scholarly journals Fair value measurement and its impact on audit fees: evidence in the Brazilian market

2021 ◽  
Vol 13 (2) ◽  
Author(s):  
Edson Vinícius Pontes Bastos ◽  
Luciana Holtz ◽  
Odilanei Morais dos Santos
Keyword(s):  
Risk Premium ◽  
Audit Fees ◽  
Fair Value ◽  
Audit Risk ◽  
Audit Firms ◽  
Fair Value Measurement ◽  
Before And After ◽  
Multiple Regression Technique ◽  
Value Measurement ◽  
The Impact

Objective: The purpose is to verify the impact of using the measurement at fair value on the audit fees, differentiating even the period before and after the adoption of IFRS 13 (CPC 46).  Methodology: The research is quantitative, for testing the hypothesis raised, the multiple regression technique was used, with data available from companies listed in B3 for the period between 2010 and 2016.  Results: The evidence indicates that the complexity and subjectivity of fair value is recognized by the audit firms, that is, audit firms recognize that fair value measurement implies more effort and that the associated audit risk rises, leading firms to charge of a risk premium for the provision of the service. However, it was not possible to confirm that auditors' fees increased after the adoption of IFRS13 (CPC 46).  Contributions of study: Theoretical/methodological - The study contributes to understanding the impacts of adopting international accounting standards, in this specific case on audit fees. Social/management - Given the evidence that there is a higher audit cost associated with the greater complexity of information in a fair value environment, companies can develop mechanisms to minimize the uncertainty of the information to be audited.

The Impact of Fair Value Measurement for Bank Assets on Information Asymmetry and the Moderating Effect of Own Credit Risk Gains and Losses

2018 ◽  
Vol 93 (6) ◽  
pp. 127-147 ◽  
Author(s):  
Joana C. Fontes ◽  
Argyro Panaretou ◽  
Kenneth V. Peasnell
Keyword(s):  
Credit Risk ◽  
Information Asymmetry ◽  
Fair Value ◽  
Data Availability ◽  
Bid Ask Spread ◽  
Fair Value Measurement ◽  
Gains And Losses ◽  
Value Measurement ◽  
The Impact

ABSTRACT We examine whether the use of fair value measurement (FVM) for bank assets reduces information asymmetry among equity investors (bid-ask spread) and how this is affected by the recognition of own credit risk gains and losses (OCR). Our findings show that FVM of assets is associated with noticeably lower information asymmetry, and that this reduction is more than twice as large when banks also recognize OCR. In addition, we find that the bid-ask spread is incrementally lower for banks that provide more detailed narrative disclosures on OCR. The findings also indicate that the effects of asset FVM and OCR recognition on the bid-ask spread do not simply capture the differences in the characteristics of the banks and the quality of their information environments. Data Availability: All data are available from public sources.

scholarly journals The impact of legal efficacy on value relevance of the three-level fair value measurement hierarchy

2020 ◽  
Vol 59 ◽  
pp. 101259 ◽  
Author(s):  
Lin Liao ◽  
Daifei (Troy) Yao ◽  
Helen Kang ◽  
Richard D. Morris
Keyword(s):  
Value Relevance ◽  
Fair Value ◽  
Fair Value Measurement ◽  
Value Measurement ◽  
The Impact

The impact of non-timely 10-Q filings and audit firm size on audit fees

2018 ◽  
Vol 33 (5) ◽  
pp. 503-516 ◽  
Author(s):  
Tiffany Chiu ◽  
Feiqi Huang ◽  
Yue Liu ◽  
Miklos A. Vasarhelyi
Keyword(s):  
Regression Model ◽  
Firm Size ◽  
Audit Fees ◽  
Audit Risk ◽  
Content Type ◽  
Audit Firm ◽  
Big 4 ◽  
Audit Firms ◽  
Audit Fee ◽  
The Impact

Purpose Prior studies suggest that non-timely 10-Q filings indicate higher potential risks than non-timely 10-K filings. Furthermore, larger audit firms tend to be more risk-averse and conservative about reporting. Inspired by these research streams, this paper aims to investigate the influence of non-timely 10-Q filings on audit fees and the impact of audit firm size on this association. Design/methodology/approach The cross-sectional audit fee regression model used in this study is similar to that used in prior audit fee research (Simunic, 1980; Francis et al., 2005; Hay et al., 2006; Wang et al., 2013). The model includes the following five major characteristics that would influence auditors’ fee decisions: auditee size (LNAT), complexity (REIVAT, FOREIGN, SEG), financial condition (LOSS, ROA, GROWTH, ZSCORE), special events (ICW, RESTATE, INITIAL, GC) and auditor type (BIG4). To examine the effect of non-timely 10-Q filings on audit fees, the variable NT10Q is included in the audit fee model. Findings The results indicate that when both non-timely 10-K and non-timely 10-Q filings are included in the regression model, only non-timely 10-Q filings are significantly associated with higher audit fees, suggesting that the presence of non-timely 10-Q filings signals more serious underlying problem than non-timely 10-K filings in the audit fees decision processes. In addition, we find that audit fees for firms audited by Big 4 auditors are 26.4 per cent higher when those firms file non-timely 10-Q reports, whereas there is no significant association between non-timely 10-Q filings and audit fees for firms audited by non-Big 4 auditors. Practical implications As no attention has been paid to the investigation of the impact of non-timely 10-Q filings on audit fees, with the aim of filling the gap of this specific research area, this study examines the association between non-timely 10-Q filings and audit fees and the influence of audit firm size on this association. Originality/value The contribution of this paper is threefold: first, it is the first study to examine the association between non-timely 10-Q filings and audit fees. The results show that non-timely 10-Q filings are a better and earlier indicator of audit risk than non-timely 10-K filings. Second, the results reveal that the relationship between non-timely 10-Q filings and audit fees is affected by audit firm size. Specifically, Big 4 auditors tend to charge higher audit fees in the presence of non-timely 10-Q filings, reflecting that they are more sensitive to audit risk than smaller audit firms are. Third, an examination of the quarterly effect of non-timely 10-Q filings on audit fees indicates a stronger effect from the first quarter’s non-timely 10-Q filings, compared to the second or third quarter.

Content and context: “fair” values in China

2017 ◽  
Vol 30 (2) ◽  
pp. 352-377 ◽  
Author(s):  
Ferdinand Balfoort ◽  
Rachel Francis Baskerville ◽  
Rolf Uwe Fülbier
Keyword(s):  
Financial Reporting ◽  
Fair Value ◽  
Governance Structure ◽  
Future Research ◽  
Content Type ◽  
Financial Reporting Standards ◽  
Fair Value Measurement ◽  
Western Market ◽  
Value Measurement ◽  
The Impact

Purpose The evolution of International Financial Reporting Standards (IFRS) was nurtured by economists and accountants loyal to the philosophical basis of what is often referred to as “Western” market economies, being classical and neoclassical contracting theories. The purpose of this paper is to illustrate how a particular Asian cultural attribute (guānxì ) impacts on the efficacy of fair value measurement. Design/methodology/approach Using a literature review and research of studies of the adoption of IFRS in China, studies of both guānxì and fair value in Chinese accounting research, this study unbundles Williamson’s governance structure and contracting theory to examine how guānxì is positioned orthogonally to fair value (market-oriented valuation) principles for financial reporting. This is followed by a case study of the events surrounding the collapse of China Medical Technologies. Findings Guānxì is integral to Asian economies and economic transactions. Resulting conditions, characterised by relational contracting, may not meet the qualitative characteristics of neutrality and faithful representation in fair value measurement of assets and liabilities. The same may be true when insider or “trusted party transaction” values prevail for large ticket transactions among entities in any jurisdiction. Research limitations/implications Future research on the impact of guānxì may be constrained by its often hidden, and yet dynamic, character; and the varieties of its manifestations. Originality/value This study highlights how difficult it may be to achieve both comparability and relevance in the asset and liability recognition and measurement rules in Asian (and possibly also other) economies adopting accounting principles that are developed in a Western context.

scholarly journals Fair Value Hierarchy and Audit Fees: An Empirical Analysis based on the Listed Banks in China

2020 ◽  
Vol 214 ◽  
pp. 02022
Author(s):  
Zhang Qingyu
Keyword(s):  
Earnings Management ◽  
Positive Association ◽  
Audit Fees ◽  
Fair Value ◽  
Professional Judgment ◽  
Audit Risk ◽  
Value Hierarchy ◽  
Management Audit ◽  
The Impact ◽  
Level 2

The key to the criticism of fair value lies in the lack of measurement in the active market quotation, while the fair value hierarchy hopes to make up for the reliability of fair value information by increasing disclosure. Using listed commercial bank data from 2007 through 2016, this paper documents that the assets and liabilities measured by fair value are significantly positively associated with audit fees. The positive association between audit fees and the fair value obtained via Level 2 or Level 3 inputs is greater than that Level 1.These results indicate that when the fair value needs to be estimated, the auditor needs to increase audit effort with resulting in higher audit fees. Moreover, the balance of assets and liabilities that fair-valued using Level 2 inputs is the largest and accounts for the highest proportion, which leads to more substantial changes in audit expenses. This result is consistent with the scale determinism of audit expenses. At the same time, due to the impact of professional judgment on the fair value hierarchy and the absence of corresponding supervision, the management has the motivation to use hierarchy for earnings management. The assets and liabilities that fair-valued using Level 2 inputs may represent the characteristics of fair value earnings management, audit risk is higher.

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