The Relative Importance of Auditor Characteristics Versus Client Factors in Explaining Audit Quality

2020 ◽  
pp. 0148558X2095305 ◽  
Author(s):  
Mara Cameran ◽  
Domenico Campa ◽  
Jere R. Francis
Keyword(s):  
Fixed Effects ◽  
Audit Quality ◽  
Linear Models ◽  
Demographic Data ◽  
Accounting Firm ◽  
Listed Firms ◽  
Audit Firms ◽  
Client Factors ◽  
Selection Operator ◽  
Related Characteristic

The U.K. listed firms are used to investigate whether auditor attributes (fixed effects for audit firms, audit offices, and audit partners) add incrementally to baseline models with client controls in explaining audit quality. We document that accounting firm fixed effects add significantly to baseline models. To the extent an accounting firm can standardize its audits, there should be no differences across engagements. However, we find significant interoffice differences, and also significant inter-partner differences within offices. R2 analyses, hierarchical linear models, LASSO (least absolute shrinkage and selection operator) regressions, and R2 decomposition analyses all show that partners are the most important auditor-related characteristic. To better understand the cause of partner variation, we test a set of partner demographic variables (in lieu of partner fixed effects), but we find that they explain little variation, once we control for firm and office differences. We conclude that partner variation is important in explaining audit quality, but understanding the causes requires going beyond existing publicly available demographic data.

Diversity of Signing Auditors and Audit Quality

2021 ◽  
Author(s):  
Chang He ◽  
Chao Li ◽  
Gary S. Monroe ◽  
Yi Si
Keyword(s):  
Fixed Effects ◽  
Audit Quality ◽  
Positive Association ◽  
Cognitive Diversity ◽  
Demographic Diversity ◽  
Cross Sectional ◽  
Listed Firms ◽  
Audit Firms ◽  
Client Firm ◽  
Using Data

Using data for listed firms in China, where two auditors sign the audit report, we examine whether the diversity of signing auditors' characteristics affects audit quality. We find a positive association between diversity and audit quality, consistent with the notion that diversity facilitates team performance. Further analyses show there is a stronger association between cognitive, rather than demographic, diversity of signing auditors and audit quality. Our results are robust to the inclusion of client firm and engagement auditor fixed effects. Cross-sectional results indicate stronger effects of the cognitive diversity of signing auditors on audit quality in complex, opaque, less important clients or firms without industry specialist auditors. Findings from our study suggest that audit firms should allocate staff to audit teams in a manner that results in cognitively diverse audit teams because such teams are more likely to deliver high quality audits.

scholarly journals The Relationship Between An Auditing Firm's Characteristics And The Incidence Rate Of Its Clients Subject To AAERs

2014 ◽  
Vol 30 (5) ◽  
pp. 1313 ◽  
Author(s):  
Yunsung Koh ◽  
Hyunjung Choi ◽  
Sohee Woo
Keyword(s):  
Incidence Rate ◽  
Firm Size ◽  
Audit Quality ◽  
Accounting Firm ◽  
Audit Firm ◽  
Audit Firms ◽  
Audit Fee ◽  
The Difference ◽  
The Relationship ◽  
A Company

This paper examines the relationship between an auditors characteristics and the incidence rate of its client subject to the Accounting and Auditing Enforcement Release. Using the sample of AAERs from 2002 to 2006, we find that when a firm is audited from a large accounting firm, there is a significantly less incidence rate subject to AAERs. Also, we find that the audit time of AAERs firms is significantly less than that of non-AAERs firms. Because AAER is related with audit quality, it implies that AAER depends on audit time and audit firm size, and that a firm is affected by the incidence rate of subjects toward AAERs. However, there is no difference between the audit fee of AAERs firms audit fee and that of non-AAERs firms. Although audit time leads to a high audit fee, audit firms are very competitive and therefore, there are some limitations with receiving a high audit fee according to audit time. Therefore, the audit fee is significantly affected by the incidence rate of subjects toward AAERs. Additionally, we also examine the effectiveness of AAERs and the difference of audit efforts depending on the cause of AAERs and the degree of penalties imposed by FSS. Overall, the results suggest that depending on the auditors characteristics, such as the size of accounting firm, audit time, and audit fee, a company is affected by the incidence rate subject to AAERs.

Insurance claims and audit quality: evidence from trade credit insurance in Chinese listed firms

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Songsheng Chen ◽  
Jun Guo ◽  
Yingying Tian ◽  
Lijuan Yan
Keyword(s):  
Audit Quality ◽  
Trade Credit ◽  
Audit Fees ◽  
Agency Cost ◽  
Insurance Claims ◽  
Content Type ◽  
Listed Firms ◽  
Credit Insurance ◽  
Audit Firms ◽  
Insurance Data

PurposeUsing unique trade credit insurance data from China, we examine whether trade insurance claims are associated with audit efforts and audit quality.Design/methodology/approachThe paper is based on a sample of Chinese firms to study insurance claims of trade credit insurance that affects abnormal audit fees.FindingsIn this study, we find that firms with high insurance claims pay higher abnormal audit fees. Further, our findings indicate that firms with high insurance claims have a short audit report lag and tend to select local audit firms.Originality/valueTo the best of our knowledge, this is the first study to investigate the association between trade credit insurance claims and audit efforts. In addition, we contribute to the literature on the agency cost of abnormal audit fees.

The Spillover Effect of Audit Firm Office Acquisition on the Audit Quality of the Existing Client Base

2021 ◽  
Author(s):  
Aleksandra B. Zimmerman ◽  
Amirali M. Chaghervand ◽  
R. Drew Sellers ◽  
Timothy J. Fogarty
Keyword(s):  
Audit Quality ◽  
Spillover Effect ◽  
Accounting Firm ◽  
Audit Firm ◽  
Audit Firms ◽  
Local Practices ◽  
The Impact ◽  
Arthur Andersen ◽  
Robust Evidence

This study investigates accounting firm office acquisitions. It explores whether office acquisitions affect post-acquisition office audit quality, particularly whether there is a spillover effect on the existing client base of the acquiring office. We capitalize on a unique circumstance: the 2002 acquisition of Arthur Andersen (Andersen) offices by other audit firms. This setting involves a set of offices in each of the remaining large international audit firms that acquired entire Andersen local practices and a set of offices that did not acquire Andersen practices. Using a within-audit firm matched sample and a difference-in-differences research design, we find robust evidence of higher audit quality post-acquisition among the audits of existing clients of the acquiring offices. These findings extend the literature on office audit quality and provide initial evidence of the impact of audit firm office acquisitions on the existing client base.

Market Competition, Audit Fee Stickiness, and Audit Quality: Evidence from China

2018 ◽  
Vol 38 (2) ◽  
pp. 79-99 ◽  
Author(s):  
Hsihui Chang ◽  
Yingwen Guo ◽  
Phyllis Lai Lan Mo
Keyword(s):  
Earnings Management ◽  
Audit Quality ◽  
Market Competition ◽  
Positive Association ◽  
Certified Public Accountants ◽  
Listed Firms ◽  
Audit Market ◽  
Audit Firms ◽  
Audit Fee ◽  
Auditor Reporting

SUMMARY This study examines how audit fee stickiness varies with changes in market competition in China and its effect on audit quality. The Chinese audit market structure has changed significantly since the Chinese Institute of Certified Public Accountants (CICPA) issued a proposal to enhance the competitiveness of large domestic audit firms by promoting the consolidation of domestic audit firms in 2007. Using a sample of Chinese listed firms, we find a decrease in upward stickiness and an increase in downward stickiness as market concentration increases in the post-Proposal period. The asymmetry between upward and downward fee stickiness is greater in local markets that are more dominated by the top 10 domestic auditors. Moreover, we find that upward (downward) fee stickiness has a negative (positive) association with audit quality as measured by earnings management and auditor reporting conservatism. JEL Classifications: D40; M42.

Accounting Firm Culture and Governance: A Research Synthesis

2008 ◽  
Vol 20 (1) ◽  
pp. 45-74 ◽  
Author(s):  
J. Gregory Jenkins ◽  
Donald R. Deis ◽  
Jean C. Bedard ◽  
Mary B. Curtis
Keyword(s):  
Audit Quality ◽  
Environmental Changes ◽  
Review Literature ◽  
Current Status ◽  
Future Research ◽  
Control Mechanisms ◽  
Accounting Firm ◽  
Audit Firms ◽  
Public Company ◽  
And Control

This paper summarizes research related to accounting firm culture and governance. While perennially important, this topic has immediacy due to the intention of the Public Company Accounting Oversight Board (PCAOB) to consider revisions of the current U.S. interim auditing standards on quality control. Our purposes are to bring together several disparate lines of research on this broad topic in order to identify specific areas of insufficient research. We review literature related to the roles of culture and subcultures within audit firms, and the relation between culture and audit quality. We also consider governance and control mechanisms, including policies related to consultation, independent monitoring boards, ethics training, and acculturation. Throughout the paper, we offer suggestions for future research based on the current status of the literature and the recent environmental changes in the auditing profession.

scholarly journals Are Audits of Financial Statements Born Unequal?

2017 ◽  
Vol 2 (3) ◽  
pp. 16
Author(s):  
Manh Dung Tran ◽  
Van Anh Doan ◽  
Thi Thuy Bui ◽  
Manh Cuong Nguyen
Keyword(s):  
Hong Kong ◽  
Audit Quality ◽  
Financial Statements ◽  
Financial Reports ◽  
Audit Firm ◽  
Listed Firms ◽  
Goodwill Impairment ◽  
Audit Firms ◽  
Arthur Andersen

Audit is getting more and more importance in assuring the reliability of financial information including financial statements for all parties. Commonly, quality of an audit is viewed as probability that financial reports are free from material irregularities. In the previous literature, there is a positive relationship between size of audit firm and audit quality that has long been understood. This has resulted in many publications to gather evidence of differential audit quality relating to audit firm size. In consequence, the conclusion has been focused that bigger audit firms produce higher audit quality than smaller ones. However, the collapse of many big international audit firms, typically Arthur Andersen has reduced the statement that large audit firms have higher audit quality than small ones. Therefore, this study looks into audit quality basing on the extent of compliance with disclosure requirements pertaining to goodwill impairment of large listed firms in Hong Kong context in the second year transition to IFRS. We found that audit firm identity appears to be a substantial variation, in which compliance levels changed significantly among auditors in the context of Hong Kong.

Audit Firms' Client Acceptance Decisions: Does Partner-Level Industry Expertise Matter?

2015 ◽  
Vol 35 (2) ◽  
pp. 97-120 ◽  
Author(s):  
Yu-Ting Hsieh ◽  
Chan-Jane Lin
Keyword(s):  
Financial Risk ◽  
Audit Quality ◽  
Litigation Risk ◽  
Firm Level ◽  
Audit Risk ◽  
Listed Firms ◽  
Sarbanes Oxley ◽  
Audit Firms ◽  
Client Acceptance ◽  
Industry Expertise

SUMMARY This study examines whether auditor industry expertise affects firms' client acceptance decisions. Analyzing listed firms in Taiwan, where audit partners' signatures are disclosed on the audit report, we find that partner-level industry specialists, rather than firm-level industry specialists, are less likely to accept clients with higher audit risk. We also provide weak evidence that partner-level industry specialists are less likely to accept clients with higher financial risk. This is consistent with the notion that partner-level industry specialists have an incentive to protect their reputation when making client acceptance decisions. In 2002, following the spirit of the Sarbanes-Oxley Act (SOX), the Securities and Futures Commission in Taiwan adopted a series of new rules to improve audit quality. We examine the effect of SOX on client acceptance decisions and the results indicate that partner-level industry specialists manage risk by accepting clients with less audit risk since litigation risk increased after SOX.

PENGARUH INDEPENDENSI AUDITOR DAN KOMPETENSI AUDITOR TERHADAP KUALITAS AUDIT DENGAN TEKANAN KLIEN SEBAGAI VARIABEL MODERASI

2019 ◽  
Vol 4 (3) ◽  
pp. 381-390
Author(s):  
Prayogi Gunawan ◽  
Abriandi Abriandi
Keyword(s):  
Regression Analysis ◽  
Audit Quality ◽  
Ideal Condition ◽  
Certified Public Accountants ◽  
Public Accounting ◽  
Accounting Firm ◽  
The Public ◽  
Questionnaire Form ◽  
Client Pressure ◽  
Survey Approach

This study aims to test whether client pressure can moderate the influence of auditor’s independence and auditor’s competence on audit quality. This study used a survey approach with questionnaire form which filled by 80 auditors who work at the Public Accounting Firm of North Jakarta listed at the Indonesian Institute of Certified Public Accountants. Regression analysis was used to test the hypothesis. The result of the research shows that if the auditor has high independence and competence, then audit quality will be higher also. Based on testing of a pure moderator, client pressure is able to moderate and strengthen each influence of auditor’s independence and auditor’s competence on audit quality. This suggests that this study produces an ideal condition in which client pressure makes the auditor more independent and competent to the job. Keywords: Auditor’s independence, Auditor’s competence, Audit quality, Client pressure

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