Auditors' Response to Auditor Business Risk: An Analysis Using Public and Private Companies

2021 ◽  
Author(s):  
Gil S. Bae ◽  
Seung Uk Choi ◽  
Jae Eun Lee
Keyword(s):  
Initial Public Offering ◽  
Risk Premium ◽  
Audit Fees ◽  
Business Risk ◽  
Difference In Differences ◽  
Private Companies ◽  
Public And Private ◽  
Public Companies ◽  
Public Offering ◽  
Time Series Comparison

Using audit hours and hourly audit fees for a large sample of public and private companies, we examine how auditors respond to auditor business risk. We find that auditors work more hours and charge higher hourly fees when auditing public companies than when auditing private companies. A difference-in-differences time-series comparison of the pre- and post-initial public offering (IPO) periods also indicates that both audit hours and hourly audit fees are higher for the post-IPO period than for the pre-IPO period of the company. This suggests that auditors respond to an increase in auditor business risk by increasing audit effort and charging a risk premium for the residual risk that additional effort alone does not fully address.

Financial Reporting Fraud: Public and Private Companies

2016 ◽  
Vol 1 (1) ◽  
pp. A27-A41 ◽  
Author(s):  
A. Scott Fleming ◽  
Dana R. Hermanson ◽  
Mary-Jo Kranacher ◽  
Richard A. Riley
Keyword(s):  
Financial Reporting ◽  
Primary Objective ◽  
Private Company ◽  
Private Companies ◽  
Public And Private ◽  
Public Companies ◽  
Multivariate Tests ◽  
Public Company ◽  
Public Versus Private ◽  
Financial Reporting Fraud

ABSTRACT This study uses survey data gathered by the Association of Certified Fraud Examiners (ACFE) and provided to the Institute for Fraud Prevention (IFP) to examine differences in the profile of financial reporting fraud (FRF) between private companies and public companies. Although private companies represent a significant portion of the economy, largely due to lack of data on these companies, most research on FRF examines only public companies. The primary objective of this study is to determine how private company FRF is different from FRF in public companies. Our multivariate tests reveal that public companies have stronger anti-fraud environments, are more likely to have frauds that involve timing differences, tend to experience larger frauds, have frauds that involve a larger number of perpetrators, and are less likely to have frauds that are discovered by accident. Overall, it appears that the stronger anti-fraud environment in public companies leads public company FRF perpetrators to use less obvious fraud methods (i.e., timing differences) and to involve larger fraud teams to circumvent the controls. These public company frauds are larger than in private companies, and their larger size may make them more likely to be detected through formal means, rather than by accident. Based on the results, we encourage auditors and others to be particularly attuned to the unique risks of the public versus private setting.

Why Do IPO Offer Prices Only Partially Adjust?

2014 ◽  
Vol 04 (03) ◽  
pp. 1450009 ◽  
Author(s):  
Özgür Ş. İnce
Keyword(s):  
Initial Public Offering ◽  
Private Information ◽  
Information Acquisition ◽  
Structural Model ◽  
Public Information ◽  
Public And Private ◽  
New Information ◽  
Pricing Process ◽  
Ipo Pricing ◽  
Public Offering

This study develops a structural model of the initial public offering (IPO) pricing process that enables the estimation of adjustment rates for public and private pricing information gathered during bookbuilding. The estimated upward adjustment rate of public information is only 21%, significantly less than the 28% rate of private information. Adjustment rates decline towards the IPO date, especially for upward adjustments. The findings contradict information acquisition theories that predict a complete adjustment to public information and highlight the inefficiency of the IPO bookbuilding mechanism in handling new information even when information is publicly available and especially when it is favorable.

U.S. Big 4 and Local Auditors in the China Initial Public Offering Market

2019 ◽  
Vol 22 (04) ◽  
pp. 1950024 ◽  
Author(s):  
Zhi-Yuan Feng ◽  
Hua-Wei Huang ◽  
Mai Dao
Keyword(s):  
Initial Public Offering ◽  
Audit Quality ◽  
Audit Fees ◽  
Agency Conflicts ◽  
Accounting Firms ◽  
Corporate Fraud ◽  
Big 4 ◽  
Investment Distortions ◽  
Ipo Pricing ◽  
Public Offering

This paper examines (1) whether auditor type affects initial public offering (IPO) pricing; (2) whether the effect of IPO pricing is different for clients with different ownership structures. We find that (1) firms being audited by Big 4 accounting firms receive IPO premium while others being audited by local accounting firms do not; (2) Big 4 auditors receive higher audit fees than China’s Top 10 or small local auditors. This paper extends the prior research (e.g., Kumar, P and N Langberg (2009). Corporate fraud and investment distortions in efficient capital markets. The RAND Journal of Economics, 40, 144–172) that reduces agency conflicts between shareholders and manager (by means of better audit quality) and also reconciles corporate misreporting and investment distortions.

5. Raising capital: equity and its consequences

2016 ◽  
Author(s):  
Alan Dignam ◽  
John Lowry
Keyword(s):  
Stock Exchange ◽  
Listed Companies ◽  
Private Companies ◽  
Public And Private ◽  
Public Companies ◽  
The Public ◽  
Insider Dealing ◽  
The Uk ◽  
Takeover Bids

Titles in the Core Text series take the reader straight to the heart of the subject, providing focused, concise, and reliable guides for students at all levels. This chapter focuses on raising equity from the general public and its consequences for the operation of the company. It begins by outlining the basics of raising equity before turning to the consequences of operating in a public market, with emphasis on areas such as takeovers and insider dealing. It then considers the distinction between public and private companies in terms of capital raising, how such companies are regulated, and how public companies differ from listed companies. It also discusses various methods of raising money from the public, the role of the Financial Conduct Authority and the London Stock Exchange in ensuring the proper functioning of the listed market in the UK, and the regulation of listed companies as well as takeovers and other public offers. The chapter concludes by examining the Takeovers Directive (Directive 2004/25/EC of the European Parliament and of the Council of April 21, 2004 on Takeover Bids).

Discretionary Reporting of Stock Options by IPO Firms

2005 ◽  
Vol 19 (4) ◽  
pp. 223-236 ◽  
Author(s):  
Joseph D. Beams ◽  
Anthony J. Amoruso ◽  
Frederick M. Richardson
Keyword(s):  
Initial Public Offering ◽  
Stock Price ◽  
Stock Options ◽  
Peer Group ◽  
Price Volatility ◽  
Fair Value ◽  
Employee Stock Options ◽  
Public Companies ◽  
Option Values ◽  
Public Offering

The revision of SFAS No. 123 (SFAS No. 123R, FASB 2004) requires companies to recognize the fair value of employee stock options. In addition, nonpublic companies will no longer be permitted to assume stock price volatility of zero when calculating the fair value of their stock options. This study finds that the zero volatility assumption allowed under the original version of SFAS No. 123 (FASB 1995) resulted in an average estimated fair value of options that was $1.06 (40 percent) less than the fair value calculated using a peer group volatility estimate for firms undergoing an initial public offering (IPO). However, IPO firms that estimated their volatility underreported option values by an even larger magnitude than the group using the zero volatility assumption. Perhaps these firms reported a downward-biased estimate of volatility to inhibit analysts from computing option values using more reasonable volatility estimates. Contrary to the findings for public companies, we find that a large percentage of sample firms issued in-the-money options prior to going public. Following the IPO, only a small portion of firms issued in-the-money options. The concerns regarding recognizing option expense may be less important than the benefits of granting in-the-money options for IPO firms.

Does the JOBS Act Reduce Compliance Costs of Emerging Growth Companies? Theory and Evidence

2019 ◽  
Vol 38 (4) ◽  
pp. 151-175
Author(s):  
Inder K. Khurana ◽  
Lei Zhao
Keyword(s):  
Initial Public Offering ◽  
Financial Reporting ◽  
Internal Control ◽  
Small Firms ◽  
Audit Fees ◽  
Significant Cost ◽  
Compliance Costs ◽  
Disclosure Requirements ◽  
Public Offering ◽  
Jobs Act

SUMMARY In April 2012, the Jumpstart Our Business Startups (JOBS) Act was enacted to revitalize the initial public offering market by reducing regulatory burdens for small firms. We focus on audit fees, one directly observable and significant cost of complying with the JOBS Act. Specifically, we examine whether the exemption of emerging growth companies (EGCs) from SOX 404(b) auditor attestations of internal control over financial reporting and other disclosure requirements affected audit fees paid by EGCs. We find that EGCs paid higher audit fees than non-EGCs after IPOs. Moreover, we find that the positive relation between EGCs and audit fees is more pronounced for firms with high financial reporting risk. Collectively, our results reveal an unintended consequence of the JOBS Act: it failed to reduce audit fees, a major component of the compliance costs of EGCs.

Do abnormal IPO audit fees signal IPO audit quality and post-IPO performance? A principal-agent analysis based on evidence from China.

2020 ◽  
Author(s):  
K. Hung Chan ◽  
Phyllis L. L. Mo ◽  
Weiyin Zhang
Keyword(s):  
Financial Performance ◽  
Agency Theory ◽  
Initial Public Offering ◽  
Audit Quality ◽  
Financial Statements ◽  
Audit Fees ◽  
Main Interest ◽  
Ipo Performance ◽  
Market Participants ◽  
Public Offering

We assess the unexplained information content of abnormal audit fees using a sample of initial public offering (IPO) audits in China. We find that abnormal IPO audit fees are positively associated with manipulation of pre-IPO real activities, suggesting lower audit quality for IPO financial statements. We further find that abnormal IPO audit fees are negatively associated with post-IPO financial performance. These results suggest a strong alignment of interests between the principal (pre-IPO shareholders), whose main interest is to gain listing status, and its agent (the auditor), who is willing to cooperate with the principal for extra economic rents (abnormal audit fees). Our findings that abnormal IPO audit fees are associated with lower audit quality and can help predict post-IPO financial performance have important implications for audit regulators, IPO market participants, and the applicability of agency theory in the context of IPO audits.

Uncertainty clouds US IPO ebullience going into 2022

2021 ◽  
Keyword(s):  
United States ◽  
Hong Kong ◽  
Initial Public Offering ◽  
The United States ◽  
Venture Capitalists ◽  
Public Companies ◽  
Content Type ◽  
Chinese Companies ◽  
Public Offering ◽  
Start Ups

Significance The company's initial public offering (IPO) is one of three this week expected to raise upwards of USD500mn each, adding to what is already set to be a record-breaking year for IPOs in the United States despite the withdrawal of Chinese companies under pressure from Beijing and Washington. Impacts Hong Kong will be the main beneficiary of Chinese companies' forced IPO withdrawal from US markets. Venture capitalists' being cash-rich should mean a steady stream of start-ups that will eventually seek to become public companies. Investors will press SPAC sponsors to risk more of their own capital.

Life after Enron and ImClone: Special concerns for the biotechnology company

10.5912/jcb39 ◽  
1969 ◽  
Vol 9 (4) ◽  
Author(s):  
Neil H Aronson
Keyword(s):  
Corporate Governance ◽  
Drug Administration ◽  
Food And Drug Administration ◽  
Securities And Exchange Commission ◽  
Critical Periods ◽  
Private Companies ◽  
Public And Private ◽  
Biotechnology Companies ◽  
Senior Officers ◽  
Public Offering

The recent enactment of federal legislation and the ongoing adoption of comprehensive regulations by the Securities and Exchange Commission (SEC) and stock exchanges create a new era for corporate governance. For public biotechnology companies, these new laws and regulations create specific concerns and significant criminal and civil sanctions. Private companies considering a public offering should also consider the implications of these statutes and regulations. In the future, investors are expected to reward both public and private companies that enact strong corporate governance practices.Biotechnology companies will need to carefully review and modify document retention, disclosure, compensation and stock trading policies to comply with the following new requirements:Document retention policies will need to address complex recordkeeping requirements imposed both by the Sarbanes–Oxley Act of 2002 (SOA) as well as a myriad of regulations imposed by the Food and Drug Administration and the Environmental Protection Agency.Severe penalties for improper certification by senior officers of SEC reports places added pressure on public biotechnology companies. Officers will need to establish systems to regularly review the accuracy of disclosures involving all intellectual property, regulatory and healthcare reimbursement disclosures in these periodic reportsCompensation plans for officers and directors must prevent future loans (and modifications to existing loans) and address corporate governance concerns now raised by institutional investors and the media.New reporting requirements for insider sales require that corporations develop systems to accurately track insider sales and to establish systems to prevent insiders and their family members from trading during critical periods preceding Food and Drug Administration and other regulatory actions.

scholarly journals Peluang dan Tantangan Initial Public Offering (IPO) Pada Perusahaan Start-Up di Indonesia

2020 ◽  
Vol 5 (2) ◽  
pp. 30
Author(s):  
Anggi Purnama Harahap ◽  
Rahmad Ramadhan Hasibuan ◽  
Lupitta Risma Candanni
Keyword(s):  
Initial Public Offering ◽  
Capital Market ◽  
Qualitative Approach ◽  
Going Public ◽  
Public Companies ◽  
Start Up ◽  
The Government ◽  
Public Offering ◽  
General Guidance

This paper will discuss the initial public offering (IPO) for startup companies. Case study of PT Aplikasi Karya Anak Bangsa Go-Jek. The discussion in this paper will emphasize startups and their comparison with IPOs in ordinary companies (Case Study PT Jasa Armada Indonesia, Tbk) and other startup companies, namely PT Kioson Commercial Indonesia, Tbk) in 2017. A qualitative approach with normative descriptive and benchmark method is used to analyze the problem mention above. This research finds that in general, public regulations and general guidance in Law Number 8 of 1995 concerning the Capital Market and other related regulations sufficient to meet the requirements of going public for public companies. But with the development of startup companies in Indonesia, especially PT Aplikasi Karya Anak Bangsa (Go-Jek), planning to conduct an initial public offering encourages the government to immediately make decisions on the initial public offering process rules so that these arrangements will not only reach ordinary companies with the number of assets large but also able to reach start-up companies to contribute to the development of the national economy.

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