Does the Timing of Auditor Changes Affect Audit Quality? Evidence From the Initial Year of the Audit Engagement

2017 ◽  
Vol 35 (2) ◽  
pp. 263-289 ◽  
Author(s):  
Cory A. Cassell ◽  
James C. Hansen ◽  
Linda A. Myers ◽  
Timothy A. Seidel
Keyword(s):  
Audit Quality ◽  
Financial Statements ◽  
First Year ◽  
The Third ◽  
Client Relationship ◽  
Time Required ◽  
Quality Evidence

We focus on the first year of the auditor–client relationship and investigate whether audit quality varies with the timing of the new auditor’s appointment. We find that audit quality is not lower for companies that engage new auditors before the end of the third fiscal quarter than for companies that do not change auditors. However, companies that engage new auditors during or after the fourth fiscal quarter are more likely to misstate their audited financial statements than companies that engage new auditors earlier in the year and companies that do not change auditors. In additional tests, we find that the decrease in audit quality associated with late auditor changes is more pronounced for companies with complex operations (i.e., more operating segments). These results suggest that the extent to which audit quality suffers in the first year of audit engagements is affected by both the amount of time required to understand the client’s business, assess risks, and perform the audit (all of which are driven by client complexity), as well as the amount of time available for auditors to perform these tasks.

scholarly journals Does Auditor Tenure Reduce Audit Quality?

2012 ◽  
Vol 14 (3) ◽  
pp. 303 ◽  
Author(s):  
Junaidi ◽  
Setiyono Miharjo ◽  
Bambang Hartadi
Keyword(s):  
Audit Quality ◽  
Stock Exchange ◽  
Financial Statements ◽  
Auditor Independence ◽  
Going Concern ◽  
Auditor Tenure ◽  
Client Relationship ◽  
Going Concern Opinion ◽  
Research Analysis ◽  
Public Accountant

Reduced auditor independence and the rise of corporate accounting manipulations have caused trust of the users in audited financial statements to begin to decline, so users of financial statements are questioning whether public accountants are independent parties. This research issue is related to the Decree of the Minister of Finance No. 17 in 2008 about public accountant services. Giving attestation services, in the form of financial statements about an entity, are conducted by the audit firm for no longer than 6 consecutive fiscal years and by a public accountant for 3 consecutive fiscal years at the longest. The purpose of this research is to examine empirically the influence of auditor tenure on audit quality. Auditor tenure is measured as the length of the auditor-client relationship. Audit quality is measured by the propensity of auditors to issue a going-concern opinion. This study uses a sample of firms listed on the Indonesia Stock Exchange during the 2003-2008 period. Research analysis uses logit model to measure the effect of auditor tenure on the auditors’ propensity to publish a going-concern opinion. The hypothesis which states that the length of auditor tenure influences negatively the propensity of auditors to issue a going-concern opinion is statistically supported. This research is expected to provide empirical evidence about the importance of limiting of the auditor-client relationship.       

Disclosure effects of the PCAOB part II reports

2017 ◽  
Vol 13 (4) ◽  
pp. 568-580
Author(s):  
Ifeoma Udeh
Keyword(s):  
Design Methodology ◽  
Audit Quality ◽  
Financial Statements ◽  
First Year ◽  
Dominant Focus ◽  
Content Type ◽  
Investor Confidence ◽  
Related Literature ◽  
Audit Firms ◽  
Practical Implications

Purpose The purpose of this paper is to examine the effect of the PCAOB part II report disclosures on US triennially inspected audit firms’ deregistration decisions, the likelihood and the timing of audit firms’ dismissals and resignations. Design/methodology/approach The paper anchored on US regulations used 158 publicly available records of disclosed PCAOB part II reports from 2004 to 2012. Findings The number of the quality control deficiencies disclosed in the part II report affects US triennially inspected audit firms’ decisions to deregister from the PCAOB. Additionally, audit firms’ dismissals and resignations, both occur mostly within the first year after the part II report disclosure, although audit firms that subsequently deregister are more likely to be dismissed. Practical implications The paper provides support that the disclosure of the PCAOB part II inspection report motivates audit quality improvement. Social implications The PCAOB inspection and subsequent disclosure of the part II inspection report enhances audit quality, which in turn, enhances investor confidence in the accuracy and reliability of audited financial statements. Originality/value The paper provides insights about the effect of the disclosures of PCAOB part II report, over and above any benefits from the PCAOB part I report disclosures, which is the dominant focus of related literature.

Pengaruh Profitabilitas, Umur Perusahaan, Ukuran Perusahaan, Kualitas Audit, Dan Struktur Modal Terhadap Kualitas Laba

2014 ◽  
Vol 6 (1) ◽  
pp. 27-42
Author(s):  
Keshia Anjelica ◽  
Albertus Fani Prasetyawan
Keyword(s):  
Firm Size ◽  
Stock Prices ◽  
Audit Quality ◽  
Earnings Quality ◽  
Secondary Data ◽  
Financial Statements ◽  
Firm Age ◽  
Construction Companies ◽  
Auditor Switching ◽  
Testing Method

The objective of this research is to examine the effect of profitability, firm age, firm size, audit quality, and leverage both partially and simultaneously towards earnings quality. The testing method used in this research is multiple regressions. The objects of this study are property, real estate and construction companies which were listed at Kompas 100 for the period 2010-2012. The samples are 15 companies determined based on purposive sampling. The data used in this study are secondary data such as financial statements and historical stock prices. The results of this study are (1) firm age has a negative significant effect on earnings quality, meanwhile firm size has a positive significant effect on earnings quality (2) profitability, audit quality, and leverage partially have an insignificant effect towards earnings quality (3) profitability, firm age, firm size, audit quality, and leverage simultaneously have a significant effect towards voluntary auditor switching. Keywords: ERC, earnings quality, profitability, firm age, firm size, audit quality, leverage.

Auditor and FASB Responsibilities for Representing Underlying Economics—What U.S. Standards Actually Say

2018 ◽  
Vol 32 (3) ◽  
pp. 83-90 ◽  
Author(s):  
Zoe-Vonna Palmrose ◽  
William R. Kinney
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Reporting Quality ◽  
Financial Statements ◽  
Financial Reporting Quality ◽  
Or Practice

SYNOPSIS Does the auditor's responsibility under U.S. authoritative guidance extend to providing assurance of financial reporting quality—specifically whether financial statements “faithfully reflect the firm's underlying economics”—after the auditor has concluded that financial statements are fairly presented in conformity with GAAP, in all material respects? The question arises because DeFond and Zhang (2014) state such a view and cite U.S. authoritative guidance as support. We review SEC, PCAOB, and FASB guidance and other sources and find no authoritative support for DeFond and Zhang's (2014) view. We also find that the PCAOB explicitly recognizes the lack of objective criteria that would be necessary to evaluate financial reporting quality beyond application of GAAP to events and transactions. Further, we find no evidence that practicing auditors do (separately) assess or assure that financial statements faithfully reflect the entire firm's underlying economics. Overall, these findings suggest DeFond and Zhang (2014) express a personal (and impracticable) normative view and not the auditor's actual responsibility or practice under extant U.S. standards. More broadly, results reinforce the importance of defining and measuring audit quality based on the auditor's actual responsibilities and the importance of accurately characterizing authoritative guidance and practice for scholarship regarding complex and multifaceted matters, including audit quality.

Audit Quality of Chinese ADR Engagements

2016 ◽  
Vol 31 (2) ◽  
pp. 25-43 ◽  
Author(s):  
Aloke (Al) Ghosh ◽  
Elisabeth Peltier ◽  
Cunyu Xing
Keyword(s):  
Audit Quality ◽  
Emerging Market ◽  
Financial Statements ◽  
Foreign Firms ◽  
American Depositary Receipts ◽  
Reverse Mergers ◽  
Chinese Companies ◽  
Big 4 ◽  
Depositary Receipts

SYNOPSIS The controversy over Chinese reverse mergers has led to concerns about the audit quality of all U.S.-listed Chinese companies. Because a sizeable number of foreign firms cross-list their shares as American Depositary Receipts (ADRs) issued by U.S. depositary banks (as opposed to direct listings), we study how auditors have managed their audits of Chinese ADRs. Our motivation for examining Chinese ADRs is based on the findings that cross-listing via the ADR process is beneficial for U.S. shareholders. We find that relative to ADRs from countries other than China, and relative to directly listed Chinese companies, Chinese ADRs are more likely to be associated with a Big 4 auditor and are less likely to restate prior-period financial statements. We also find that Chinese ADRs pay significantly higher fees than other emerging market ADRs and Chinese direct-listings. Collectively, these results suggest high audit quality for Chinese ADRs, which is in sharp contrast to the Chinese direct-listing results. Using Tobin's Q as a measure of market value, we find that the stock market rewards Chinese ADRs, indicating that investors incorporate the benefits of higher audit quality when evaluating Chinese ADRs.

Does Auditor Explanatory Language in Unqualified Audit Reports Indicate Increased Financial Misstatement Risk?

2014 ◽  
Vol 89 (6) ◽  
pp. 2115-2149 ◽  
Author(s):  
Keith Czerney ◽  
Jaime J. Schmidt ◽  
Anne M. Thompson
Keyword(s):  
Financial Reporting ◽  
Reporting Quality ◽  
Positive Association ◽  
Financial Statements ◽  
Financial Statement ◽  
Financial Reporting Quality ◽  
Accounting Principles ◽  
Client Relationship ◽  
Financial Misstatement ◽  
Audit Reports

ABSTRACT According to auditing standards, explanatory language added at the auditor's discretion to unqualified audit reports should not indicate increased financial misstatement risk. However, an auditor is unlikely to add language that would strain the auditor-client relationship absent concerns about the client's financial statements. Using a sample of 30,825 financial statements issued with unqualified audit opinions during 2000–2009, we find that financial statements with audit reports containing explanatory language are significantly more likely to be subsequently restated than financial statements without such language. We find that this positive association is driven by language that references the division of responsibility for performance of the audit, adoption of new accounting principles, and previous restatements. In addition, we find that (1) “emphasis of matter” language that discusses mergers, related-party transactions, and management's use of estimates predicts restatements related to these matters, and that (2) the financial statement accounts noted in the explanatory language typically correspond to the accounts subsequently restated. In sum, our results suggest that present-day audit reports communicate some information about financial reporting quality.

Clients' Expectations on Audit Judgments: A Note

2004 ◽  
Vol 16 (1) ◽  
pp. 63-74 ◽  
Author(s):  
Venkataraman M. Iyer ◽  
Dasaratha V. Rama
Keyword(s):  
Audit Quality ◽  
Financial Statements ◽  
Early Years ◽  
Relative Power ◽  
Client Perceptions ◽  
Audit Firm ◽  
Auditor Tenure ◽  
Start Up ◽  
Nonaudit Services ◽  
The Impact

Audited financial statements can be viewed as the product of negotiations between a company's management and its auditor. Relative power of these two parties is a major factor that determines the outcome of the negotiation. This study examines the impact of auditor tenure, importance of a client to an audit partner, nonaudit purchases, and prior audit firm experience of client personnel on client perceptions about their ability to persuade the auditor in the context of an accounting disagreement. We obtained responses to a survey from 124 CPAs in industry who are employed as CEOs, CFOs, controllers, or treasurers. Our results indicate that respondents from companies with short auditor tenures were somewhat more likely to indicate that they could persuade the auditor to accept their (client's) position in case of a disagreement. This finding is consistent with the argument that auditors are susceptible to influence in the early years as they are still in the process of recouping start-up costs, but is not consistent with concerns expressed by legislators and others that long auditor tenures will adversely affect audit quality. Respondents who believed their business was more important for the audit partner were also more likely to believe that they could persuade the auditor. However, the purchase of nonaudit services and prior audit experience were not related to client's perceptions about their ability to persuade the auditor.

Unexpected Consequences: The Effects on Non-Accelerated Filers of an Accelerated Filing Deadline and SOX Section 404

2020 ◽  
Vol 34 (3) ◽  
pp. 87-112
Author(s):  
Bei Dong ◽  
Stefanie L. Tate ◽  
Le Emily Xu
Keyword(s):  
Resource Allocation ◽  
Financial Statements ◽  
Financial Statement ◽  
Negative Consequences ◽  
Section 404 ◽  
Auditor Change ◽  
Time Required ◽  
Allocation Decisions ◽  
Jel Classifications ◽  
Resource Allocation Decisions

SYNOPSIS Regulations implemented by the SEC in 2003 and 2004 simultaneously shortened the financial statement filing deadlines and increased the time required for both the preparation of financial statements and the related audit of accelerated filers (AFs). However, there were indirect, unintended negative consequences for companies not subject to the regulations, namely, non-accelerated filers (NAFs). The new regulations imposed strains on auditor resources requiring auditors to make resource allocation decisions that negatively affected NAFs. We find that NAFs with an auditor who had a high proportion of AF clients (high-AF) had longer audit delays after the regulations were implemented than NAFs of an auditor with a low proportion of AF clients (low-AF). Further, we document that NAFs with high-AF auditors were more likely to change auditors than NAFs with low-AF auditors. Finally, NAFs that switched to auditors with less AFs experienced shorter audit delays after the auditor change. JEL Classifications: M42; M48.

1702–1703

2017 ◽  
Author(s):  
Frances Harris
Keyword(s):  
First Year ◽  
The Third

The third chapter traces the beginning of the partnership through the first year of Queen Anne’s reign, as Marlborough persuades Godolphin to return to office as Lord Treasurer and his ministerial partner, with the declared aim of ‘moderation’, that is, holding the balance between the Tories and Whigs on the basis of their support of the war. The role of Queen Anne’s husband Prince George is examined and Marlborough’s and Godolphin’s separate roles are explored, along with the significance of their extensive correspondence. Marlborough is unexpectedly successful in his first campaign, but his determination to obtain a grant from Parliament to support his dukedom jeopardizes Godolphin’s project for war-supply, and their rival Rochester contests control of the Treasury and therefore the war. Marlborough forces Rochester’s resignation and the partnership is confirmed when Marlborough’s only son dies shortly before he leaves for the Continent and he adopts Godolphin’s son as his heir.

scholarly journals Deep learning for intelligent diagnosis in thyroid scintigraphy

2021 ◽  
Vol 49 (1) ◽  
pp. 030006052098284
Author(s):  
Tingting Qiao ◽  
Simin Liu ◽  
Zhijun Cui ◽  
Xiaqing Yu ◽  
Haidong Cai ◽  
...  
Keyword(s):  
Deep Learning ◽  
Disease Diagnosis ◽  
Kappa Coefficient ◽  
Diagnostic Assessment ◽  
First Year ◽  
Thyroid Scintigraphy ◽  
Diagnostic Ability ◽  
The Third ◽  
Classification Time ◽  
Better Than

Objective To construct deep learning (DL) models to improve the accuracy and efficiency of thyroid disease diagnosis by thyroid scintigraphy. Methods We constructed DL models with AlexNet, VGGNet, and ResNet. The models were trained separately with transfer learning. We measured each model’s performance with six indicators: recall, precision, negative predictive value (NPV), specificity, accuracy, and F1-score. We also compared the diagnostic performances of first- and third-year nuclear medicine (NM) residents with assistance from the best-performing DL-based model. The Kappa coefficient and average classification time of each model were compared with those of two NM residents. Results The recall, precision, NPV, specificity, accuracy, and F1-score of the three models ranged from 73.33% to 97.00%. The Kappa coefficient of all three models was >0.710. All models performed better than the first-year NM resident but not as well as the third-year NM resident in terms of diagnostic ability. However, the ResNet model provided “diagnostic assistance” to the NM residents. The models provided results at speeds 400 to 600 times faster than the NM residents. Conclusion DL-based models perform well in diagnostic assessment by thyroid scintigraphy. These models may serve as tools for NM residents in the diagnosis of Graves’ disease and subacute thyroiditis.

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