Do Social Ties between External Auditors and Audit Committee Members Affect Audit Quality?

2016 ◽  
Author(s):  
Xianjie He ◽  
Jeffrey Pittman ◽  
Oliver M. Rui
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Social Ties ◽  
External Auditors

Do Social Ties between External Auditors and Audit Committee Members Affect Audit Quality?

2017 ◽  
Vol 92 (5) ◽  
pp. 61-87 ◽  
Author(s):  
Xianjie He ◽  
Jeffrey A. Pittman ◽  
Oliver M. Rui ◽  
Donghui Wu
Keyword(s):  
Financial Reporting ◽  
Information Transfer ◽  
Audit Committee ◽  
Audit Quality ◽  
Interpersonal Relations ◽  
Social Ties ◽  
Audit Fees ◽  
Firm Valuation ◽  
Agency Conflicts ◽  
External Auditors

ABSTRACT We examine whether social ties between engagement auditors and audit committee members shape audit outcomes. Although these social ties can facilitate information transfer and help auditors alleviate management pressure to waive correction of detected misstatements, close interpersonal relations can undermine auditors' monitoring of the financial reporting process. We measure social ties by alma mater connections, professor-student bonding, and employment affiliation, and audit quality by the propensity to render modified audit opinions, financial reporting irregularities, and firm valuation. Our evidence implies that social ties between engagement auditors and audit committee members impair audit quality. In additional results consistent with expectations, we generally find that this relation is concentrated where social ties are more salient, or firm governance is relatively poor and agency conflicts are more severe. Implying reciprocity stemming from social networks, we also report some suggestive evidence that audit fees are higher in the presence of social ties between an engagement auditor and the audit committee. Collectively, our analysis lends support to the narrative that the negative implications—namely, worse audit quality and higher audit fees—of these social ties may outweigh the benefits.

Earnings Management, Audit Committee effectiveness and The Role of Auditor Characteristics

2020 ◽  
Vol 11 (1) ◽  
pp. 9-9
Author(s):  
Rizky Eriandani ◽  
Melly Karina Kurniawan
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Agency Theory ◽  
Capital Markets ◽  
Audit Committee ◽  
Audit Quality ◽  
Theoretical Framework ◽  
Clear Understanding ◽  
External Auditors ◽  
Auditor Characteristics

This research aims to provide empirical evidence regarding the effect of auditor characteristics on the relationship between audit committee effectiveness and earnings management. Mechanisms of good corporate governance can limit and control the opportunistic actions of management. The higher level of effectiveness of the audit committee will reduce the tendency of companies to practice earnings management. In addition to the Audit Committee as an internal party that oversees the credibility of financial statements, it is also necessary to supervise external parties, namely external auditors. So that with an effective audit committee and the function of the external auditor it is expected to reduce earnings management. Agency theory is used as a theoretical framework to provide a robust theoretical framework for investigating manager behavior in various companies. In this perspective, agency theory provides a clear understanding of the effectiveness of audit committees and the characteristics of auditors, and recognizes this as the most crucial oversight mechanism that reduces agency costs, manages conflicts of interest, and mitigates earnings management. The contribution of this research to the existing literature both theoretically and empirically. Theoretically, it will add governance theory about the interaction between the audit committee and external auditors in ensuring the quality of financial reporting. Empirically, the results of research on corporate governance and reporting quality reveal that the majority of them have been conducted in countries with advanced capital markets. In contrast, studies conducted in countries with developing capital markets are still scarce. Keywords: Audit Committee, Earnings Management, Auditor, Audit Quality

scholarly journals Determinants of Audit Firm Selection Decision: A Qualitative Study of Firms Listed on Pakistani Stock Exchange (PSX)

2020 ◽  
Vol 9 (4) ◽  
pp. 212-222
Author(s):  
MUHAMMAD NAVEED ◽  
ALIA QADIR ◽  
MUHAMMAD UMER
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Stock Exchange ◽  
Information Source ◽  
Audit Committees ◽  
External Audit ◽  
Audit Firm ◽  
External Auditors ◽  
Selection Decision ◽  
Main Determinants

The objective of this study is to offer detailed and updated overview of the factors perceived by the audit committee members to select external auditors. Moreover, the study aims to explore that what are the main determinants perceived by the clients from their external auditors. Qualitative research design is used, and open-ended interviews has been conducted to explore the phenomena under investigation. The contextual setting of the study is provided by financial firms listed on Pakistan stock exchange (PSX-100). The study finds that management continues to provide input into the selection decision of external auditors because the audit committees view management as an important information source. Audit committee seeks input from management to assess the external audit accessibility, reputation, firm’s industry knowledge and technical expertise. The result of the study suggests that more regulations are required to liable the audit committees for selecting external audit firm. The management input raises the audit risk and mitigate the audit independence. The findings remain robust for audit firms and companies looking for an independent and transparent relationship. Also, the study has implications to build transparent financial disclosure practices. Keywords: Audit Quality, Pakistan Stock Exchange, Clients Perceived Value.

Internal audit quality: a polysemous notion?

2016 ◽  
Vol 29 (5) ◽  
pp. 714-738 ◽  
Author(s):  
Melanie Roussy ◽  
Marion Brivot
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Meta Analysis ◽  
Internal Audit ◽  
Content Type ◽  
Internal Auditors ◽  
External Auditors ◽  
Extant Literature ◽  
Public Sector Organizations ◽  
Archival Documents

Purpose – The purpose of this paper is to characterize how those who perform (internal auditors), mandate (audit committee (AC) members), use (AC members and external auditors) and normalize (the Institute of Internal Auditors (IIA)) internal audit work, respectively make sense of the notion of “internal audit quality” (IAQ). Design/methodology/approach – This study is predicated on the meta-analysis of extant literature on IAQ, 56 interviews with internal auditors and AC members of public or para-public sector organizations in Canada, and archival documents published by the IIA, analyzed in the light of framing theory. Findings – Four interpretative schemes (or frames) emerge from the analysis, called “manager,” “éminence grise,” “professional” and “watchdog.” They respectively correspond to internal auditors’, AC members’, the IIA’s and external auditors’ viewpoints and suggest radically different perspectives on how IAQ should be defined and controlled (via input, throughput, output or professional controls). Research limitations/implications – Empirically, the authors focus on rare research data. Theoretically, the authors delineate four previously undocumented competing frames of IAQ. Practical implications – Practically, the various governance actors involved in assessing IAQ can learn from the study that they should confront their views to better coordinate their quality control efforts. Originality/value – Highlighting the contrast between these frames is important because, so far, extant literature has predominantly focussed on only one perspective on IAQ, that of external auditors. The authors suggest that IAQ is more polysemous and complex than previously acknowledged, which justifies the qualitative and interpretive approach.

Oversight of audit quality in the UK: insights into audit committee conduct

2017 ◽  
Vol 25 (3) ◽  
pp. 351-367 ◽  
Author(s):  
Noor Adwa Sulaiman
Keyword(s):  
Corporate Governance ◽  
Audit Committee ◽  
Audit Quality ◽  
Audit Process ◽  
Content Type ◽  
External Auditors ◽  
Code Of Corporate Governance ◽  
The Uk

Purpose The purpose of this paper is to examine the conduct of the audit committee (AC) in terms of its oversight role of audit quality in the UK. Design/methodology/approach This study uses semi-structured interviews with 11 AC members and 11 audit partners. Findings The findings show that the conduct of the AC in relation to audit quality involves the assessment of the contents of the reports prepared by the external auditors for the AC. Furthermore, the oversight of audit quality by the AC involves a thorough assessment of the presentation of the external auditors during the interaction and communication between the two parties. This illustrates the AC’s role as an effective monitoring mechanism when overseeing the audit quality. However, the conduct of the AC in overseeing four major areas (independence, appointment, remuneration and effectiveness of audit process) related to audit quality, as recommended by the UK Code of Corporate Governance, provides mixed results. The findings highlight the ceremonial role of the AC in those areas, which demonstrates the limited supporting role of the AC in enhancing audit quality. Furthermore, it is suggested that the effectiveness of the oversight role is influenced by the quality of the chairman of the AC and the quality of the relationship between the AC and the external auditors. Originality/value This study contributes to the existing literature by providing additional insights into the conduct of the AC in overseeing audit quality as well as additional evidence concerning the role and effect of the AC in relation to audit quality as prescribed by the UK Code of Corporate Governance.

Pengaruh Independensi, Kompetensi, Dan Pengalaman Kerja Auditor Terhadap Kualitas Audit

2012 ◽  
Vol 4 (2) ◽  
pp. 91-110
Author(s):  
Caroline Sytha Sunarta ◽  
Suhajar Wiyoto
Keyword(s):  
Audit Quality ◽  
Multiple Regression Model ◽  
Future Research ◽  
Survey Area ◽  
Process Data ◽  
External Auditors ◽  
Job Experience ◽  
Independent Variables ◽  
One Year ◽  
Public Accountant

The objective of this research is to examine the effect of auditor’s independency, competency, and job experience towards audit quality.This research is conducted by using method survey to public accountants (external auditors) that working settled in Public Accountant Firm (KAP) in Jakarta and Tangerang, in 2012 and have one year minimum experience, as respondents with type research of causality. Using likert scale as an instrument (questionaire) for measure auditor’s perceptions about the independency, competency, and job experience that influence audit quality. From 150 questionaire distributed, returned was 109 questionaire, and 24 not complete, so that only 85 questionaire could be process. Data analysis conducted with multiple regression model. The hypotheses tested are revealed as that independency, competency, and job experience have influence to audit quality as well as partially and simultaneously. The result of the test showed empirical testimony that auditor’s independency, competency, and job experience as well as simultaneously significantly influence audit quality. Partially, independency, competency, and job experience also have significant influence to audit quality. Future research expected can extend survey area coverage and add more independent variables that can have influence to audit quality. Keywords: independency, competency, job experience, audit quality.

Strategic Audit Inquiry: The Impact of Timing and the Promotion of Statutory Protections on Client Fraud Disclosures

2020 ◽  
Vol 34 (3) ◽  
pp. 153-167
Author(s):  
John R. Lauck ◽  
Stephen J. Perreault ◽  
Joseph R. Rakestraw ◽  
James S. Wainberg
Keyword(s):  
Best Practices ◽  
Audit Quality ◽  
Self Regulation ◽  
Data Availability ◽  
Audit Committees ◽  
External Auditors ◽  
Extant Literature ◽  
Psychological Theories ◽  
Inquiry Process ◽  
The Impact

SYNOPSIS Auditing standards require external auditors to inquire of client-employees regarding their knowledge of actual or suspected fraud (PCAOB 2010b; AICPA 2016). However, the extant literature provides little guidance on practical methods that auditors can employ to increase the likelihood of fraud disclosure and improve audit quality. Drawing upon best practices in the whistleblowing literature and psychological theories on self-regulation, we experimentally test the efficacy of two practical strategies that auditors can employ during the fraud inquiry process: actively promoting statutory whistleblower protections and strategically timing their fraud inquiries. Our results indicate that auditors are more likely to elicit client-employee fraud disclosures by actively promoting statutory whistleblower protections and strategically timing the fraud inquiry to take place in the afternoon, when client-employee self-regulation is more likely to be depleted. These two audit inquiry strategies should be of considerable interest to audit practitioners, audit committees, and those concerned with improving audit quality. Data Availability: From the authors by request.

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