The Timing of Auditor Hiring: Determinants and Consequences

SYNOPSIS Regulators and legislators have long been interested in the auditor change process and in auditors' learning curves. We find that auditor changes closer to the year-end are associated with longer reporting lags and lower audit quality. We find that both audit fees and audit report lags are higher when there is a hiring lag between announcements of the predecessor auditor's dismissal and the hiring of the successor auditor. We also find that the appointment of new executives is associated with the timing of the auditor change, suggesting that client executives have a significant role in the auditor-hiring process.

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Audit report lag, audit fees, and audit quality following an audit firm merger: Evidence from Hong Kong

Journal of International Accounting Auditing and Taxation ◽

10.1016/j.intaccaudtax.2019.100271 ◽

2019 ◽

Vol 36 ◽

pp. 100271

Author(s):

Kam-Wah Lai

Keyword(s):

Hong Kong ◽

Audit Quality ◽

Audit Fees ◽

Audit Report ◽

Audit Firm

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Shareholder Dissatisfaction and Subsequent Audit Outcomes

Accounting Horizons ◽

10.2308/horizons-18-167 ◽

2020 ◽

Vol 34 (4) ◽

pp. 181-200

Author(s):

Paul N. Tanyi ◽

Dasaratha V. Rama ◽

K. Raghunandan ◽

Gregory W. Martin

Keyword(s):

Empirical Evidence ◽

Audit Quality ◽

Audit Fees ◽

Securities And Exchange Commission ◽

Financial Statement ◽

Audit Report ◽

Subsequent Period ◽

Abnormal Accruals ◽

Auditor Selection

SYNOPSIS This study examines the association between shareholder dissatisfaction, as proxied using auditor ratification voting, and subsequent auditor effort and audit quality. We document that increases in shareholder dissatisfaction are associated with (1) higher audit fees and longer audit report lags, and (2) lower abnormal accruals and reduced likelihood of financial statement misstatements, in the subsequent period. These findings inform the debate about auditor ratification voting, as governance activists and some regulators argue to increase the role of shareholders in auditor selection despite opposition from some firms and the staff of the Securities and Exchange Commission. We provide empirical evidence that increases in shareholder dissatisfaction with the auditor are associated with increases in subsequent auditor effort and audit quality. This suggests that shareholder action (even nonbinding) may potentially influence subsequent audit outcomes.

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Audit Quality Inputs and Financial Statement Conformity to Benford’s Law

Journal of Accounting Auditing & Finance ◽

10.1177/0148558x20930467 ◽

2020 ◽

pp. 0148558X2093046

Author(s):

Thien Le ◽

Gerald J. Lobo

Keyword(s):

Cash Flow ◽

Audit Quality ◽

Financial Statements ◽

Audit Fees ◽

Financial Statement ◽

Benford’S Law ◽

Audit Report ◽

Audit Firm ◽

Income Statement ◽

Benford's Law

We examine whether audit quality inputs are related to the conformity of financial statements to Benford’s law. We find that overall financial statement conformity increases with audit fees, nonaudit fees, and audit report lag, and decreases with audit firm tenure. We also find that these audit quality inputs are more strongly associated with income statement conformity than with cash flow statement conformity. Our findings document the role that auditing plays in enhancing the conformity of financial statements to Benford’s law.

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Costs and Benefits of Requiring an Engagement Partner Signature: Recent Experience in the United Kingdom

The Accounting Review ◽

10.2308/accr-50450 ◽

2013 ◽

Vol 88 (5) ◽

pp. 1511-1546 ◽

Cited By ~ 115

Author(s):

Joseph V. Carcello ◽

Chan Li

Keyword(s):

United Kingdom ◽

Audit Quality ◽

Audit Fees ◽

The United States ◽

Data Availability ◽

Recent Experience ◽

Audit Report ◽

The United Kingdom ◽

Before And After ◽

Audit Reports

ABSTRACT: This paper investigates the effects on audit quality and audit fees of requiring the engagement partner to sign the audit report in the United Kingdom (U.K.). The effect of requiring the engagement partner to sign the audit report is timely since the Public Company Accounting Oversight Board (PCAOB) is considering mandating a similar requirement in the United States (U.S.). In the first year after the introduction of the signature requirement, we find a significant decline in abnormal accruals and the propensity to meet an earnings threshold, and we find a significant increase in the incidence of qualified audit reports and in earnings informativeness. In addition, audit fees are significantly higher in the post-signature period than in the pre-signature period. Moreover, we compare U.K. firms with a matched sample of U.S. firms and firms in other European countries in periods both before and after the U.K. adopted a signature requirement. Our results are generally consistent with the argument of improved audit quality in U.K. firms after the signature requirement is adopted. Data Availability: Data are available from public sources identified in the text.

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Consequences of Expanded Audit Reports: Evidence from the Justifications of Assessments in France

Auditing A Journal of Practice & Theory ◽

10.2308/ajpt-52339 ◽

2018 ◽

Vol 38 (3) ◽

pp. 23-45 ◽

Cited By ~ 12

Author(s):

Jean Bédard ◽

Nathalie Gonthier-Besacier ◽

Alain Schatt

Keyword(s):

Trading Volume ◽

Audit Quality ◽

Abnormal Returns ◽

Audit Fees ◽

Audit Report ◽

Abnormal Trading Volume ◽

Audit Reports ◽

The Impact ◽

First Time ◽

The U.S

SUMMARY Since 2003, French auditors must disclose justifications of assessments (JOAs) in expanded audit reports. Like critical audit matters recently introduced in the U.S., and key audit matters introduced by international standard setters, the purpose of JOAs is to enhance the informative value of audit reports. Based on French audit reports from 2002 to 2011, we analyze the impact of first-time implementation of JOAs, and the impact of new JOAs in subsequent years, on investors (measured by abnormal returns and abnormal trading volume) and on the audit (measured by audit report lag, abnormal accruals, and audit fees). For both first-time implementation of JOAs and new JOAs in subsequent years, we find no significant market reaction to their disclosure and no significant effect on audit report lag, audit quality, and audit fees. Our results suggest that the French expanded audit report did not have the expected consequences on investors and the audit.

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Audit Fees for Initial Audit Engagements Before and After SOX

Auditing A Journal of Practice & Theory ◽

10.2308/aud.2009.28.1.171 ◽

2009 ◽

Vol 28 (1) ◽

pp. 171-190 ◽

Cited By ~ 88

Author(s):

Hua-Wei Huang ◽

K. Raghunandan ◽

Dasaratha Rama

Keyword(s):

Empirical Evidence ◽

Audit Quality ◽

Audit Fees ◽

Pricing Decisions ◽

Big 4 ◽

Audit Fee ◽

Auditor Change ◽

Before And After ◽

The Media ◽

Client Acceptance

SUMMARY: Legislators, regulators, and the media have expressed concerns that auditors “lowball” the fees for initial-year audits and that such fee discounts can lead to reduced audit quality. We hypothesize that initial-year audit fee discounts will be less likely in the post-SOX period than in the pre-SOX period. Using both fee-levels and fee-changes models, we find that Big 4 clients receive initial-year audit fee discounts of about 24 percent in 2001; this finding is consistent with results from many prior studies that have examined various periods prior to SOX. However, we find that in 2005–2006 Big 4 clients pay an initial-year audit fee premium of around 16 percent. We also document that the Big 4 are much less likely to serve as a successor, following an auditor change, in 2005–2006 than in 2001. Overall, the findings suggest that concerns about initial-year audit fee discounts are not supported by empirical evidence in the post-SOX period. The results also suggest that the Big 4 have become more conservative in the post-SOX period with respect to client acceptance and pricing decisions.

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IFRS adoption and auditing: a review

Asian Review of Accounting ◽

10.1108/ara-12-2014-0126 ◽

2016 ◽

Vol 24 (3) ◽

pp. 338-361 ◽

Cited By ~ 7

Author(s):

Hichem Khlif ◽

Imen Achek

Keyword(s):

Audit Quality ◽

Audit Fees ◽

Research Literature ◽

Future Research ◽

Audit Report ◽

Content Type ◽

Auditor Choice ◽

Audit Market ◽

Ifrs Adoption ◽

The Future

Purpose The purpose of this paper is to review the empirical research literature dealing with International Financial Reporting Standards (IFRS) and auditing. The authors identify four main topics related to the effect of IFRS adoption on audit fees, audit market and audit report lag and the influence of auditor choice on IFRS compliance. Design/methodology/approach For each reviewed stream of research, the authors present its theoretical underpinning and summarize its main results. Findings Based on 26 empirical studies, the review reveals four main findings. First, IFRS adoption is associated with increased audit fees. Second, IFRS adoption has had an effect on audit market through auditor choice, audit switching and audit market concentration. Third, IFRS adoption has increased audit report lag. Finally, the authors document that audit quality, as proxied by auditor type, may play an important role in enforcing the compliance with IFRS. Practical implications For regulators the review highlights that IFRS adoption is associated with several effects dealing with audit cost (audit fees), audit efficiency (audit report lag) and may benefit audit firms with international affiliation compared to local ones and this may inform regulators in settings that plan to adopt IFRS in the future. Originality/value This literature review represents a historical record and an introduction for researchers who aim to investigate this topic in the future since the authors provide specific guidance for future research avenues for these reviewed strands of research and other unexplored topics related to auditing and IFRS.

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