scholarly journals An Account Analysis Of PCAOB Inspection Reports For Triennially-Inspected Audit Firms

2011 ◽  
Vol 9 (3) ◽  
Author(s):  
Mark Landis ◽  
Scott I. Jerris ◽  
Mike Braswell
Keyword(s):  
Audit Quality ◽  
Audit Risk ◽  
Business Combinations ◽  
Client Engagement ◽  
Audit Failure ◽  
Business Transactions ◽  
Cpa Firms ◽  
Audit Firms ◽  
Public Company ◽  
Primary Type

Since 2005, the PCAOB (Public Company Accounting Oversight Board) has been issuing inspection reports for triennially-inspected audit firms as part of its overall mission to improve audit quality. This study analyzes the findings in the PCAOB inspection reports by classifying the audit deficiencies cited in the reports by area of deficiency and type of audit failure. CPA firms can utilize these findings in their efforts to reduce client engagement audit risk. The results indicate that the overall number of cited deficiencies is declining each year, revenue and asset accounts are the most frequently cited accounts, business combinations and equity transactions are the most cited transactions, and insufficient testing or documentation is the primary type of audit failure. We also document that most departures from GAAP occur in the accounting for business transactions or in liability accounts.

The Big 4 Audit Report: Should the Public Perceive It as a Label of Quality?

2009 ◽  
Vol 9 (1) ◽  
pp. 148-165 ◽  
Author(s):  
Ross D. Fuerman ◽  
Michael Kraten
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Empirical Work ◽  
Model Specification ◽  
Audit Failure ◽  
The Public ◽  
Cpa Firms ◽  
Big 4 ◽  
Public Company ◽  
Auditor Litigation

ABSTRACT: There has been little research comparing the relative performance of the Big 4 CPA firms. Users of audited financial statements often practically have no other CPA firms to choose from for auditing services in the large public company auditing services market and thus desire more of this information. In 1,017 financial reporting lawsuits against Big 5 auditees filed from 1999 through 2004, the auditor litigation outcomes are used to proxy for the likelihood of audit failure and thus for audit quality. Control variables significant in prior empirical work were used in polytomous regression and in logistic regression. Ernst & Young has comparatively better auditor litigation outcomes, which proxy for a lower likelihood of audit failure and a stronger level of audit quality. The Ernst & Young results are robust; they are insensitive to the use of ten different model specifications. There is also evidence suggesting that PricewaterhouseCoopers may be a comparatively high quality auditor, but these latter results are sensitive to the model specification. Clearly, the null hypothesis of consistency in audit quality among the Big 4 CPA firms is rejected.

Hiring Auditors with a Part II Quality Control Report: An Opportunity for Increased Earnings Management or Lower Audit Fees?

2020 ◽  
Vol 5 (1) ◽  
pp. 73-93
Author(s):  
Jared Eutsler ◽  
D. Kip Holderness ◽  
Megan M. Jones
Keyword(s):  
Quality Control ◽  
Audit Quality ◽  
Audit Fees ◽  
Data Availability ◽  
Fiscal Year ◽  
The Public ◽  
Audit Firms ◽  
Public Company ◽  
General Demand ◽  
Systemic Quality

ABSTRACT The Public Company Accounting Oversight Board's (PCAOB) Part II inspection reports, which disclose systemic quality control issues that auditors fail to remediate, signal poor audit quality for triennially inspected audit firms. Auditors that receive a Part II inspection report typically experience a decrease in clients, which demonstrates a general demand for audit quality. However, some companies hire auditors that receive Part II inspection reports. We examine potential reasons for hiring these audit firms. We find that relative to companies that switch to auditors without Part II reports, companies that switch to auditors with Part II reports have higher discretionary accruals in the first fiscal year after the switch, which indicates lower audit quality and a heightened risk for future fraud. We find no difference in audit fees. Our results suggest that PCAOB Part II inspection reports may signal low-quality auditors to companies that desire low-quality audits. Data Availability: Data are available from the public sources cited in the text.

Audit quality following the Public Company Accounting Oversight Board’s operation

2017 ◽  
Vol 17 (5) ◽  
pp. 927-946
Author(s):  
She-Chih Chiu ◽  
Chin-Chen Chien ◽  
Hsuan-Chu Lin
Keyword(s):  
Audit Quality ◽  
Univariate Analysis ◽  
Self Regulation ◽  
Discretionary Accruals ◽  
Content Type ◽  
Positive Effects ◽  
Audit Firms ◽  
Public Company ◽  
The Usa ◽  
Big Four

Purpose The purpose of this paper is to investigate the extent to which the transition from self-regulation to heteronomy has changed the gap in audit quality between Big Four and non-Big Four auditors. Design/methodology/approach This study analyzes publicly held companies in the USA between 1999 and 2012 using univariate analysis, multivariate analysis and quantile regression analysis. Audit quality is measured with discretionary accruals. Findings This study shows an insignificant difference in audit quality between the clients of Big Four and non-Big Four auditors after Public Company Accounting Oversight Board (hereafter, PCAOB) began its operations. In the analysis of the effects of PCAOB inspections on the audit quality of audit firms that are inspected annually and triennially, the findings show that the inspections have more positive effects when carried out annually. This suggests that the frequency of inspection is positively associated with audit quality. Overall, these results provide evidence that recent improvements in audit quality have been caused by changes in regulatory standards. Originality/value The paper provides three major original contributions. First, the authors add to the literature on audit quality by further demonstrating a reduced gap in audit quality between Big Four and non-Big Four audit firms due to heteronomy. Secondly, this study contributes to the debate as to whether independent inspections on audit firms are beneficial or not and suggests that the PCAOB inspections help increase audit quality. Finally, the results of this work contribute to the growing literature examining discretionary accruals.

Client Engagement Risks and the Auditor Search Period

2011 ◽  
Vol 25 (4) ◽  
pp. 685-702 ◽  
Author(s):  
Samer K. Khalil ◽  
Jeffrey R. Cohen ◽  
Kenneth B. Schwartz
Keyword(s):  
Internal Control ◽  
Financial Distress ◽  
Business Risk ◽  
Audit Risk ◽  
Industry Specialization ◽  
Client Engagement ◽  
Or Management ◽  
Auditor Industry Specialization ◽  
Audit Firms ◽  
Internal Control Weaknesses

SYNOPSIS This paper investigates whether client engagement risks lengthen the client acceptance phase for audit firms and result in a longer auditor search period for their clients. Using a sample of auditor resignations over the period 2003–2008, we document that the auditor search period is longer for firms associated with client business risk (financial distress) and audit risk (internal control weaknesses or management integrity issues), while it is shorter for firms representing reduced auditor business risk (auditor industry specialization). These findings highlight the importance of client risk assessment and explain audit firms' response to perceived client risks.

scholarly journals Determinants of Audit Quality in Indonesia Supreme Audit Institution: A Conceptual Study

2020 ◽  
Vol 12 (2(I)) ◽  
pp. 38-41
Author(s):  
Khoirul Aswar ◽  
Fahmi Givari Akbar ◽  
Noegrahini Lastiningsih
Keyword(s):  
Attribution Theory ◽  
Audit Quality ◽  
Public Institution ◽  
Audit Process ◽  
Internal Auditor ◽  
Internal Auditors ◽  
Audit Failure ◽  
The Public ◽  
Audit Firms

This research is based on the problem of poor audit practices by the Big Four audit firms and the mid-tier audit firms in UK in 2018/2019 cycle, which is indicated as audit failure. This resulted in sanctions and fines that increased significantly from the previous year. Problems related to audit quality are also experienced by government internal auditors in Indonesia. This is due to several factors such as the quality of government internal auditor resources that are still below the lowest service standards as a public institution, lack of available apparatus and low competency, and limited budget. The purposes of this study are to determine the extent of audit quality produced by government internal auditors at the Principal Inspectorate of Indonesia’s Supreme Audit Institution. Based on attribution theory, this study has several objectives, namely to determine the effect of competence, independence, and motivation on audit quality. Therefore, the contribution of this research can be the object of consideration and evaluation for Indonesia’s Supreme Audit Institution auditors regarding the audit process and audit results in the public or government sector, an information for Principal Inspectorate of Indonesia’s Supreme Audit Institution as an effort to maintain and improve the quality of government internal audits, and an information for the public in overseeing the audit quality of the management and responsibility of state finances.

Conventions of Audit Quality: The Perspective of Public and Private Company Audit Partners

2018 ◽  
Vol 37 (2) ◽  
pp. 51-71 ◽  
Author(s):  
Marion Brivot ◽  
Mélanie Roussy ◽  
Maryse Mayer
Keyword(s):  
Audit Quality ◽  
Value Added ◽  
Professional Judgment ◽  
Private Company ◽  
Public And Private ◽  
Financial Situation ◽  
Big 4 ◽  
Audit Firms ◽  
Public Company ◽  
Depth Analysis

SUMMARY This research is based on an in-depth analysis of 34 interviews with partners in Big 4, medium-sized, and small audit firms that specialize in private and/or public company audits, to explore how they understand the concept of audit quality. Two contrasting conventions—i.e., shared judgment norms—of audit quality emerge from the analysis. Public company audit partners in Big 4 firms espouse what we call the “model” audit quality convention, which considers that audit quality results from a technically flawless audit, where professional judgment is highly formalized, and quality is attested by a perfectly documented audit file that passes Canadian Public Accountability Board (CPAB) and PCAOB inspections. In contrast, partners working primarily on private company audits, regardless of their firm's size, endorse what we call the “value-added” audit quality convention, which considers that audit quality results from tailoring the audit to meet the client's unique needs, where professional judgment is unconstrained, and where quality is attested by the client's perception that the audit has given a better understanding of their financial situation and the associated risks and opportunities. Our analysis also reveals significant tensions within each of these two conventions, and a fear that the current regulatory framework for quality control might end up severely hurting audit quality.

Investor reaction to the audit engagement partner disclosure rule

2021 ◽  
Vol 36 (1) ◽  
pp. 167-190
Author(s):  
Hyungshin Park
Keyword(s):  
Audit Quality ◽  
Transition Period ◽  
Audit Fees ◽  
High Quality ◽  
Audit Risk ◽  
Content Type ◽  
Market Participants ◽  
Partner Disclosure ◽  
Public Company ◽  
The Us

Purpose This paper aims to examine whether investors perceive the adoption of Public Company Accounting Oversight Board (PCAOB) Rule 3211, which mandates disclosure of the identity of audit engagement partners for the US-listed companies, as providing net benefits to the companies. Design/methodology/approach This study identifies 33 events leading up to the adoption of the PCAOB rule and examines the market reaction around these events. Findings The author finds positive abnormal market-wide returns in response to events that increase the likelihood of adopting the mandate. These positive returns are relatively stronger among companies with higher audit risk and companies with high-quality auditors. Practical implications The results of this study indicate that market participants expect that the overall benefits from the audit engagement partner disclosure rule outweigh the associated costs for average firms and in particular for firms with high audit risk and high-quality auditors. Originality/value Prior studies document mixed evidence on the net effects of PCAOB Rule 3211 on audit quality and audit fees, potentially because of the short post-rule adoption period and the weak effect of the rule on audit quality and audit fees during the transition period. The author complements these studies by providing the first evidence on the way that the stock market reacts to events that change the likelihood of the adoption of the audit engagement partner disclosure mandate.

scholarly journals Determinants Of Enforcement Action By The Financial Supervisory Service Of Korea From The Perspective Of Audit Firms

2015 ◽  
Vol 31 (3) ◽  
pp. 821 ◽  
Author(s):  
Min-Jung Kang ◽  
Ho-Young Lee ◽  
Yong-Sang Woo
Keyword(s):  
Audit Quality ◽  
Financial Statements ◽  
Audit Fees ◽  
Firm Characteristics ◽  
Client Characteristics ◽  
Audit Firm ◽  
Audit Failure ◽  
Enforcement Action ◽  
Audit Firms ◽  
Specific Factors

<p>In this study, we examine the determinants of enforcement action by the Financial Supervisory Service of Korea from the perspective of audit firms. Enforcement action is an indication of audit failure. Both client- and audit firm-specific factors are involved in its occurrence. Most published studies of enforcement after audit failure focus on client characteristics because details about audit firms from financial statements and information about organizational structure are not publicly available. However, examining the issues surrounding enforcement from the perspective of audit firms may also be valuable in elucidating the potential determinants of audit failure resulting in enforcement action. Utilizing publicly available data from audit firms in South Korea, we identify several audit firm characteristics as determinants of enforcement action. The results of our empirical analysis reveal that the likelihood of audit failure is positively associated with the ratio of accounts receivable to total assets, the ratio of audit fees to total revenue, the ratio of partners to the total number of CPAs, CEO ownership, and age of audit firms. In addition, the likelihood of audit failure is negatively associated with ownership concentration and profitability. These associations are more pronounced in non-affiliated audit firms than affiliated audit firms. Several useful implications for regulators are described for improving audit quality by means of enforcement action.</p>

scholarly journals Auditor Fees and Going-Concern Reporting Decisions on Bankrupt Companies: Additional Evidence

2015 ◽  
Vol 9 (1) ◽  
pp. A13-A27 ◽  
Author(s):  
William J. Read
Keyword(s):  
Audit Fees ◽  
Auditor Independence ◽  
Data Availability ◽  
Audit Failure ◽  
The Public ◽  
Going Concern ◽  
Audit Firms ◽  
Public Company ◽  
Reporting Decisions ◽  
Auditor Fees

SUMMARY The recent growth in non-audit services (NAS) at the major audit firms has the attention of auditing regulators. On several occasions recently, board members of the Public Company Accounting Oversight Board (PCAOB) have indicated that the rise in NAS may place auditor independence at risk (Harris 2014; Tysiac 2014). Impaired independence can result in audit failure, which includes situations when auditors fail to issue going-concern (GC) audit opinions to soon-to-be bankrupt companies. In this paper, I examine the association between the propensity of auditors to issue GC opinions and NAS fees (and audit fees) to 203 bankrupt companies during 2002–2013. In analysis, I find no significant relation between GC decisions and NAS fees and audit fees. My results may interest U.S. regulators, who recently expressed concerns about the threat to auditor independence from the spike in NAS at the major firms. Data Availability: Publicly available from sources identified in the paper.

Client Deadline Concentration in Audit Offices and Audit Quality

2019 ◽  
Vol 38 (4) ◽  
pp. 55-75 ◽  
Author(s):  
Keith Czerney ◽  
Daun Jang ◽  
Thomas C. Omer
Keyword(s):  
Audit Quality ◽  
Data Availability ◽  
Financial Statement ◽  
Relevant Research ◽  
Quality Outcomes ◽  
Audit Failure ◽  
Public Company ◽  
Negative Effect ◽  
Prior Literature

SUMMARY This research investigates the effect on audit quality of concentrated public company financial statement filing deadlines in audit offices. Audit offices must effectively manage their resources to meet clients' audit service requirements. When an audit office has deadlines that are more concentrated in time, effective resource management is of greater importance to reduce the likelihood of audit failure. Drawing on relevant research from the auditing and management literatures, we hypothesize and find that audit quality is lower when an audit office's clients' financial statement deadlines concentrate in time, which we term client deadline concentration. The significant, negative effect of client deadline concentration on audit quality is incremental to the effects of other resource-based constraints from the prior literature and to controls for unobservable differences in audit offices that explain a significant amount of the variation in audit quality outcomes. JEL Classifications: M40; M41; M42; M48. Data Availability: Data are available from public sources identified in the text.

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