Information Technology Controls Quality and Audit Fees: Evidence From Italy

2016 ◽  
Vol 33 (1) ◽  
pp. 123-146 ◽  
Author(s):  
Tatiana Mazza ◽  
Stefano Azzali
Keyword(s):  
Risk Assessment ◽  
Information Technology ◽  
Financial Reporting ◽  
Internal Control ◽  
Audit Fees ◽  
Listed Companies ◽  
Audit Risk ◽  
The Impact ◽  
Control Risk

This study analyzes the impact of Information Technology (IT) Controls quality on control risk and audit fees. The impact is expected to occur when regulation increases sensitiveness to audit risk assessment. The research focuses on IT Controls as part of Internal Control over Financial Reporting, particularly on scoping quality, segregation of duties, and Controls framework compliance. The research was conducted with a questionnaire on a population of Italian listed companies. We find that audit fees are lower for higher IT scoping quality, IT Controls segregation of duties, and IT Controls framework compliance. The overall conclusion is that IT Controls quality is related to lower control risk, audit fees, and audit effort.

The Severity of Internal Controls over Financial Reporting Deficiencies: Differences among Types and Industries

2014 ◽  
pp. 55-77
Author(s):  
Tatiana Mazza ◽  
Stefano Azzali
Keyword(s):  
Information Technology ◽  
Financial Reporting ◽  
Internal Control ◽  
Service Industry ◽  
Listed Companies ◽  
Internal Controls ◽  
Service Companies ◽  
Finance Industry ◽  
Material Weaknesses ◽  
Fixed Assets

This study analyzes the severity of Internal Control over Financial Reporting deficiencies (Deficiencies, Significant Deficiencies and Material Weaknesses) in a sample of Italian listed companies, in the period 2007- 2012. Using proprietary data the severity of the deficiencies is tested for account-specific, entity level and information technology controls and for industries (manufacturing and services vs finance industries). The results on ICD severity is compared with one of the most frequent ICD (Acc_Period End/Accounting Policies): for account-specific, ICD in revenues, purchase, fixed assets and intangible, loans and insurance are more severe while ICD in Inventory are less severe. Differences in ICD severity have been found in the characteristic account: ICD in loan and insurance for finance industry and ICD in revenue, purchase for manufacturing and service industry are more severe. Finally, we found that ICD in entity level and information technology controls are less severe than account specific ICD in all industries. However, the results on entity level and information technology deficiencies could also mean that the importance of these types of control are under-evaluated by the manufacturing and service companies.

The effect of mandatory XBRL and IFRS adoption on audit fees

2016 ◽  
Vol 12 (2) ◽  
pp. 109-135 ◽  
Author(s):  
Yuan George Shan ◽  
Indrit Troshani
Keyword(s):  
Financial Reporting ◽  
Developing Economies ◽  
Stock Exchange ◽  
Audit Fees ◽  
Listed Companies ◽  
Emerging Economy ◽  
Economic Consequences ◽  
Content Type ◽  
Ifrs Adoption ◽  
The Impact

Purpose – The purpose of this paper is to evaluate the impact of the International Financial Reporting Standards (IFRS) and eXtensible Business Reporting Language (XBRL) on audit fees based on evidence from listed companies operating in an emerging economy. Whilst IFRS constitute high-quality accounting standards, XBRL represents a technology standard that can enhance the usability of IFRS and overall financial reporting transparency. Design/methodology/approach – Multivariate analyses are used on a sample of 1,798 firm-year observations between 2000 and 2011 from companies listed in the Shanghai Stock Exchange that were subject to XBRL and IFRS adoption mandates. Findings – The main results suggest that XBRL has a main negative effect on audit fees which is weaker for larger firms. Additionally, the authors find that IFRS increases audit fees for all companies. Whilst this effect is positive for firms of different sizes, it is weaker for larger firms. Research limitations/implications – Whilst the findings are applicable to the selected sample and may or may not be generaliseable to other economies, they can provide important implications for both regulators and companies that are undertaking IFRS convergence and XBRL implementation projects in developing economies around the world. Originality/value – This study offers a timely assessment of the economic consequences of IFRS and XBRL on listed companies operating in an emerging economy, in addition to providing an important basis upon which further research can be designed in order to extend the analysis.

scholarly journals Auditor Integration of IT Specialist Input on Internal Control Issues: How a Weaker Team Identity Can Be Beneficial

2021 ◽  
Author(s):  
Cassandra Estep
Keyword(s):  
Information Technology ◽  
Social Identity ◽  
Financial Reporting ◽  
Internal Control ◽  
Social Identity Theory ◽  
Audit Quality ◽  
Identity Theory ◽  
Team Identity ◽  
The Impact ◽  
Insight Into

I investigate how auditors integrate information technology (IT) specialist input into internal control over financial reporting (ICFR) issue classifications. Given the ill-structured nature of evaluating ICFR issues and the impact of these issues on audit quality, combining knowledge from different perspectives is likely beneficial. Drawing on social identity theory, I predict and find that a weaker one-team identity between auditors and IT specialists yields benefits. Auditors with a weaker versus stronger team identity place more weight on IT specialist input for IT-related issues and differentially weight higher and lower quality input for non-IT issues. I also find that more severe ICFR issues drive the predicted results. My study provides insight into how team identity influences auditor integration of input from specialists. The implications of my study are of interest to researchers, regulators, and practitioners, especially as recent firm initiatives encourage a one-team view for auditors and IT specialists.

scholarly journals The Financialization of Entity Enterprises and Audit Fees

2020 ◽  
Vol 214 ◽  
pp. 02002
Author(s):  
Sun Lu ◽  
Liang Yuewen ◽  
Wen Xian
Keyword(s):  
Reference Value ◽  
Audit Fees ◽  
Listed Companies ◽  
Certified Public Accountants ◽  
Audit Risk ◽  
Information Transparency ◽  
Internal Mechanism ◽  
New Perspective ◽  
Self Protection ◽  
The Impact

This paper studies the impact of entity enterprises financialization on audit fees and its internal mechanisms. We use the data of China’s Shenzhen A-share listed companies from 2013 to 2018 to conduct empirical research. It is found that the higher the degree of financialization of the entity enterpeises, the higher the audit cost of the enterprise. The internal mechanism is that the level of the non-financial financialization is rising, leading to the reduction of information transparency of enterprises, which increases the audit risk faced by certified public accountants, so as to raise audit fees for risk compensation and self-protection. This paper provides a new perspective for understanding the financialization of entity enterprises, enriching the research results on financialization and audit fees of entity enterprises. The relevant conclusions have certain reference value for listed companies and regulatory authorities.

Politically Connected Boards and Audit Pricing: U.S. Evidence

2021 ◽  
Author(s):  
Keval Amin ◽  
Chansog Francis Kim ◽  
Zhifeng Yang ◽  
FeiTeng Ye
Keyword(s):  
Financial Reporting ◽  
Fixed Effects ◽  
Reporting Quality ◽  
Audit Fees ◽  
Political Connections ◽  
Fixed Effects Model ◽  
Audit Pricing ◽  
Audit Risk ◽  
Distressed Firms ◽  
The Impact

This study investigates the impact of political connections, as measured by having directors that previously held political positions, on the pricing of audits. We document that auditors charge higher fees to politically connected firms than to similar non-connected firms. Our findings are robust to a battery of additional analyses including (1) propensity score matching, (2) entropy balancing, (3) changes analysis, and (4) a fixed effects model with transaction-based measures of political connections (i.e., campaign contributions and lobbying expenditures) in the model. The effect of political connections on audit fees is mitigated by independent monitoring. Moreover, the main effect is stronger in firms with more complicated operational structures and higher litigation risk, but weaker for distressed firms. Although our findings suggest that auditors exert greater effort at politically connected clients, we show that connected clients report significantly higher discretionary accruals, consistent with auditors' incremental effort being insufficient to fully offset the audit risk inherent in these engagements. Collectively, our study sheds light on how auditors perceive political connections and their impact on financial reporting quality.

scholarly journals Evidence on the Impact of Internal Control over Financial Reporting on Audit Fees

2019 ◽  
Vol 9 (3) ◽  
pp. 1
Author(s):  
Mohamed Gaber ◽  
Samy Garas ◽  
Edward J. Lusk
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Public Information ◽  
Audit Fees ◽  
Stock Trading ◽  
Audit Opinion ◽  
The Public ◽  
Public Company ◽  
Effective Group ◽  
The Impact

Introduction: Circa 1992, the dot.com sector created an irrational stock-trading market where the usual “financial” profiles of: Liquidity, Cash Flow from Operations, and Revenue generation were replaced by Ponzi-esque mayhem. To stabilize the markets, the Public Company Accounting Oversight Board [PCAOB] required a second audit opinion: the COSO Opinion on the adequacy of management’s system of Internal Control over Financial Reporting: [ICoFR].Study Focus: Three COSO-[ICoFR] designations are now required as public information: (i) A “clean” opinion [Is Effective], (ii) Deficiencies are noted, and (iii) Weaknesses reported. Our research interest is to determine, for a panel of randomly selected firms traded on the S&P500 for a eleven-year period: 2005 to 2015, the nature of the effect that the COSO deficiency reporting protocol has on (i) Audit Fees and (ii) the Market Cap of traded firms.Method: To this end we collected, using the Audit Analytics Ô[WRDSÔ] database, various categories of reported Audit Fees and also Market Cap information. This random sample was classified into two sets: the first group: Is Effective SEC 302 Designation and No COSO issues & the second group: Is Not 100% Effective for which there were SEC 302 Deficiencies or Weaknesses noted.Results: Inferential testing indicates that failure to attend to the PCAOB-COSO imperatives results in a relational where there are higher Audit Fees and a slippage of the firm’s Market Cap compared to the Is Effective Group. The PCAOB’s protocol to require the Audit of the firm’s ICoFR system and make that evaluation public information seems to be an excellent corrective “Carrot and Stick”.

The Effect of Auditing Standard No. 5 on Audit Fees

2011 ◽  
Vol 30 (4) ◽  
pp. 1-27 ◽  
Author(s):  
Jagan Krishnan ◽  
Jayanthi Krishnan ◽  
Hakjoon Song
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Cost Savings ◽  
Audit Fees ◽  
Audit Efficiency ◽  
Material Weaknesses ◽  
Audit Fee ◽  
The Impact ◽  
First Time ◽  
General Reduction

SUMMARY In June 2007, the PCAOB issued Auditing Standard No. 5 (AS5), superseding Auditing Standard No. 2 (AS2). AS5 significantly changed the rules relating to audits of internal control over financial reporting (ICFR). Policymakers expected AS5 to lead to improvements in audit efficiency and thus a general reduction in audit costs, and specifically a reduction in fees for smaller and less complex companies that were disproportionately affected by AS2. We investigate the impact of the change from AS2 to AS5 on audit fees. We restrict our analysis to stable client-auditor combinations to ensure that auditors had prior AS2 experience with the client before the transition to AS5. We find that, after controlling for other factors, audit fees were lower in the first two years of implementation of AS5 relative to the last year of AS2. The decrease in fees was the highest for companies that had remediated material weaknesses in their internal control and thus moved from an adverse opinion under AS2 to a clean opinion under AS5. Further, firms that received first-time adverse opinions on their internal control in the AS5 period paid lower fee premiums (relative to firms with clean opinions) than did firms with adverse reports in the last AS2 year. Finally, in contrast to policymakers' expectations that AS5 would generate cost savings by allowing the ICFR audits to be “scaled” for small and less complex firms, there is no evidence that the smallest firms benefited. Specifically, audit fee savings were found only for relatively more complex firms (measured by multiple segments and international operations).

The Association between Information Technology Investments and Audit Risk

2015 ◽  
Vol 30 (1) ◽  
pp. 93-116 ◽  
Author(s):  
Shipeng Han ◽  
Zabihollah Rezaee ◽  
Ling Xue ◽  
Joseph H. Zhang
Keyword(s):  
Information Technology ◽  
Internal Control ◽  
Financial Statements ◽  
Audit Fees ◽  
Audit Risk ◽  
Research Attention ◽  
It Investments ◽  
Going Concern Opinion ◽  
Type Ii Errors ◽  
The Relationship

ABSTRACT Advances in information technology (IT) have changed the way that companies conduct business, prepare their financial statements, and have their financial statements audited. On one hand, IT decreases audit risk by improving operation and internal control effectiveness, which may decrease inherent and internal control risk. On the other hand, the complexity of IT introduces unconventional risks for companies and their auditors, especially by creating challenges for auditors when auditing the effectiveness of internal controls and detecting accounting irregularities. Thus, the relationship between clients' IT investments and audit risk deserves research attention. Using IT data of U.S. firms from 2000 to 2009, we find that IT investments are positively related to audit fees (and abnormal audit fees), the probability of auditors' issuance of a going-concern opinion, and the likelihood of auditors' Type II errors. Furthermore, we find that auditor tenure moderates the relationship between IT investments and audit fees due to the learning effect.

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