Recent Auditor Downgrade Activity and Changes in Clients' Discretionary Accruals

2011 ◽  
Vol 30 (3) ◽  
pp. 33-58 ◽  
Author(s):  
Brian T. Carver ◽  
Carl W. Hollingsworth ◽  
Jonathan D. Stanley
Keyword(s):  
Adverse Effects ◽  
Control Sample ◽  
Discretionary Accruals ◽  
Data Availability ◽  
The Public ◽  
Audit Market ◽  
Auditor Switches ◽  
Significant Change

SUMMARY This study examines whether recent auditor downgrade activity is associated with subsequent changes in clients' discretionary accruals. The market for audit services has undergone dramatic change in recent years, resulting in a substantial increase in the number of clients realigning to smaller auditors. This shift in the audit market raises concern about the potential adverse effects of clients moving away from larger, and perhaps more effective, auditors. Consistent with this concern, our analysis of auditor switches occurring between 2003 and 2005 indicates that downgrade clients reported a significant increase in signed discretionary accruals over the two years following the switch. In contrast, we find no significant change in discretionary accruals for a control sample of lateral switches. However, between-sample comparisons fail to provide consistent evidence that the two groups reported accrual changes differently following the auditor switch. Data Availability: Data are available from the public sources identified in the text.

Further Evidence on the Effect of Regulation on the Exit of Small Auditors from the Audit Market and Resulting Audit Quality

2017 ◽  
Vol 37 (4) ◽  
pp. 95-115
Author(s):  
Neil L. Fargher ◽  
Alicia Jiang ◽  
Yangxin Yu
Keyword(s):  
Audit Quality ◽  
Financial Statements ◽  
Discretionary Accruals ◽  
Data Availability ◽  
The Public ◽  
Audit Market ◽  
Audit Firms ◽  
Jel Classifications

SUMMARY Following the introduction of SOX in 2002 and the introduction of PCAOB inspections starting from 2003, DeFond and Lennox (2011) found that a large number of small auditors exited the SEC client audit market during the 2002–2004 period and that these exiting auditors were of lower quality relative to non-exiting auditors. This paper seeks to verify whether SOX and the introduction of PCAOB inspections improved audit quality through incentivizing small auditors providing lower audit quality to exit the market. Using client discretionary accruals and the likelihood of the clients restating financial statements as proxies for audit quality, we do not find that the small auditors that exited the market for SEC client audits were of lower quality than successor small audit firms that did not exit the market. JEL Classifications: G18; L51. Data Availability: Data are available from the public sources cited in the text.

scholarly journals The Effect of an Auditor Identity Disclosure Requirement on Audit Quality: An Experimental Examination Incorporating the Incremental Effect of a Signature Requirement

2019 ◽  
Vol 38 (4) ◽  
pp. 17-29 ◽  
Author(s):  
Allen D. Blay ◽  
Eric S. Gooden ◽  
Mark J. Mellon ◽  
Douglas E. Stevens
Keyword(s):  
Audit Quality ◽  
Social Norm ◽  
Data Availability ◽  
The Public ◽  
Audit Market ◽  
Incremental Effect ◽  
Public Company ◽  
Identity Disclosure ◽  
Disclosure Requirement ◽  
Higher Sensitivity

SUMMARY After considering a proposal to require the engagement partner's signature on the audit report (PCAOB 2009), the Public Company Accounting Oversight Board chose instead to only require the disclosure of the engagement partner's name (PCAOB 2015). We make predictions regarding the effects of the two proposed requirements using insights from social norm theory, and test those predictions using an experimental audit market setting found in the literature. We find that both requirements reduce misreporting when compared to a control setting with neither requirement present. We also document that the signature requirement generates an incremental reduction in misreporting when added to the disclosure requirement. Finally, we provide evidence that these effects are driven by participants with higher sensitivity to social norms. This theory and evidence supports the new identity disclosure requirement at the PCAOB and helps explain the existence of signature requirements in many non-U.S. countries. Data Availability: Experimental data are available from the authors upon request.

Auditor Tenure and the Pricing of Discretionary Accruals in the Post-SOX Era

2012 ◽  
Vol 12 (1) ◽  
pp. 1-15 ◽  
Author(s):  
David S. Jenkins ◽  
Uma K. Velury
Keyword(s):  
Audit Quality ◽  
Discretionary Accruals ◽  
Data Availability ◽  
Policy Implications ◽  
Significant Relation ◽  
Audit Firm ◽  
The Public ◽  
Auditor Tenure ◽  
Accruals Quality ◽  
Mandatory Audit Firm Rotation

ABSTRACT This study empirically examines the public policy implications of mandatory audit firm rotation in the context of the relation between auditor tenure and the market's perception of discretionary accruals quality in the pre- and post-SOX periods. Consistent with prior research, the pre-SOX results support the effects of auditor learning and auditor closeness on the relation between auditor tenure and audit quality. We further demonstrate that in the post-SOX period, there is no significant relation between auditor tenure and the pricing of discretionary accruals. The post-SOX results indicate that the market's perception of auditor tenure as a significant determinant of audit quality may have diminished in the environment of increased regulation under SOX. The findings further imply that ongoing consideration of a policy that mandates periodic audit firm rotation may no longer be essential with the passage of SOX. Data Availability: Data used in this study were obtained from publicly available sources identified in the text.

The Effect of Mandatory Audit Firm Rotation on Audit Quality and Audit Fees: Empirical Evidence from the Korean Audit Market

2014 ◽  
Vol 33 (4) ◽  
pp. 167-196 ◽  
Author(s):  
Soo Young Kwon ◽  
Youngdeok Lim ◽  
Roger Simnett
Keyword(s):  
Empirical Evidence ◽  
Audit Quality ◽  
Audit Fees ◽  
Discretionary Accruals ◽  
Data Availability ◽  
Audit Firm ◽  
Audit Market ◽  
Audit Firms ◽  
Mandatory Rotation ◽  
Mandatory Audit Firm Rotation

SUMMARY: Using a unique setting in which mandatory audit firm rotation was required from 2006–2010, and in which both audit fees and audit hours were disclosed (South Korea), this study provides empirical evidence of the economic impact of this policy initiative on audit quality, and the associated implications for audit fees. This study compares both pre- and post-policy implementation and, after the implementation of the policy, mandatory long-tenure versus voluntary short-tenure rotation situations. Where audit firms were mandatorily rotated post-policy, we observe that audit quality (measured as abnormal discretionary accruals) did not significantly change compared with pre-2006 long-tenure audit situations and voluntary post-rotation situations. Audit fees in the post-regulation period for mandatorily rotated engagements are significantly larger than in the pre-regulation period, but are discounted compared to audit fees for post-regulation continuing engagements. We also find that the observed increase in audit fees and audit hours in the post-regulation period extends beyond situations where the audit firm was mandatorily rotated, suggesting that the introduction of mandatory audit firm rotation had a much broader impact than the specific instances of mandatory rotation. Data Availability: Most of the financial data used in the present study are available from the KIS Value Database. The data for audit hours and fees were drawn from statements of operating results filed with the Financial Supervisory Services (FSS) in Korea.

Passivation of pressure sensitive adhesive stickies by addition of acrylic fibers to OCC pulp before papermaking

TAPPI Journal ◽  
2016 ◽  
Vol 15 (10) ◽  
pp. 631-639
Author(s):  
MOHAMMAD HADI ARYAIE MONFARED ◽  
HOSSEIN RESALATI ◽  
ALI GHASEMIAN ◽  
MARTIN A. HUBBE
Keyword(s):  
Adverse Effects ◽  
Control Sample ◽  
Pressure Sensitive Adhesive ◽  
Acrylic Fiber ◽  
Burst Strength ◽  
Pressure Sensitive Adhesives ◽  
Pressure Sensitive ◽  
Tear Index ◽  
Breaking Length ◽  
Acrylic Fibers

This study investigated the addition of acrylic fiber to old corrugated container (OCC) pulp as a possible means of overcoming adverse effects of water-based pressure sensitive adhesives during manufacture of paper or paperboard. Such adhesives can constitute a main source of stickies, which hurt the efficiency of the papermaking process and make tacky spots in the product. The highest amount of acrylic fiber added to recycled pulps generally resulted in a 77% reduction in accepted pulp microstickies. The addition of acrylic fibers also increased pulp freeness, tear index, burst strength, and breaking length, though there was a reduction in screen yield. Hence, in addition to controlling the adverse effects of stickies, the addition of acrylic fibers resulted in the improvement of the mechanical properties of paper compared with a control sample.

The Search for Order in Municipal Administration: Herman A. Metz and the New York City Experience, 1898–1909

2020 ◽  
Vol 47 (1) ◽  
pp. 55-74
Author(s):  
Ryan P. McDonough ◽  
Paul J. Miranti ◽  
Michael P. Schoderbek
Keyword(s):  
New York ◽  
New York City ◽  
Internal Control ◽  
York City ◽  
Internal Controls ◽  
Data Availability ◽  
Financial Reports ◽  
The Public ◽  
Operational Activities ◽  
The City

ABSTRACT This paper examines the administrative and accounting reforms coordinated by Herman A. Metz around the turn of the 20th century in New York City. Reform efforts were motivated by deficiencies in administering New York City's finances, including a lack of internal control over monetary resources and operational activities, and opaque financial reports. The activities of Comptroller Metz, who collaborated with institutions such as the New York Bureau of Municipal Research, were paramount in initiating and implementing the administrative and accounting reforms in the city, which contributed to reform efforts across the country. Metz promoted the adoption of functional cost classifications for city departments, developed flowcharts for improved transaction processing, strengthened internal controls, and published the 1909 Manual of Accounting and Business Procedure of the City of New York, which laid the groundwork for transparent financial reports capable of providing vital information about the city's activities and subsidiary units. JEL Classifications: H72, M41, N91. Data Availability: Data are available from the public sources cited in the text.

Tax-Advantaged Trust Use Among IPO Executives: Determinants and Implications for Valuation and Future Performance

2019 ◽  
Vol 95 (3) ◽  
pp. 145-175 ◽  
Author(s):  
Michael J. Dambra ◽  
Matthew Gustafson ◽  
Phillip J. Quinn
Keyword(s):  
Stock Price ◽  
Relevant Information ◽  
Data Availability ◽  
Market Prices ◽  
The Public ◽  
Future Performance ◽  
Estate Taxes ◽  
Price Appreciation ◽  
One Year ◽  
Jel Classifications

ABSTRACT We examine the prevalence and determinants of CEOs' use of tax-advantaged trusts prior to their firm's IPO. Twenty-three percent of CEOs use tax-advantaged pre-IPO trusts, and share transfers into tax-advantaged trusts are positively associated with CEO equity wealth, estate taxes, and dynastic preferences. We project that pre-IPO trust use increases CEOs' dynastic wealth by approximately $830,000, on average. We next examine a simple model's prediction that trust use will be positively related to IPO-period stock price appreciation. We find that trust use is associated with 12 percent higher one-year post-IPO returns, but is not significantly related to the IPO's valuation, filing price revision, or underpricing. This evidence is consistent with CEOs' personal finance decisions prior to the IPO containing value-relevant information that is not immediately incorporated into market prices. JEL Classifications: D14; G12; G32; M21; M41. Data Availability: Data are available from the public sources cited in the text.

Auditors and the Principal-Principal Agency Conflict in Family Controlled Firms

2020 ◽  
Vol 39 (4) ◽  
pp. 31-55
Author(s):  
Chiraz Ben Ali ◽  
Sabri Boubaker ◽  
Michel Magnan
Keyword(s):  
Risk Assessment ◽  
Negative Relationship ◽  
Audit Fees ◽  
Data Availability ◽  
Audit Risk ◽  
Controlling Shareholder ◽  
Voting Power ◽  
The Public ◽  
Agency Conflict ◽  
Jel Classifications

SUMMARY This paper examines whether multiple large shareholders (MLS) affect audit fees in firms where the largest controlling shareholder (LCS) is a family. Results show that there is a negative relationship between audit fees and the presence, number, and voting power of MLS. This is consistent with the view that auditors consider MLS as playing a monitoring role over the LCS, mitigating the potential for expropriation by the LCS. Therefore, our evidence suggests that auditors reduce their audit risk assessment and audit effort and ultimately audit fees in family controlled firms with MLS. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G32; G34; M42; D86.

The Role and Perceptions of Independent Audit Partners in the Governmental Audit Market

2001 ◽  
Vol 1 (1) ◽  
pp. 17-41 ◽  
Author(s):  
Suzanne H. Lowensohn ◽  
Frank Collins
Keyword(s):  
Risk Factors ◽  
Environmental Risk ◽  
Environmental Risk Factors ◽  
Political Climate ◽  
Audit Firm ◽  
The Public ◽  
Audit Market ◽  
Primary Means ◽  
Relationship Of ◽  
Independent Audit

Audits are the primary means of monitoring that public funds are appropriately spent by governmental entities. Currently, independent auditors (rather than governmental auditors) are the primary suppliers of governmental audit services, despite the fact that many of them view governmental audits as “secondary” (AICPA 1987). Furthermore, nongovernmental auditors are believed to be less “independent” and more prone to lose sight of the programmatic demand to safeguard the public trust (Power 1997) than governmental auditors. To better understand the supply of governmental audit services, this study investigates independent audit firm partner opinions of governmental audits and their motivation to pursue these engagements. Multiple regression results of our data reveal that partners are more likely to pursue governmental audits if they believe that desirable intrinsic and extrinsic rewards are attainable through performing these audits. Furthermore, environmental risk factors—an active political climate and authoritative changes—reduce partner motivation to pursue governmental audits. It is suggested that environmental risk factors disrupt the comfortable principal/agent relationship of the auditor and auditee because the relationships have become decoupled (abstracted) from the audit's programmatic mission.

scholarly journals Plaque erosion causing ST-elevation myocardial infarction after consumption of cannabis and N2O in a 27-year old man: a case report

2021 ◽  
Vol 21 (1) ◽  
Author(s):  
Sarah Bär ◽  
Fabien Praz ◽  
Lorenz Räber
Keyword(s):  
Myocardial Infarction ◽  
Case Report ◽  
Adverse Effects ◽  
Cardiovascular Effects ◽  
Drug Eluting Stent ◽  
Culprit Lesion ◽  
Vascular Events ◽  
The Public ◽  
Plaque Erosion ◽  
First Case

Abstract Background The recreational drugs cannabis and nitrous oxide (N2O) are known for pro-atherogenic effects and are associated with an elevated risk of myocardial infarction. These cardiovascular effects might be underestimated by the public. Culprit-lesion composition of myocardial infarctions associated with cannabis and N2O has been unknown so far. This case report aims to raise the awareness of the adverse cardiovascular effects of cannabis and N2O and reports, for the first time, optical coherence tomography (OCT) findings of the culprit lesion. Case presentation This is a case report of a 27-year old man with anterior ST-segment-elevation myocardial infarction (STEMI) after intoxication with cannabis and N2O. Coronary angiography and OCT revealed plaque erosion with subsequent subtotal thrombotic occlusion of the left anterior descending artery that was successfully treated with 1 drug-eluting stent. The patient was symptom free at 6 months follow-up and had been able to abstain from drug consumption. Conclusions This is the first case to demonstrate the association between cannabis and N2O abuse and plaque erosion on OCT in a young man with STEMI. In contrast to smoking, whose adverse effects are well-known, the cardiovascular effects of cannabis and N2O might be underestimated. These adverse effects should gain more awareness in the public to prevent early vascular events in young adults.

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