Shareholder Voting on Auditor Selection, Audit Fees, and Audit Quality

2011 ◽  
Vol 87 (1) ◽  
pp. 149-171 ◽  
Author(s):  
Mai Dao ◽  
K Raghunandan ◽  
Dasaratha V. Rama
Keyword(s):  
Advisory Committee ◽  
Audit Quality ◽  
Audit Fees ◽  
Experimental Results ◽  
Shareholder Voting ◽  
Public Companies ◽  
Abnormal Accruals ◽  
Auditor Selection ◽  
Using Data ◽  
The U.S

ABSTRACT The Advisory Committee on the Auditing Profession (ACAP), formed by the U.S. Department of the Treasury, has recommended that all public companies be required to have shareholder ratification of auditor selection. Using data from 1,382 firms for the year ending December 31, 2006, we find that audit fees are higher in firms with shareholder voting on auditor ratification. We also find that firms that started having a shareholder vote pay higher fees than firms that stopped having a shareholder vote. In the second part of our study, we find that in firms with shareholder voting on auditor selection (1) subsequent restatements are less likely and (2) abnormal accruals are lower. Our findings are consistent with the experimental results in Mayhew and Pike (2004), and provide empirical grounding for the debate about mandating shareholder voting on auditor selection.

Shareholder Votes on Auditor Ratification and Subsequent Auditor Dismissals

2016 ◽  
Vol 31 (1) ◽  
pp. 129-139 ◽  
Author(s):  
Abhijit Barua ◽  
K Raghunandan ◽  
Dasaratha V. Rama
Keyword(s):  
Corporate Governance ◽  
Advisory Committee ◽  
Selection Process ◽  
Shareholder Voting ◽  
Public Companies ◽  
Auditor Selection ◽  
The U.S

SYNPOSIS The Advisory Committee on the Auditing Profession (ACAP [DoT 2008]), appointed by the U.S. Department of Treasury, recommended that regulators require public companies to have shareholder voting on auditor ratification. However, the SEC has sided with companies that sought to exclude proposals from shareholders seeking greater say in the auditor selection process. We use data from 12,664 shareholder votes on auditor ratification during 2011–2014 and find that subsequent auditor dismissals become more likely with increases in the proportion of shareholders not ratifying the auditor. The findings should be of interest to corporate governance activists and regulators, and reinforce suggestions that even small changes in shareholder votes can be associated with significant corporate changes.

Shareholder Dissatisfaction and Subsequent Audit Outcomes

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.

Does Visibility of an Engagement Partner’s Association with Recent Client Restatements Increase Fee Pressures from Non-Restating Clients?

2021 ◽  
Author(s):  
Wuchun Chi ◽  
Ling Lei Lisic ◽  
Linda A Myers ◽  
Mikhail Pevzner ◽  
Timothy A Seidel
Keyword(s):  
United States ◽  
Audit Quality ◽  
Audit Fees ◽  
The United States ◽  
Limited Evidence ◽  
Partner Disclosure ◽  
Audit Fee ◽  
Using Data ◽  
The Impact ◽  
The U.S

We examine whether engagement partners who have recently been associated with client restatements experience increased audit fee pressures from their non-restating clients. Using data from the United States (U.S.) and Taiwan, we find evidence of lower audit fees among non-restating companies whose audit engagement partner was recently associated with another client’s restatement. These findings are generally strongest when the partner-associated restatement is more prominent or severe, and in the U.S., when non-restating clients are in the same industry as the restating client. Although we find very limited evidence that fee pressures lead to lower quality audits for these partners’ other clients in Taiwan, we find that when the partner-associated restatement is more prominent or severe, fee pressures negatively impact audit quality in the U.S. These findings provide further insight on the impact of engagement partner disclosure for audit quality.

U.S. Political Corruption and Audit Fees

2020 ◽  
pp. 0000-0000 ◽  
Author(s):  
Anand Jha ◽  
Manoj Kulchania ◽  
Jared Smith
Keyword(s):  
Fixed Effects ◽  
Political Corruption ◽  
Audit Fees ◽  
Internal Controls ◽  
Capital City ◽  
Department Of Justice ◽  
Additional Risk ◽  
Wide Range ◽  
Using Data ◽  
The U.S

Using data on corruption convictions from the U.S. Department of Justice, we find that auditors charge higher fees when a firm is headquartered in a more corrupt district. This result is robust to a wide range of time and location fixed effects, using capital city isolation as an instrument, and propensity score matching. We also find that, relative to those in non-corrupt districts, firms in corrupt districts are more likely to have weak internal controls and to restate earnings and that their auditors exert greater effort. This evidence suggests that auditing firms in corrupt areas entails additional risk, which auditors price into fees.

Financial Restatements and Shareholder Ratifications of the Auditor

2009 ◽  
Vol 28 (1) ◽  
pp. 225-240 ◽  
Author(s):  
Li-Lin Liu ◽  
K. Raghunandan ◽  
Dasaratha Rama
Keyword(s):  
Audit Quality ◽  
Empirical Support ◽  
Securities And Exchange Commission ◽  
Financial Statement ◽  
Shareholder Voting ◽  
Financial Restatements ◽  
Preceding Period ◽  
Significant Attention ◽  
The U.S ◽  
Selection Of

SUMMARY: Regulators and legislators have focused significant attention on financial statement restatements in recent years, and the U.S. Securities and Exchange Commission (SEC) and financial statement users view restatements as audit failures. The SEC (2000, 2003a) suggests that shareholder voting on auditor ratification will be impacted by perceptions of audit quality. In this paper we examine shareholder voting on auditor ratifications in 2005 or 2006 following restatement announcements by SEC registrants. We find that shareholders are more likely to vote against auditor ratification after a restatement when compared with votes at (1) firms without restatements or (2) restating firms in the preceding period. Overall, the results provide empirical support to the SEC's assertion that shareholder voting on auditor ratification will be related to perceptions of audit quality, and also support recent actions by shareholder activists to require all firms to submit the selection of the auditor for a ratification vote by shareholders.

Does Audit Fee Homogeneity Exist? Premiums and Discounts Attributable to Individual Partners

2011 ◽  
Vol 30 (4) ◽  
pp. 249-272 ◽  
Author(s):  
Stuart D. Taylor
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Data Availability ◽  
Audit Market ◽  
Homogeneity Assumption ◽  
Audit Firms ◽  
Audit Fee ◽  
Using Data ◽  
The Individual ◽  
Made In

SUMMARY This paper investigates the implied assumption, made in many audit fee determination studies, that, within a given audit firm, all partners produce a statistically identical level of audit quality and earn a statistically identical level of audit fees. This is referred to as the “homogeneity assumption.” However, this is contradicted by the individual auditor behavioral literature, which shows that different individual auditor characteristics can have an impact on audit quality. Given the fact that audit partners differ in their quality, this paper hypothesizes that different audit partners will be able to earn differing levels of fees. This hypothesis is tested by estimating an audit fee model using data from 822 Australian publicly listed companies for the year 2005. Australia is an ideal audit market for this research, as the disclosure of the name of the audit engagement partner in the audit report is mandatory. The empirical results indicate that individual audit partners earn individual audit fee premiums (or discounts) that are not explainable by the audit firms of which they are members. Data Availability: All data have been extracted from publicly available sources.

Costs of Mandatory Periodic Audit Partner Rotation: Evidence from Audit Fees and Audit Timeliness

2016 ◽  
Vol 36 (1) ◽  
pp. 129-149 ◽  
Author(s):  
Divesh S. Sharma ◽  
Paul N. Tanyi ◽  
Barri A. Litt
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Data Availability ◽  
Production Costs ◽  
Specific Knowledge ◽  
Public Companies ◽  
Big 4 ◽  
Mandatory Rotation ◽  
Audit Production ◽  
Audit Partner Rotation

SUMMARY The constricted mandatory audit partner rotation rules for U.S. public companies have fueled intense debate among the profession, regulators, and policymakers. This topic remains controversial, but neither side has provided evidence of the consequential benefits and costs of mandatory rotation. While rotation effects on audit quality have been examined, we empirically examine its effects on two audit production costs: audit fees and audit timeliness. We find significantly higher audit fees and significantly longer audit report lags in the period immediately following mandatory audit partner rotation. These effects are more pronounced for non-Big 4 auditors, larger clients, and audit offices that are not industry specialists. Moreover, the audit fee and audit timeliness effects persist in successive audit partner rotations, suggesting that client-specific knowledge gained through longer audit firm engagement does not completely mitigate loss of client-specific knowledge at the partner level. Our findings provide new empirical evidence supporting the profession's arguments that mandatory audit partner rotation is costly to multiple stakeholders, including clients, auditors, and investors. Data Availability: All data are publicly available from sources identified in the text.

Audit Market Structure and Audit Pricing

2016 ◽  
Vol 31 (1) ◽  
pp. 57-81 ◽  
Author(s):  
John Daniel Eshleman ◽  
Bradley P. Lawson
Keyword(s):  
Fixed Effects ◽  
Audit Quality ◽  
Audit Fees ◽  
Market Concentration ◽  
First Year ◽  
Audit Pricing ◽  
Ongoing Debate ◽  
Audit Market ◽  
Big 4 ◽  
The U.S

SYNOPSIS Extant literature finds mixed evidence on the association between audit market concentration and audit fees. We re-examine this issue using a large sample of U.S. audit clients covering 90 metropolitan statistical areas (MSAs) spanning 2000–2013. We find that audit market concentration is associated with significantly higher audit fees, consistent with the concerns of regulators and managers. We also find that increases in audit market concentration are associated with fewer initial engagement fee discounts (i.e., reduced lowballing), particularly for non-Big 4 clients. We reconcile our findings with those of prior research and find that our divergent findings are attributable to controls for MSA fixed effects. In supplemental analyses, we find that audit market concentration is associated with higher audit quality. We also find that concentration is associated with higher audit quality for first-year engagements, but only if the auditor does not lowball on the engagement. Our results are relevant to the ongoing debate regarding the consequences of increased concentration within the U.S. audit market (GAO 2003, 2008). JEL Classifications: M41; M42; L13.

Audit Quality Indicators: A Status Update on Possible Public Disclosures and Insights from Audit Practice

2010 ◽  
Vol 4 (1) ◽  
pp. C12-C19 ◽  
Author(s):  
Jean C. Bedard ◽  
Karla M. Johnstone ◽  
Edward F. Smith
Keyword(s):  
Advisory Committee ◽  
Quality Indicators ◽  
Audit Quality ◽  
Public Reporting ◽  
Global Network ◽  
Current Status ◽  
Sarbanes Oxley ◽  
Public Disclosures ◽  
The U.S

SUMMARY: This paper addresses the current status of the recommendation by the Advisory Committee on the Auditing Profession (ACAP) that auditing firms provide periodic reporting on audit quality indicators. We first consider several reasons why public reporting of audit quality indicators in the U.S. is highly controversial. We then report some information on how global network auditing firms are internally measuring audit quality in the post-Sarbanes-Oxley environment.

The Determinants of Audit Fees for Companies in Vietnam

2017 ◽  
pp. 68-88
Author(s):  
Hong Nguyen Thi Phuong ◽  
My Tran Le Hoang
Keyword(s):  
Audit Quality ◽  
Research Result ◽  
Audit Fees ◽  
The Other ◽  
Public Companies ◽  
Factors Influencing ◽  
Audit Fee

The purpose of this study is analyzing the determinants of audit fees for public companies in Vietnam because audit fees are one of the important factors influencing audit quality and audit tasks. According to the research result, this study has identified that only three of ten determinants influence the audit fees significantly, and these are auditee size, auditee complexity and reputation of audit companies, and this result is compared to the previous research on audit fees. Based on the comparison, this study discusses some reasons why only three determinants influence the audit fee significantly while the other factors do not. Finally, some recommendations are proposed in order to help public companies and the audit companies in Vietnam to determine the audit fee more accurately.

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