Audit Quality of Chinese ADR Engagements

SYNOPSIS The controversy over Chinese reverse mergers has led to concerns about the audit quality of all U.S.-listed Chinese companies. Because a sizeable number of foreign firms cross-list their shares as American Depositary Receipts (ADRs) issued by U.S. depositary banks (as opposed to direct listings), we study how auditors have managed their audits of Chinese ADRs. Our motivation for examining Chinese ADRs is based on the findings that cross-listing via the ADR process is beneficial for U.S. shareholders. We find that relative to ADRs from countries other than China, and relative to directly listed Chinese companies, Chinese ADRs are more likely to be associated with a Big 4 auditor and are less likely to restate prior-period financial statements. We also find that Chinese ADRs pay significantly higher fees than other emerging market ADRs and Chinese direct-listings. Collectively, these results suggest high audit quality for Chinese ADRs, which is in sharp contrast to the Chinese direct-listing results. Using Tobin's Q as a measure of market value, we find that the stock market rewards Chinese ADRs, indicating that investors incorporate the benefits of higher audit quality when evaluating Chinese ADRs.

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Earnings Quality of Foreign versus U.S. Reverse Mergers: Geographical Location or Firm-Level Incentives?

Journal of International Accounting Research ◽

10.2308/jiar-51160 ◽

2015 ◽

Vol 15 (1) ◽

pp. 49-66 ◽

Cited By ~ 4

Author(s):

Chu Chen ◽

Giorgio Gotti ◽

Don Herrmann ◽

Kathryn Schumann

Keyword(s):

Earnings Management ◽

Audit Quality ◽

Earnings Quality ◽

Geographical Location ◽

Firm Level ◽

Business Press ◽

Reverse Mergers ◽

Big 4 ◽

Reverse Merger

ABSTRACT We test whether geographical location, audit quality, and equity offering play a role in the earnings quality of reverse merger (RM) firms. We provide evidence that, contrary to the popular focus on foreign reverse mergers by the business press, earnings management is equally likely in both U.S. and foreign RM companies. We find that firm characteristics are more indicative of the likelihood to manage earnings than geographical location. The presence of a Big 4 auditor for RM firms is associated with higher earnings quality and a survival rate almost twice as high in comparison to RM firms audited by a non-Big 4 auditor. Moreover, we find that while earnings management is a common practice at all RM firms, it is especially pervasive for RM firms that are issuing new equity after the reverse merger.

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Should PCAOB Disciplinary Proceedings Be Made Public? Evidence from Sanctions against a Big 4 Auditor

Current Issues in Auditing ◽

10.2308/ciia-50269 ◽

2012 ◽

Vol 6 (2) ◽

pp. P18-P24 ◽

Cited By ~ 3

Author(s):

Carol Callaway Dee ◽

Ayalew Lulseged ◽

Tianming Zhang

Keyword(s):

Stock Prices ◽

Stock Price ◽

Audit Quality ◽

Financial Statements ◽

Audit Firm ◽

Stock Market Reaction ◽

Big 4 ◽

Audit Firms ◽

Price Effects

SUMMARY: In our paper “Client Stock Market Reaction to PCAOB Sanctions against a Big 4 Auditor” (Dee et al. 2011), we examine stock price effects for clients of a Big 4 audit firm when news of sanctions imposed by the PCAOB against the audit firm was made public. These PCAOB penalties were the first against a Big 4 auditor, and they revealed information about quality-control problems at the audit firm that were not publicly known until the sanctions were announced. Our analysis of stock prices suggests that investors in clients of the penalized Big 4 firm reevaluated their perceptions of the quality of the firm's audit work after learning of the sanctions. The negative stock price effects for the firm's clients were consistent with investors inferring that the financial statements were of lower quality. In the paper, we conclude that investors find information about PCAOB sanctions against audit firms to be relevant in assessing audit quality and use that information in setting stock prices for audit firms' clients. This finding has relevance for the debate on the proposed legislation in Congress (H.R. 3503), which would allow the PCAOB to disclose proceedings against auditors before the investigations are concluded. Our results suggest that, although investors may find early disclosure of this information useful, public disclosure of Board disciplinary proceedings before they are completed could unfairly harm an audit firm's reputation if the firm is ultimately vindicated of wrongdoing.

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The effect of the dependence on the work of other auditors on error in analysts’ earnings forecasts

International Journal of Accounting and Information Management ◽

10.1108/ijaim-11-2015-0077 ◽

2017 ◽

Vol 25 (1) ◽

pp. 110-136 ◽

Cited By ~ 3

Author(s):

Minyoung Noh ◽

Hyunyoung Park ◽

Moonkyung Cho

Keyword(s):

Positive Relationship ◽

Audit Quality ◽

Earnings Forecasts ◽

Financial Statements ◽

Consolidated Financial Statements ◽

Content Type ◽

Big 4 ◽

Overseas Subsidiaries ◽

Industry Expertise

Purpose This paper aims to examine the effect of audit quality of consolidated financial statements on the accuracy of analysts’ earnings forecasts from the viewpoint of users of financial statements. Design/methodology/approach This paper investigates the effect of dependence on the work of other auditors on error in analysts’ earnings forecasts based on samples from 2011 to 2012 (the period since implementation of the International Financial Reporting Standards in Korea). In addition, this paper examines the effects of use of Big 4 auditors, use of auditors with industry expertise and the proportion of overseas subsidiaries in relation to all subsidiaries on the association between dependence on the work of other auditors and error in analysts’ earnings forecasts. Findings This paper finds a positive relation between dependence on the work of other auditors and error in analysts’ earnings forecasts, suggesting that more dependence on the work of other auditors decreases the quality of the audit of consolidated financial statements; thus, to the extent that low-quality audits decrease reporting reliability, analysts’ forecasts are less likely to be accurate. This paper also finds that the positive relationship between dependence on the work of other auditors and error in analysts’ earnings forecasts is weakened when the principal auditor is a Big 4 auditor or one with industry expertise, because such auditors provide higher-quality audit services. However, the positive relationship between dependence on the work of other auditors and error in analysts’ earnings forecasts is further strengthened in cases where the proportion of overseas subsidiaries to all subsidiaries is higher. These results suggest that the complexity of the consolidation process increases as the proportion of overseas subsidiaries increases. Originality/value The findings are useful in analyzing the effects of adoption of the New ISA, implemented in 2014, which does not allow the division of audit responsibilities between principal auditors and other auditors. This paper also provides insights for regulators and practitioners to improve the auditor appointment system in the future.

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A longitudinal study of audit quality differences among independent auditors

Journal of Economics and Development ◽

10.1108/jed-10-2019-0040 ◽

2019 ◽

Vol 21 (2) ◽

pp. 234-246 ◽

Cited By ~ 2

Author(s):

Manh Dung Tran ◽

Khairil Faizal Khairi ◽

Nur Hidayah Laili

Keyword(s):

Financial Reporting ◽

Audit Quality ◽

Financial Statements ◽

Cross Sectional ◽

Content Type ◽

Listed Firms ◽

Goodwill Impairment ◽

Big 4 ◽

High Level

Purpose The purpose of this paper is to investigate the differences of audit quality of financial statements among auditors, including Big 4 and non-Big 4 auditors. Design/methodology/approach By employing cross-sectional analysis of compliance (a proxy of audit quality) of goodwill impairment testing of listed firms in the context of Hong Kong, the variation of audit quality of financial statements of auditees has been shown. Findings Audit quality of Big 4 auditors is viewed to be higher than that of non-Big 4 audit firms and the homogeneity of audit quality among Big 4 auditors is not long accepted, but variation. Practical implications Even though unqualified opinions have been given on the auditors’ reports, the quality of financial statements audit is a skeptical issue because of the high level of non-compliance of goodwill impairment testing under International Financial Reporting Standards. Originality/value This study does emphasize the higher audit quality of financial statements of Big 4 auditors than that of non-Big 4 auditors and stresses the variation of audit quality among Big 4 auditors.

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An Examination of the Effects of Change in Committee Chair on Audit Quality

Accounting and Finance Research ◽

10.5430/afr.v6n4p52 ◽

2017 ◽

Vol 6 (4) ◽

pp. 52

Author(s):

Izhar Haq ◽

Teresa Lang ◽

Hongkang Xu

Keyword(s):

Audit Committee ◽

Audit Quality ◽

Financial Statements ◽

Discretionary Accruals ◽

Committee Chair ◽

The Absolute ◽

Predicted Values ◽

The Relationship ◽

A Company

This study uses GMI Ratings directorship data from 2008 to 2013 along with the associated financial data to examine the relationship between audit committee chair change with the absolute discretionary accruals in the financial statements of the reporting companies. Our results suggest that audit committee chair change is positively associated with the absolute discretionary accruals. Specifically, absolute discretionary accruals are significantly higher when there is a change in the audit committee chair. These results are consistent with prior research that deviations from the predicted values of accruals is an indicator of “poor” audit quality. An additional finding of this paper is that a person younger than 60 is more likely to be a new audit committee chair when there is a change and therefore will have less experience and contacts than the outgoing chair. An important implication of these results is that audit committee chair change can have a significant impact on the quality of the financial statements of a company as well as on the audit quality.

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Innovation and market liquidity: the case of ADRs

European Business Review ◽

10.1108/ebr-10-2019-0260 ◽

2020 ◽

Vol 32 (4) ◽

pp. 633-641

Author(s):

Manuel Lobato ◽

Javier Rodriguez ◽

Herminio Romero

Keyword(s):

Adverse Selection ◽

Trading Volume ◽

Design Methodology ◽

Market Liquidity ◽

Foreign Firms ◽

American Depositary Receipts ◽

Patent Citations ◽

Content Type ◽

The Usa ◽

Depositary Receipts

Purpose Patents and patent citations provide a solid signal to investors about a firm’s innovation agenda. This signal can be even more useful for investors demanding securities from foreign firms, given the asymmetric information and adverse selection risk they face. This study aims to examine the patenting activities in the USA performed by non-US companies that trade as American Depositary Receipts (ADRs) in US stock markets. Design/methodology/approach The authors examine the effect on the trading volume of a sample of ADRs following the publication of their first patent in the USA. Findings The results show that the publication of a first patent has no effect on the liquidity of these ADRs when compared with same-country ADRs without patents. Originality/value This study enriches the literature on the relation between innovation, information and the stock market.

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Corporate Governance, Disclosure Quality, and Cost of Equity: Evidence from Pakistan

Lahore Journal of Business ◽

10.35536/ljb.2018.v6.i2.a4 ◽

2018 ◽

Vol 6 (2) ◽

pp. 63-91 ◽

Cited By ~ 1

Author(s):

Safia Nosheen ◽

Naveed-Ul-Haq Naveed-Ul-Haq ◽

Muhammad Faisal Sajjad

Keyword(s):

Corporate Governance ◽

Audit Quality ◽

Financial Statements ◽

Ordinary Least Squares ◽

Cost Of Equity ◽

Disclosure Quality ◽

Listed Firms ◽

The Cost ◽

Governance Disclosure

The link between disclosure of corporate information and the cost of equity in firms is one of the most important issues in finance. This paper aims to examine the connection between corporate governance, disclosure quality of information, and the cost of equity in Pakistani-listed (PSX-listed) firms. Using the Generalized Methods of Movements (Sys-GMM) model, a sample of 167 non-financial firms listed on Pakistan Stock Exchange (PSX) for the period of 2011-2015was analyzed. Sys-GMM estimation was applied to overcome the problem of endogeneity among corporate governance variables. To test the robustness of GMM estimations, we compared the results of pooled ordinary least squares (OLS) and fixed-effect estimations and found they did not overcome the problem of endogeneity, providing spurious results. We found a negative association between cost of equity and disclosure quality of financial statements. The findings suggested that the board size, concentrated ownership and CEO duality, are found as significant factors in reducing the cost of equity of PSX-listed firms. Audit committee independence and audit quality of the firm showed a positive relationship with the firm’s cost of equity. Our findings suggest that employing a high-quality auditor and independent director’s results in increased cost of equity for PSX-listed firms. Furthermore, no significant relationship between independence of the boards and duration of the authorizations of financial statements by the board of directors is found. The results also revealed the investors demand more return on their investments if inadequate and incomplete information is disclosed in the annual reports of the firms. This study provides useful insights for Pakistani corporate governance regulators, the executive management of Pakistani firms, and their investors.

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Private equity and corporate governance in Brazil

Corporate Ownership and Control ◽

10.22495/cocv12i1c1p4 ◽

2014 ◽

Vol 12 (1) ◽

pp. 187-192 ◽

Cited By ~ 2

Author(s):

Andre Carvalhal ◽

Luiz Souza

Keyword(s):

Corporate Governance ◽

Private Equity ◽

Positive Influence ◽

American Depositary Receipts ◽

Governance Index ◽

Equity Funds ◽

Governance Practices ◽

Private Equity Funds ◽

Depositary Receipts

This work studies how the activism of institutional investors, specifically private equity funds, influences the development of corporate governance in Brazil. We analyze the control and ownership structure of Brazilian publicly listed companies in order to identify the presence of private equity funds as shareholders. Corporate governance is evaluated through three alternative proxies: a broad governance index, listing on Novo Mercado and presence of American Depositary Receipts (ADRs). Our results indicate a positive influence of private equity funds on the quality of corporate governance practices in Brazil. Firms with private equity tend to have better governance index, and list more on Novo Mercado. There is a moderate relation between the stake of private equity in a company and ADR listing

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Analisis Kualitas Audit Syariah Perusahaan JII Tahun 2014-2019

Akuntabilitas ◽

10.15408/akt.v14i2.22401 ◽

2021 ◽

Vol 14 (2) ◽

pp. 243-254

Author(s):

Titin Agustin Nengsih ◽

Muhamad Subhan ◽

Juliana Juliana

Keyword(s):

Logistic Regression ◽

Regression Analysis ◽

Sampling Method ◽

Audit Quality ◽

Financial Statements ◽

Coefficient Of Determination ◽

Education Experience ◽

Provision Of Services ◽

Rules And Principles

The quality of sharia audit is the provision of services performed by auditors to disclose financial statements that are free from material misstatement either caused by fraud committed by the company manager or the independence of auditors who audit the financial statements based on Islamic rules and principles. The purpose of this study is to analysis of the quality of sharia audit based on education, experience, and independence of auditors on the companies listed in the Jakarta Islamic Index. The population in this study is all companies registered in the Jakarta Islamic Index in 2014 - 2019 with sampling method is according to the specified criteria so the number of samples is 53 companies. The results of Logistic Regression Analysis show that the coefficient of determination obtained as 0.574, it means that 57.4% of the quality of sharia audit quality is influenced by education, experience, and independence of auditors. Furthermore, the auditor’s education and auditor’s experience have no effect on the quality of sharia audit. While the independence of auditors significantly affects the quality of sharia audits.How to Cite:Nengsih, T. A., Subhan, M., & Juliana. (2021). Analisis Kualitas Audit Syariah Perusahaan JII Tahun 2014-2019. Akuntabilitas: Jurnal Ilmu Akuntansi, 14(2), 243-254.

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Changes In Stock Returns And Trading Volume Of American Depositary Receipts Around Their U.S. Stock Exchange Listing Switches

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v28i6.7353 ◽

2012 ◽

Vol 28 (6) ◽

pp. 1445

Author(s):

Kam C. Chan ◽

Annie Wong

Keyword(s):

New York ◽

Stock Returns ◽

Trading Volume ◽

Stock Exchange ◽

Market Performance ◽

Foreign Firms ◽

American Depositary Receipts ◽

Font Size ◽

Depositary Receipts ◽

Year 2000

This study examines the change in stock returns and trading volume of American Depositary Receipts when foreign firms switched their listings from a major U.S. stock exchange to a more prestigious U.S. stock exchange; namely from the NASDAQ or American Stock Exchange to the New York Stock Exchange or from the American Stock Exchange to the NASDAQ since year 2000. We find that the stock returns of these American Depositary Receipts changed from better-than-market performance before the listing changes to just market performance after the listing changes. This evidence is consistent with a timing behavior of the management. We also find significant increase in their trading volume after the listing changes. This leads us to conclude that switching to a more prestigious stock exchange was able to create more investor interest.

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