Disclosure Of Nonaudit Services Fees: Perceptions Of Investors And Accounting Professionals

2011 ◽  
Vol 19 (4) ◽  
Author(s):  
J. Gregory Jenkins ◽  
Kathy Krawczyk
Keyword(s):  
Internal Audit ◽  
Audit Fees ◽  
Auditor Independence ◽  
Legal Services ◽  
Software Training ◽  
Big 5 ◽  
Accounting Professionals ◽  
Normal Text ◽  
Final Rule ◽  
Cpa Firm

<p class="MsoBodyTextIndent" style="text-align: justify; line-height: normal; text-indent: 0in; margin: 0in 37.9pt 0pt 37.4pt;"><span style="font-size: 10pt; mso-bidi-font-style: italic;"><span style="font-family: Times New Roman;">This study examines investors&rsquo; and accounting professionals&rsquo; perceptions related to the necessity and form of disclosure of nonaudit service (NAS) fees pursuant to the Security and Exchange Commission&rsquo;s Final Rule on auditor independence. A between-subjects design was used to examine participants&rsquo; opinions as to the need for disclosure of the performance of NAS and the particular form of disclosure that was preferred. The design incorporated four types of NAS (actuarial services, internal audit outsourcing, legal services, and software training), two levels of materiality (40 percent and 3 percent), and three categories of participants (non-Big 5 CPA firm professionals, Big 5 CPA firm professionals, and investors). A larger percentage of investors favored disclosure of NAS fees than either non-Big 5 CPA firm professionals or Big 5 CPA firm professionals. In addition, of those who favored disclosure, investors favored disclosure of the amount of NAS along with the total audit fees, regardless of the amount, while non-Big 5 CPA firm professionals and Big 5 CPA firm professionals both favored disclosure of the amount of NAS alone and only if those services exceeded a specified threshold. The investor results lend support to the SEC&rsquo;s revised auditor independence rules.</span></span></p>

scholarly journals The effects of human resources in internal audit on external audit pricing decision

2018 ◽  
Vol 15 (4-1) ◽  
pp. 165-180
Author(s):  
Moon Kyung Cho
Keyword(s):  
Small Firms ◽  
Internal Audit ◽  
Audit Fees ◽  
Auditor Independence ◽  
Professional Judgment ◽  
External Audit ◽  
Internal Auditor ◽  
Internal Auditors ◽  
External Auditors ◽  
General Internal

This study presents evidence that external audit fees are negatively and significantly associated with the proportion of general internal auditors. Further, external audit hours are negatively and significantly associated with the proportion of general auditors without affecting external unit audit price. In addition, the results of the data adjusted for firm size suggest that audit fees and audit hours decrease for smaller firms as the proportion of general internal auditor increases. The result implies that both small firms and their external auditors are encouraged to utilize more general internal auditors in performing an external audit. The author finds no evidence that external audit fees are associated with internal auditor expertise or experience. This shows that external auditors are not likely to rely on internal auditors’ professional judgment in performing an external audit due to reduced auditor independence.

The Effect of Internal Audit Outsourcing on Financial Analysts' Perceptions of External Auditor Independence

2001 ◽  
Vol 20 (2) ◽  
pp. 115-129 ◽  
Author(s):  
Susan L. Swanger ◽  
Eugene G. Chewning
Keyword(s):  
Phase 1 ◽  
Financial Analysts ◽  
Internal Audit ◽  
Auditor Independence ◽  
Internal Auditing ◽  
External Audit ◽  
Two Phase ◽  
Phase Study ◽  
External Auditor ◽  
Cpa Firm

The practice of outsourcing the internal audit function to the external audit firm has raised fears by many parties such as the SEC of possible independence impairment. The fear stems from the increased economic bond that exists when additional services are provided to an audit client, as well as the long-held view that internal auditing is a management function and, as such, is incompatible with the external audit function. This paper reports the results of a two-phase study of the perceptions of financial analysts regarding external auditor independence when a CPA firm performs both external and internal auditing services. In phase 1, analysts' perceptions of auditor independence are greater when the client employs its own internal audit staff or outsources to a different CPA firm than when the external auditor also performs internal audit functions. Phase 2 results show that analysts' perceptions of auditor independence are higher when the internal audit services are provided by the staff of a different division of the CPA firm compared to a nostaff separation treatment. Perceptions do not differ between full and partial outsourcing treatments, which conflicts with the recent SEC rule limiting the extent of outsourcing arrangements.

State Accountancy Regulators' Perceptions of Independence of External Auditors When Performing Internal Audit Activities for Nonpublic Clients

2007 ◽  
Vol 21 (1) ◽  
pp. 43-57 ◽  
Author(s):  
Cecil L. Hill ◽  
Quinton Booker
Keyword(s):  
Internal Audit ◽  
Auditor Independence ◽  
Board Members ◽  
Internal Auditing ◽  
Complete Understanding ◽  
External Audit ◽  
External Auditors ◽  
Target State ◽  
Significant Difference ◽  
Cpa Firm

This study explores state accountancy regulators' perceptions of whether external auditors remain independent when also performing internal audit activities for nonpublic entities. The purpose of this study is to provide a more complete understanding of perceptions regarding auditor independence in the nonpublic entity environment. The primary issues are (1) whether performing the external audit and internal auditing services for the same entity affects perceptions of independence, and (2) whether a separation between the CPA firm's internal and external audit personnel significantly affects perceptions of independence when both services are performed. We use a between-subjects design and target state accountancy regulators from each of the 54 U.S. jurisdictions. Findings based on 206 usable responses indicate that state board members do not perceive a significant difference in the independence of a CPA firm performing a nonpublic entity's external audit versus a CPA firm performing that entity's external audit and internal audit, provided that separate personnel are used for the external and internal audit work. Board members do perceive a significant difference in independence when the CPA firm uses the same personnel to perform both the external and internal audit work.

The Effects of Corporate Ownership on Public Accountants' Professionalism and Ethics

2002 ◽  
Vol 16 (2) ◽  
pp. 109-124 ◽  
Author(s):  
William E. Shafer ◽  
D. Jordan Lowe ◽  
Timothy J. Fogarty
Keyword(s):  
Current Trend ◽  
Auditor Independence ◽  
Corporate Ownership ◽  
Negative Effects ◽  
Public Accounting ◽  
Corporate Acquisitions ◽  
Accounting Professionals ◽  
Research Questions ◽  
And Control ◽  
First Time

The current trend toward corporate acquisitions of CPA firms poses potential threats to the autonomy and ethical standards of public accounting professionals. This recent consolidation movement suggests that for the first time a significant number of public accounting professionals are subject to the supervision and control of nonprofessionals. In addition to acknowledging the potential threats to auditor independence and objectivity, this paper suggests that these new organizational arrangements for the provision of public accounting services have other negative effects on professionalism and ethics such as desensitizing CPAs to traditional professional values, and subverting professional institutions to the goals of corporate employers. This paper develops a framework that identifies several specific research questions related to the effects of corporate ownership on professionalism and ethics in public accounting.

Does Incentive-Based Compensation for Chief Internal Auditors Impact Objectivity? An External Audit Risk Perspective

2016 ◽  
Vol 36 (2) ◽  
pp. 21-43 ◽  
Author(s):  
Lucy Huajing Chen ◽  
Hyeesoo H. (Sally) Chung ◽  
Gary F. Peters ◽  
Jinyoung P. (Jeannie) Wynn
Keyword(s):  
Financial Reporting ◽  
Internal Audit ◽  
Positive Association ◽  
Audit Fees ◽  
Data Availability ◽  
Company Performance ◽  
Potential Threat ◽  
External Audit ◽  
Internal Auditors ◽  
Survey Responses

SUMMARY This paper considers the potential impact of internal audit incentive-based compensation (IBC) linked to company performance on the external auditor's assessment of internal audit objectivity. We posit that external auditors will view IBC as a potential threat to internal audit objectivity, thus reducing the extent of reliance on the work of internal auditors and increasing the assessment of control risk. The increase in risk and external auditor effort should result in higher audit fees. We hypothesize that the form of incentive-based compensation, namely stock-based versus cash bonuses, moderates the association between IBC and external audit fee. Finally, we consider whether underlying financial reporting risk mitigates the external auditor's potential sensitivity to IBC. We find a positive association between external audit fees and internal audit compensation based upon company performance. The association is acute to IBC paid in stock or stock options as opposed to cash bonuses. We also find evidence consistent with the IBC associations being mitigated by the company's financial reporting risks. Data Availability: Individual survey responses are confidential. All other data are derived from publicly available sources.

Factors Associated with the Early Adoption of the SEC's Revised Auditor Fee Disclosure Rules

2006 ◽  
Vol 25 (2) ◽  
pp. 41-51 ◽  
Author(s):  
Sharad Asthana ◽  
Jayanthi Krishnan
Keyword(s):  
Audit Fees ◽  
Auditor Independence ◽  
Securities And Exchange Commission ◽  
Factors Associated ◽  
Disclosure Requirements ◽  
Early Adoption ◽  
Disclosure Rules ◽  
Definition Of ◽  
Auditor Fees ◽  
Considerable Concern

Corporate disclosures of auditor fees (beginning in February 2001) caused considerable concern among regulators and investors about auditor independence because they revealed that nonaudit fees were a substantial proportion of total auditor fees. However, in 2003 the Securities and Exchange Commission (SEC) introduced revised disclosure requirements, specifying a broader definition of audit fees, and additional fee categories (SEC 2003). About 31 percent of our sample firms adopted the new rules in advance of the required date. We investigate the pattern of early adoption of the new fee disclosure rules by companies. Our results indicate that companies with greater nonaudit fee ratios during the prior year, companies that could show a greater decline in nonaudit fee ratios due to reclassification under SEC (2003), and companies that had greater audit-related fees after the reclassification were likely to adopt the new rules early. We conjecture that companies that had the most to gain from reclassifying fees—possibly by reducing negative investor perceptions about nonaudit services—adopted the new rules earlier than required.

An Analysis of Cross-Sectional Differences in Big and Non-Big Public Accounting Firms' Audit Programs

2006 ◽  
Vol 25 (1) ◽  
pp. 27-48 ◽  
Author(s):  
Hans Blokdijk ◽  
Fred Drieenhuizen ◽  
Dan A. Simunic ◽  
Michael T. Stein
Keyword(s):  
Risk Assessment ◽  
Empirical Evidence ◽  
Audit Quality ◽  
Audit Fees ◽  
Public Accounting ◽  
Accounting Firms ◽  
Big 5 ◽  
Public Accounting Firms ◽  
Audit Approach ◽  
Control Risk

A significant body of prior research has shown that audits by the Big 5 (now Big 4) public accounting firms are quality differentiated relative to non-Big 5 audits. This result can be derived analytically by assuming that Big 5 and non-Big 5 firms face different loss functions for “audit failures” and is consistent with a variety of empirical evidence from studies of audit fees, auditor changes, and the stock price reaction to audited earnings. However, there is no existing evidence (of which we are aware) concerning the underlying production differences between Big 5 and non-Big 5 audits. As a result, existing empirical evidence cannot distinguish between the possibility that Big 5 audits are simply perceived to be different (e.g., by investors) or actually differ in how they are produced. Our research objective is to identify the production characteristics of audit engagements that may explain the differences in expected audit quality between Big 5 and non-Big 5 firms. In this archival study, we examine the total audit effort and the allocation of effort to four audit phases—planning, (control) risk assessment, substantive testing, and completion—for a cross-section sample of 113 audits of Dutch companies in 1998/99 by 14 public accounting firms. We find that, after controlling for client characteristics: (1) both types of auditors exert about the same amount of total audit effort; (2) Big 5 auditors allocate relatively more effort to planning and (control) risk assessment, and relatively less to substantive testing and completion; and (3) client size, use of the business-risk-based audit approach, and reliance on client internal controls affect audit hours differently for the two auditor types. We conclude that the Big 5 firms actually produce a higher audit quality level, and that this quality difference is related to how audit hours are deployed in a more contextual and less procedural audit approach.

scholarly journals Factors Influencing Auditor Independence among Listed Companies in Nigeria: Generalized Method of Moments (GMM) Approach

2017 ◽  
Vol 9 (8) ◽  
pp. 191 ◽  
Author(s):  
Mary Kehinde Salawu
Keyword(s):  
Method Of Moments ◽  
Stock Exchange ◽  
Generalized Method Of Moments ◽  
Secondary Data ◽  
Audit Fees ◽  
Listed Companies ◽  
Positive Influence ◽  
Auditor Independence ◽  
Financial Reports ◽  
Factors Influencing

The study examines the factors influencing auditor independence among listed companies in Nigeria. A sample of 65 firms out of the 194 listed on the Nigerian Stock Exchange (NSE) were purposively selected for analysis, these comprise 14 money deposit banks (financial), 1 mortgage bank and 50 non-financial firms. Secondary data were employed for the study and were sourced from the audited financial reports of sampled companies and fact book of the Nigerian Stock Exchange between the periods of 2006 and 2013. Data were analysed using descriptive statistics and Generalised Method of Moments (GMM). Preliminary tests were carried out such as Sargan test, Arellano-Bond Serial Correlation Test among others. The study revealed that Big4, audit tenure, profitability, leverage and inventory with account receivable had negative significant impact, which can impair auditor independence, while size of the firms and loss had positive influence on auditor independence in Nigeria. Also, the square root of the number of subsidiaries was positively related to auditor independence, but not significant and the total number of subsidiaries had positive influence on auditor independence but not significant. These results implied that the two variables can increase the complexity of the audit and, consequently, a rise in audit fees expect in their presence. This will in turn reduce auditor independence. The study therefore recommended that joint audit be adopted and audited tenure be reviewed. The findings of the study would enable management, regulators, investors and other stock market participants to play their unique and important roles in enhancing auditor independence in Nigeria.

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