CEO and CFO Equity Incentives and the Pricing of Audit Services

2013 ◽  
Vol 33 (2) ◽  
pp. 1-25 ◽  
Author(s):  
B. Anthony Billings ◽  
Xinghua Gao ◽  
Yonghong Jia
Keyword(s):  
Positive Association ◽  
Audit Fees ◽  
Internal Controls ◽  
Audit Risk ◽  
Pricing Decisions ◽  
Equity Incentives ◽  
Accounting Scandals ◽  
Using Data ◽  
Distinctive Role

SUMMARY: The alleged perverse role of managerial incentives in accounting scandals, and the distinctive role of auditors in identifying and intervening in attempted earnings manipulation, highlight the importance of explicitly considering executive incentive plans by auditors in the auditing process. By empirically testing auditors' responses to CEO/CFO equity incentives in planning and pricing decisions using data from 2002 through 2009, we document compelling evidence that CFO equity incentives are positively associated with audit fees and CEO equity incentives are not statistically related to audit fees, suggesting that auditors perceive heightened audit risk associated with CFO equity incentives. Our further analyses reveal that the positive association between CFO equity incentives and audit fees is more pronounced in firms with weak internal controls, indicating heightened risk associated with CFO equity incentives in this setting perceived by auditors. JEL Classifications: G30, G34, M42, M52.

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.

The Role of Auditee Profitability in Pricing New Audit Engagements

2000 ◽  
Vol 19 (1) ◽  
pp. 157-167 ◽  
Author(s):  
Paul L. Walker ◽  
Jeffrey R. Casterella
Keyword(s):  
Audit Fees ◽  
Audit Risk ◽  
Cpa Firms

This paper examines the role of auditee profitability in pricing new audit engagements. Changes in the auditing environment are noted that suggest that auditors are managing their practices differently than they did in prior years. Audit fees are examined to answer two questions: (1) whether CPA firms still discount fees for new engagements in the current audit environment; (2) whether such fee discounts are dependent upon auditee profitability. The results suggest that auditors still discount new engagements in the 1990s, but that they are less willing to offer discounts when auditees show losses in the year prior to the new audit engagement. Further, this result is stronger for companies that switch from non-Big 6 firms to Big 6 firms than it is for intra-Big 6 switches. These findings suggest that auditors are managing their exposure to audit risk by adjusting audit fees.

Dual-Class Shares and Audit Pricing: Evidence from the Canadian Markets

2008 ◽  
Vol 27 (2) ◽  
pp. 199-216 ◽  
Author(s):  
Samer Khalil ◽  
Michel L. Magnan ◽  
Jeffrey R. Cohen
Keyword(s):  
Cash Flow ◽  
Positive Association ◽  
Audit Fees ◽  
Control Rights ◽  
Audit Pricing ◽  
Audit Risk ◽  
Dual Class Shares ◽  
Cash Flow Rights ◽  
Dual Class ◽  
And Control

SUMMARY: This paper investigates whether audit fees vary with the wedge between cash flow rights and control rights arising from the presence of dual-class share structures. Dual-class shares exist in firms having two or more classes of shares with disproportionate voting rights. They affect audit fees through their effect on the supply for audit services. External auditors conduct wider (narrower) scope audits depending on whether dual-class shares increase (decrease) audit risk and/or auditor business risk. Wider (narrower) scope audits are more (less) costly for the auditors and for their clients. This paper documents a positive association between audit fees and the wedge between cash flow rights and control rights in a sample of Canadian firms during 2004. It extends current research by investigating whether dominant shareholdings affect audit pricing, and by examining audit pricing in Canada over a time period that witnessed significant changes in corporate governance.

Audit Fees and Auditor Dismissals in the Sarbanes-Oxley Era

2007 ◽  
Vol 21 (4) ◽  
pp. 371-386 ◽  
Author(s):  
Michael L. Ettredge ◽  
Susan Scholz ◽  
Chan Li
Keyword(s):  
Audit Fees ◽  
Internal Controls ◽  
Public Companies ◽  
Early Evidence ◽  
Sarbanes Oxley ◽  
Big 4 ◽  
Accounting Scandals ◽  
Material Weaknesses ◽  
Going Concern Reports ◽  
The Relationship

The accounting scandals and Sarbanes-Oxley Act (SOX) of 2002 resulted in large increases in required audit work, and corresponding increases in audit fees for public companies. This study provides early evidence regarding the relationship between higher audit fees, both levels and changes, and auditor dismissals in the period immediately subsequent to the passage of SOX. We find that clients paying higher fees are more likely to dismiss their auditors. We also find that dismissals are associated with smaller companies, companies with going-concern reports, and companies that later reported material weaknesses in their internal controls. Among dismissing clients, smaller Big 4 clients, paying higher fees, tend to hire non-Big 4 successor auditors. This result holds when auditors are divided into Big 4, national, and local tiers. We also find evidence that dismissing clients, in particular clients hiring new non-Big 4 auditors, experience smaller fee increases than nonswitching clients in the following year. These results are consistent with the notion that in the immediate post-SOX period, some companies dismissed their auditors in expectation of lower fees from the succeeding auditor.

Auditor Choice and Audit Fees in Family Firms: Evidence from the S&P 1500

2013 ◽  
Vol 32 (4) ◽  
pp. 71-93 ◽  
Author(s):  
Joanna L. Ho ◽  
Fei Kang
Keyword(s):  
Family Firms ◽  
Agency Problems ◽  
Audit Fees ◽  
Additional Analysis ◽  
Audit Risk ◽  
Auditor Choice ◽  
Using Data

SUMMARY We examine auditor choice and audit fees in family firms using data from Standard & Poor's (S&P) 1500 firms. We find that, compared to non-family firms, family firms are less likely to hire top-tier auditors due to the less severe agency problems between owners and managers. Our results also show that family firms, on average, incur lower audit fees than non-family firms, which is driven by family firms' lower demand for external auditing services and auditors' perceived lower audit risk for family firms. Our additional analysis indicates that the tendency of family firms to hire non-top-tier auditors and to pay lower audit fees is stronger when family owners actively monitor their firms.

scholarly journals Family control, audit committees and audit fees

2010 ◽  
Vol 7 (3) ◽  
pp. 73-85 ◽  
Author(s):  
Sidney Leung ◽  
Ran Wang
Keyword(s):  
Hong Kong ◽  
Audit Committee ◽  
Positive Association ◽  
Audit Fees ◽  
Audit Committees ◽  
Fiscal Year ◽  
Audit Risk ◽  
Family Control ◽  
The Impact

This paper examines the impact of family control on audit effort and audit risk as proxied by audit fees, the relation between the quality of the audit committee (AC) and audit fees, and how family control influences the association between AC quality and audit fees. Using a sample of Hong Kong companies from the 2005/06 fiscal year, we find that family-controlled firms have lower audit fees. The results also show a positive association between AC quality and audit fees in Hong Kong. Moreover, the association of higher AC quality with higher audit fees is stronger in family-controlled firms than in non-family-controlled firms. Collectively, our findings suggest that audit committees in family-controlled firms require a higher degree of external audit effort than do those in non-familycontrolled firms.

scholarly journals Safeguarding women’s and girls’ wellbeing: Exploring the role of gender-based violence on HIV transmission in Zimbabwe

2021 ◽  
Author(s):  
Munyaradzi Mapingure ◽  
Zindoga Mukandavire ◽  
Innocent Chingombe ◽  
Rouzeh Eghtessadi ◽  
Diego F. Cuadros ◽  
...  
Keyword(s):  
Hiv Transmission ◽  
Positive Association ◽  
Hiv Positive ◽  
Hiv Status ◽  
Gender Based Violence ◽  
Women And Girls ◽  
Mapping Techniques ◽  
Gender Based ◽  
Using Data

Abstract Background Gender-based violence (GBV) is a growing epidemic, whose role in HIV transmissions remains minimally addressed by the majority of national HIV response interventions. Methods Statistical and geo-spatial analysis was used to explore the relationship between GBV variables and HIV status using data from Zimbabwe Demographic and Health Survey, 2015-16. Results Women who were ever humiliated by their husbands or partners were 1.45 times more likely to be HIV positive than those who were never humiliated, p = 0.002. The same was true for women whose husbands or partners ever threatened to harm them or someone they love, OR (95%CI) 1.33 (1.04–1.68), p = 0.022. There was a positive association between HIV status and women who reported that their husband or partner, either pushed, shook, or threw something at them or punched them with his fist or with something that could hurt them or kicked, dragged or beat them, or tried to choke or burn them on purpose or threatened or attacked them with a knife or gun, or any other weapon. Women who experienced forced sexual violence with threats were more likely (odds 1.61, p = 0.019), to be HIV positive than those women who did not experience the same. Using geospatial mapping techniques our study has shown a substantial countrywide epidemic of GBV against women in Zimbabwe requiring urgent attention. Emotional GBV had a similar geographical distribution with HIV in the northern part of the country, where all three types of violence tend to aggregate. Conclusion There is a significant association between forms of GBV (emotional, physical, and sexual) and HIV status. The results suggest the need to strengthen interventions that empower women and girls with skills to withstand violence in order to curb HIV transmission. The engagement of men as proponents of gender equality, bringing other men to account for perpetuating GBV and actively countering violence against women and girls, is critical to the design of such interventions.

Related-Party Transactions and Audit Fees: Evidence from China

2015 ◽  
Vol 14 (1) ◽  
pp. 59-83 ◽  
Author(s):  
Ahsan Habib ◽  
Haiyan Jiang ◽  
Donghua Zhou
Keyword(s):  
Market Competition ◽  
Positive Association ◽  
Audit Fees ◽  
Third Party ◽  
Audit Risk ◽  
Accounting Data ◽  
Related Party Transactions ◽  
Goods And Services ◽  
Baseline Case ◽  
Representational Faithfulness

ABSTRACT This paper investigates the effect of related-party transactions (RPTs) on audit fees in China. RPTs may violate the arm's-length assumption of regular market-based transactions, impairing the representational faithfulness and verifiability of accounting data and, as a consequence, increase clients' auditor-assessed business risk. The presence and magnitude of such transactions are therefore likely to increase audit fees. On the other hand, audit fees could be lower for firms with RPTs because auditors face less difficulty in verifying them, as opposed to third-party transactions. We first consider the effect of RPTs on audit fees, and document relatively high audit fees associated with RPTs. This lends support to the conjecture that RPTs are seen as increasing audit risk. We then extend this baseline case by considering the effects on audit fees of different classes of RPTs, of the different parties involved in RPTs and, finally, of the interaction between product-market competition and RPTs. We first document a negative (positive) association between RPTs involving sales and purchase of goods and services (RPTs related to intercorporate loans). We also find that audit fees are relatively high for RPTs involving loans and capital transfers when listed parents transact with their subsidiaries. Finally, we find that audit fees are relatively low for RPTs within competitive industries.

scholarly journals The Internal Control Systems Integrated into the Various Profiles of Governance, Audit, Risk and Compliance

2018 ◽  
Vol 13 (5) ◽  
pp. 21
Author(s):  
Maurizio Rija ◽  
Franco Ernesto Rubino
Keyword(s):  
Internal Control ◽  
Internal Audit ◽  
Internal Controls ◽  
Audit Risk ◽  
Business Goals ◽  
Efficiency And Effectiveness ◽  
The Board Of Directors ◽  
Business Functions ◽  
Italian Context

It is necessary to distinguish the internal controls from external ones: the former are the responsibility of the appropriate bodies and business functions belonging to the organization of the companies, while the latter are exercised by subjects who fall outside the company and the functional structure of the company (audit company, Consob, Bank of Italy, etc.). In recent decades there have been several scandals that have hit large enterprises, also Italian ones, which have increased interest in the issue of corporate governance and in the inefficiencies presented in internal corporation controls (Munroa & Stewart 2011). Enhancing the effectiveness of controls, in particular the internal ones, has become a need increasingly felt by international and national legislators. Internal controls are an essential tool to achieve business goals (operating constantly in terms of efficiency and effectiveness), and at the same time to avoid wastage of resources, to safeguard corporate assets, producing accounting information and reliable management, to observe the strategies, the policies and the corporate procedures and, especially, to ensure compliance with laws and regulations. in this work, it will discuss, in the italian context, the role of the board of directors and the board of statutory auditors within the (SCIGR) System of Internal Control and Risk Management (Jaggi, Allini, Manes Rossi, & Caldarelli, 2016). Moreover, the study moves the analysis to other corporate figures well determined and in constant evolution, including the head of internal audit, the activity of compliance, the supervisory body ex D.Lgs.231/2001 and the manager in charge of drafting corporate accounting documents.

scholarly journals Fair Value Information, Audit fees and Audit Committee in Taiwan

2017 ◽  
Vol 8 (2) ◽  
pp. 124
Author(s):  
Shu-Hsing Wu ◽  
Tsung-Che Wu ◽  
Kun-Lin Yang
Keyword(s):  
Audit Committee ◽  
Cost Model ◽  
Audit Fees ◽  
Fair Value ◽  
Regulatory Requirements ◽  
Audit Risk ◽  
Level 3 ◽  
Voluntary Choice ◽  
Value Model

Regulatory requirements to adopt IFRS and to disclose audit fees make it possible to examine association between audit fees and proportion of fair-valued assets among firms in Taiwan. A voluntary choice of adding audit committee in the firm for monitoring purpose also helps to examine the association further. Empirical results indicate that lower audit fees is related to higher proportion of (Level 2) fair-valued assets, a finding consistent to Goncharov et al.’s (2014) suggestion that firms pay lower audit fees with fair-value model than with cost model. Insignificant association is found for proportion of Level 3 fair-valued assets, which is similar to Glover et al.’s (2014) suggestion that firm’s reluctant attitude in adopting Level 3 assets. Last of all, when audit committee is added, firm’s audit fees is negatively associated with Level 1 and 2 fair-valued assets, implying audit committee’s role of monitoring and further reducing audit risk and audit fees among Taiwanese firms.

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