiman ◽  
Fatimah Mat Yasin
Keyword(s):  
Audit Committee ◽  
Power Bases ◽  
Structured Interviews ◽  
External Audit ◽  
Personal Power ◽  
Structural Power ◽  
Content Type ◽  
Network Position ◽  
Bases Of Power ◽  
Power Base

PurposeThis study aims to examine the structural power wielded by the audit committee (AC) and the various bases of its power, whilst also exploring the behavioural tactics used by the AC to leverage its power in the oversight of the external audit. Design/methodology/approachEmpirical evidence was drawn from semi-structured interviews with external auditors and AC members in Malaysia. FindingsThe AC’s structural power is derived from its formal and network position in the organisation. The AC possesses three forms of organisational-based power (legitimate, coercive and informational) resultant from its formal position, and these combine with the AC’s personal power (will and expert). The AC uses its personal power base to develop trusting relationships and to promote the exchange of information with other key corporate governance actors in the network position. Furthermore, the AC applies at least four behavioural tactics (assertiveness, ingratiation, rationality and coalition formation) to exercise its bases of power. Originality/valueThis study attempts to describe the AC’s structural sources of power, its organisational and personal power bases, and the behavioural tactics it uses when exerting its power.

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