scholarly journals Auditor-Provided Lobbying Service and Audit Quality

2016 ◽  
Vol 33 (3) ◽  
pp. 402-434 ◽  
Author(s):  
Brian Burnett ◽  
Hui Chen ◽  
Katherine Gunny
Keyword(s):  
Audit Quality ◽  
Auditor Independence ◽  
Litigation Risk ◽  
Accounting Firms ◽  
Earnings Response Coefficients ◽  
The Public ◽  
Political Interests ◽  
Going Concern Opinion ◽  
Earnings Response ◽  
Required Disclosures

Regulators and the public have expressed concerns about accounting firms lobbying politicians and regulators on behalf of their own audit clients because it could pose an advocacy threat to auditor independence. In this study, we examine whether these lobbying activities by accounting firms are associated with their clients’ audit quality. As required disclosures of lobbying activities under the Lobbying Disclosure Act are very limited, we construct a proxy to capture auditor lobbying on behalf of audit clients. Using our proxy for lobbying, we find that perceived audit quality (measured using earnings response coefficients) is negatively related to lobbying. However, we fail to find that actual audit quality is lower for these clients (measured as the propensity to restate earnings, propensity to issue a going-concern opinion, and discretionary accruals). Our findings suggest that investors perceive auditors’ lobbying for clients’ political interests as harmful to audit quality but that these concerns do not appear to materialize in the financial statements. Similar to the literature on other nonaudit services, our evidence suggests that reputation concerns and litigation risk provide enough incentive for auditors to maintain their independence in the presence of an advocacy threat to auditor independence.

Auditor Independence and Auditor-Provided Tax Service: Evidence from Going-Concern Audit Opinions Prior to Bankruptcy Filings

2008 ◽  
Vol 27 (2) ◽  
pp. 31-54 ◽  
Author(s):  
Dahlia Robinson
Keyword(s):  
Audit Quality ◽  
Auditor Independence ◽  
The Public ◽  
Going Concern ◽  
Sarbanes Oxley ◽  
Public Company ◽  
Reporting Decisions ◽  
Going Concern Opinion ◽  
Information Spillover

SUMMARY: This study examines whether auditors’ provision of tax services impairs auditor independence by focusing on auditors’ going-concern opinions among a sample of bankruptcy filing firms. The evidence from the bankruptcy setting is particularly salient given that the bankruptcy of corporations such as Enron motivated several provisions of the Sarbanes-Oxley Act (SOX) of 2002. More recently, auditors’ provision of tax service to their audit clients has been the focus of new rules by the Public Company Accounting Oversight Board (PCAOB). Consistent with improved audit quality from information spillover, the study documents a significant positive correlation between the level of tax services fees and the likelihood of correctly issuing a going-concern opinion prior to the bankruptcy filing. One implication of this result is that restricting tax services by auditors of poorly performing firms may diminish the quality of auditors’ reporting decisions without leading to an improvement in auditor independence.

Who Did the Audit? Audit Quality and Disclosures of Other Audit Participants in PCAOB Filings

2014 ◽  
Vol 90 (5) ◽  
pp. 1939-1967 ◽  
Author(s):  
Carol Callaway Dee ◽  
Ayalew Lulseged ◽  
Tianming Zhang
Keyword(s):  
Audit Quality ◽  
Market Reaction ◽  
Audit Fees ◽  
Discretionary Accruals ◽  
Multivariate Model ◽  
Significant Decline ◽  
Earnings Response Coefficients ◽  
Absolute Value ◽  
Earnings Response ◽  
First Time

ABSTRACT We empirically test whether audit quality is affected when part of an SEC issuer's audit is outsourced to auditors other than the principal auditor (“participating auditors”). We find a significantly negative market reaction and a significant decline in earnings response coefficients (ERCs) for experimental issuers disclosed for the first time as having participating auditors involved in their audits. However, we find no market reaction and no decline in ERCs for a matching sample of issuers that are not disclosed as using participating auditors, nor for issuers disclosed for the second or third time as using participating auditors. We also find actual audit quality as measured by absolute value of performance-matched discretionary accruals is lower for the experimental issuers, although we find no difference in audit fees paid by the experimental and matching issuers in a multivariate model. Our findings suggest that the PCAOB's proposed rule requiring disclosure of the use of other auditors in addition to the principal auditor would provide information useful to investors in assessing audit quality for SEC issuers.

Auditor Industry Specialization and Earnings Quality

2003 ◽  
Vol 22 (2) ◽  
pp. 71-97 ◽  
Author(s):  
Steven Balsam ◽  
Jagan Krishnan ◽  
Joon S. Yang
Keyword(s):  
Audit Quality ◽  
Earnings Quality ◽  
Discretionary Accruals ◽  
Prior Work ◽  
Brand Name ◽  
Absolute Level ◽  
Industry Specialization ◽  
Earnings Response Coefficients ◽  
Auditor Industry Specialization ◽  
Earnings Response

This study examines the association between measures of earnings quality and auditor industry specialization. Prior work has examined the association between auditor brand name and earnings quality, using auditor brand name to proxy for audit quality. Recent work has hypothesized that auditor industry specialization also contributes to audit quality. Extending this literature, we compare the absolute level of discretionary accruals (DAC) and earnings response coefficients (ERC) of firms audited by industry specialists with those of firms not audited by industry specialists. We restrict our study to clients of Big 6 (and later Big 5) auditors to control for brand name. Because industry specialization is unobservable, we use multiple proxies for it. After controlling for variables established in prior work to be related to DAC and the ERC, we find clients of industry specialist auditors have lower DAC and higher ERC than clients of nonspecialist auditors. This finding is consistent with clients of industry specialists having higher earnings quality than clients of nonspecialists.

scholarly journals The Effect of Independence and Integrity on Audit Quality: Is There A Moderating Role for E-Audit?

2021 ◽  
Vol 23 (3) ◽  
Author(s):  
Diza Dianeke Budi Prabowo ◽  
Dwi Suhartini
Keyword(s):  
Industrial Revolution ◽  
Audit Quality ◽  
Practical Implication ◽  
Financial Statements ◽  
Auditor Independence ◽  
Audit Process ◽  
Accounting Firms ◽  
Audit Reports ◽  
The Impact

The financial statements must be reliable and become a benchmark in considering an audit decision on the financial statements. In order for this to be achieved, independence and integrity is required in carrying out the audit process. E-Audit helps overcome challenges in the industrial revolution 4.0 and prevent fraud. This research aims of testing and analyzing the role of e-audit in moderating the impact of auditor independence and integrity on audit quality. The data was collected through a questionnaire distributed to auditors at Public Accounting Firms in Surabaya. There are 36 respondents involved. The data were analyzed using SmartPLS. The results showed that auditor independence positively effect audit quality, auditor integrity positively effect audit quality; e-audit does non moderate the effect of auditor independence on audit quality; ande-Audit negatively moderates the effect of auditor integrity on audit quality. The practical implication of this research is that when determining high audit quality, independent auditors should at least increase their independence and integrity so that the resulting audit reports are of high quality and can be a reference for decision makers.

How does reciprocal rent-seeking between politicians and auditors influence audit quality? - Evidence from China

2021 ◽  
Author(s):  
Ku He ◽  
Xiaofei Pan ◽  
Gary Gang Tian ◽  
Yanling Wu ◽  
Chun Cai
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Rent Seeking ◽  
Political Connections ◽  
Chinese Market ◽  
Earnings Response Coefficients ◽  
Capital Costs ◽  
Study Results ◽  
Earnings Response ◽  
Audit Opinions

In this study, we propose a reciprocal rent-seeking game between politicians and individual auditors with political connections, and examine how these auditors' political connections influence their audit quality. Using hand-collected data from the Chinese market from 2008 to 2013, we find that politically connected auditors have a significantly lower tendency to issue modified audit opinions (MAOs). In addition, we also find that politicians' career prospects are significantly adversely influenced by MAOs being issued in their jurisdictions, while auditors' political connections enable them to charge higher audit fees, acquire larger market share, and reduce the likelihood of encountering regulatory sanctions. Further evidence suggests that compared with their non-connected counterparts, the politically connected auditors tend to issue less accurate audit opinions, reduce client firms' earnings response coefficients (ERCs), and increase client firms' capital costs. Collectively, our study results suggest that individual auditors' political connections facilitate the reciprocal rent-seeking activities between these auditors and politicians, which ultimately undermines audit quality.

scholarly journals The Effects of Ethical Factors in Financial Statement Examination: Ethical Framework of the Input Process Output (IPO) Model in Auditing System Basis

2020 ◽  
Vol 11 (2) ◽  
pp. 136
Author(s):  
Andi Agus ◽  
Nurna Aziza
Keyword(s):  
Audit Quality ◽  
Auditor Independence ◽  
Financial Statement ◽  
Ethical Framework ◽  
Input Process ◽  
Model Framework ◽  
Accounting Firms ◽  
Study Results ◽  
Process Output ◽  
Regression Techniques

This study attempts to analyze ethical factors within the framework of the IPO model (input-process-output) as a proxy of audit quality. In more detail, this study creates a model framework that analyzes the influence of ethical factors consisting of integrity, objectivity and independence on audit quality with specific variables. This study was conducted by analyzing 220 respondents from auditors working in public accounting firms in major cities in Java, Indonesia, and analyzed using linear regression techniques. The study results show that the integrity variable has a positive and significant effect on output, and the objectivity variable has a significant effect on input, process and output. Meanwhile, the independence variable has not been empirically proven to have a significant effect on audit quality. These results emphasize the importance of increasing auditor independence in carrying out their duties, and theoretically prove the effect of abstract ethical factor values in empirical testing on audit quality.

Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on the PCAOB Rulemaking Docket Matter No. 31: PCAOB Release No. 2010-005, Application of the “Failure to Supervise” Provision of the Sarbanes-Oxley Act of 2002 and Solicitation of Comment on Rulemaking Concepts

2011 ◽  
Vol 5 (1) ◽  
pp. C11-C15 ◽  
Author(s):  
Joseph Brazel ◽  
James Bierstaker ◽  
Paul Caster ◽  
Brad Reed
Keyword(s):  
Audit Quality ◽  
Exposure Period ◽  
Public Accounting ◽  
Accounting Firms ◽  
Accounting Firm ◽  
The Public ◽  
Sarbanes Oxley ◽  
Public Company ◽  
Auditing Standards ◽  
Supervision Practices

SUMMARY: Recently, the Public Company Accounting Oversight Board (“PCAOB” or “Board”) issued a release to address, in two ways, issues relating to the responsibilities of a registered public accounting firm and its supervisory personnel with respect to supervision. First, the release reminds registered firms and associated persons of, and highlights the scope of, Section 105(c)(6) of the Sarbanes-Oxley Act of 2002 (“the Act”), which authorizes the Board to impose sanctions on registered public accounting firms and their supervisory personnel for failing to supervise reasonably an associated person who has violated certain laws, rules, or standards. Second, the release discusses and seeks comment on conceptual approaches to rulemaking that might complement the application of Section 105(c)(6) and, through increased accountability, lead to improved supervision practices and, consequently, improved audit quality. The PCAOB provided for a 91-day exposure period (from August 5, 2010, to November 3, 2010) for interested parties to examine and provide comments on the conceptual approaches to rulemaking that might complement the application of Section 105(c)(6). The Auditing Standards Committee of the Auditing Section of the American Accounting Association provided the comments in the letter below to the PCAOB on the PCAOB Release No. 2010-005, Application of the “Failure to Supervise” Provision of the Sarbanes-Oxley Act of 2002 and Solicitation of Comment on Rulemaking Concepts.

PCAOB International Inspections and Audit Quality

2016 ◽  
Vol 92 (5) ◽  
pp. 143-166 ◽  
Author(s):  
Jagan Krishnan ◽  
Jayanthi Krishnan ◽  
Hakjoon Song
Keyword(s):  
Audit Quality ◽  
Value Relevance ◽  
Accounting Firms ◽  
The Public ◽  
Public Company ◽  
Accounting Numbers ◽  
Abnormal Accruals ◽  
Relevance Measure ◽  
The Impact ◽  
First Time

ABSTRACT We investigate the impact of the Public Company Accounting Oversight Board's (PCAOB) first-time inspections of foreign accounting firms by examining abnormal accruals around the inspection year, and the value relevance of accounting numbers around the inspection report date, for their U.S. cross-listed clients. We document lower abnormal accruals in the post-inspection period, and greater value relevance of accounting numbers in the post-report period for clients of the inspected auditors, compared with non-cross-listed clients or clients of non-inspected auditors within the inspected countries. Comparisons of the PCAOB's joint inspections with PCAOB stand-alone inspections indicate that while both experience lower post-inspection abnormal accruals, the former benefit more than the latter. The value relevance measure, in contrast, shows greater increases for the PCAOB stand-alone inspections than for joint inspections. Comparing the inspection effects for auditors with and without deficiency reports, we find no systematic differences for accruals or for value relevance.

scholarly journals DOES AUDITOR INDEPENDENCE, SKEPTICISM, AND PROFESSIONALISM INFLUENCE AUDIT QUALITY?

2020 ◽  
Vol 4 (2) ◽  
pp. 251
Author(s):  
Putri Puspitarani ◽  
Supeni Anggraeni Mapuasari
Keyword(s):  
Empirical Evidence ◽  
Cognitive Dissonance ◽  
Audit Quality ◽  
Auditor Independence ◽  
Professional Organizations ◽  
Survey Method ◽  
Public Accounting ◽  
Accounting Firms ◽  
The Stability ◽  
High Sense

Riset ini menyajikan bukti empiris faktor-faktor yang mempengaruhi kualitas audit yang bersumber dari kognisi auditor. Faktor kognisi yang diujikan antara lain independensi, skeptisme, dan profesionalisme. Independensi didefinisikan sebagai kemauan auditor untuk netral dan tidak bias dalam mengambil keputusan. Skeptisme adalah kemauan auditor untuk mempertanyakan dan melakukan prosedur audit tambahan ketika terjadi keraguan dalam penentuan pertimbangan audit. Profesionalisme merepresentasikan pemahaman dan sikap auditor atas hak dan kewajibannya yang diatur oleh organisasi profesi. Untuk menguraikan logika hipotesis, riset ini menggunakan teori disonansi kognitif. Auditor tentu mengalami berbagai dinamika dalam menjalankan tugasnya. Dinamika ini terkadang mengandung ketidaksesuaian antara kognisi yang dimilikinya dengan apa yang ditemukannya. Dalam kondisi tersebut, penelitian ini menduga bahwa auditor yang memiliki rasa independensi yang tinggi akan lebih mampu menghasilkan kualitas audit yang baik. Auditor dengan skeptisme yang semakin tinggi tentu akan mau untuk mengeluarkan upaya tambahan demi meraih kualitas audit yang sesuai. Sementara itu, profesionalisme mampu mendukung kemantapan auditor dalam mengupayakan kualitas audit yang tinggi. Dengan menggunakan metode survei yang disebarkan pada para auditor di kantor akuntan publik di kota jakarta, riset ini menemukan bahwa independensi, skeptisme, dan profesionalisme secara signifikan mendukung persepsi kualitas audit. Ini artinya, kantor akuntan publik dapat mempertimbangkan faktor-faktor ini dalam perumusan kebijakan rekrutmen dan pelatihan.  This research presents empirical evidence of the factors that influence audit quality sourced from auditor cognition. Cognition factors tested included independence, skepticism, and professionalism. Independence is defined as the auditor's willingness to be neutral and not biased in making decisions. Skepticism is the auditor's willingness to question and carry out additional audit procedures when there is doubt in determining audit considerations. Professionalism represents the auditor's understanding and attitude towards his rights and obligations governed by professional organizations. To outline the logic of the hypothesis, this research uses the theory of cognitive dissonance. Auditors naturally experience various dynamics in carrying out their duties. This dynamic sometimes contains a mismatch between the cognition it has and what it finds. Under these conditions, this study suspects that auditors who have a high sense of independence will be better able to produce good audit quality. Auditors with increasing skepticism will certainly want to spend additional effort to achieve appropriate audit quality. Meanwhile, professionalism can support the stability of auditors in seeking high audit quality. Using a survey method distributed to auditors at public accounting firms in Jakarta, this research found that independence, skepticism, and professionalism significantly support the perception of audit quality.

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