Credit Default Swaps on Corporate Debt and the Pricing of Audit Services

2017 ◽  
Vol 37 (3) ◽  
pp. 117-144 ◽  
Author(s):  
Lijing Du ◽  
Adi Masli ◽  
Felix Meschke
Keyword(s):  
Positive Association ◽  
Audit Fees ◽  
Credit Default Swaps ◽  
Corporate Debt ◽  
Professional Skepticism ◽  
External Auditors ◽  
Corporate Default ◽  
Audit Fee ◽  
Credit Default ◽  
Jel Classifications

SUMMARY Previous studies document that lenders lack incentives to monitor borrowing firms or to make concessions during bankruptcy if these lenders insure against corporate default with credit default swaps (CDS). This article investigates whether external auditors increase their audit fees for those client firms that have their debt referenced by CDS. In a comprehensive sample of U.S. companies from 2001–2015, we find that CDS-referenced companies incur larger audit fees compared to companies without CDS. The economic magnitude of the audit fee increase ranges from 5.4 percent to 11 percent, depending on the econometric specification employed. Deteriorating corporate conditions or other observable characteristics do not explain the positive association between CDS trading and audit fees, or the increase in audit fees following CDS initiations. The findings suggest that auditors increase their professional skepticism and monitoring efforts of CDS-referenced clients; they might also expect higher liability losses. JEL Classifications: G10; G30; G33; G34.

scholarly journals Relevant but Delayed Information in Negotiated Audit Fees

2014 ◽  
Vol 33 (4) ◽  
pp. 95-117 ◽  
Author(s):  
Karl E. Hackenbrack ◽  
Nicole Thorne Jenkins ◽  
Mikhail Pevzner
Keyword(s):  
Information Asymmetry ◽  
Positive Association ◽  
Audit Fees ◽  
Data Availability ◽  
Bad News ◽  
Specific Knowledge ◽  
Delayed Information ◽  
Audit Fee ◽  
News Events ◽  
Jel Classifications

SUMMARY: Audit fee negotiations conclude with the signing of an engagement letter, typically the first quarter of the year under audit. Yet investors do not learn the audit fee paid until disclosed in the following year's definitive proxy statement. We conjecture that negotiated audit fees impound auditors' consequential private, client-specific knowledge about “bad news” events investors will learn eventually. We demonstrate that a proxy for the year-to-year change in the negotiated audit fee has an economically meaningful positive association with proxies for public realizations of “bad news” events that occur during the roughly 12-month period between the negotiation of the audit fee and the disclosure of the audit fee paid. Our results suggest that negotiated audit fees contain information meaningful to investors and that if disclosed proximate to the signing of the engagement letter instead of the following year, information asymmetry between managers and investors would be reduced. JEL Classifications: G19, D89, M40. Data Availability: Available from public sources identified in the text.

scholarly journals PENGARUH NARSISME KLIEN, AUDIT FEE, INDEPENDENSI, SKEPTISME PROFESIONAL, DAN INTERLOCK AUDITOR EKSTERNAL TERHADAP AUDIT JUDGEMENT DALAM PENDETEKSIAN KECURANGAN LAPORAN KEUANGAN (STUDI KASUS PADA KAP DI MANADO)

2017 ◽  
Vol 12 (2) ◽  
Author(s):  
Claudia Wanda Melati Korompis ◽  
Lady Diana Latjandu
Keyword(s):  
Financial Reporting ◽  
Linear Regression Analysis ◽  
Personal Characteristic ◽  
Financial Statements ◽  
Audit Fees ◽  
Multiple Linear Regression Analysis ◽  
Professional Skepticism ◽  
External Auditors ◽  
Audit Judgment ◽  
Audit Fee

A material misstatement is the beginning of a fraud that can not be detected by an auditor and may have negative effects on the financial reporting process. The Internal factors related to the audit work environment in this research are audit fees, Independence, professional skepticism and Auditor Interlock. Sometimes, the amount of audit fee makes an auditor in a dilemma position on giving the opinion about the fairness of financial statements relating to the interests of many parties. The other factor which making a dilemma problem is Independence. Independence should be maintained by an auditor to provide a neutral assessment of the financial statements. Researchers also choose professional skepticism as things that need to be developed in order to reduce the adverse effects of fraudulent financial statement. The last Internal factor in this research is Auditor Interlock that may help auditor to get all disclosure that they’re needed. The unique external factor is client narcissism. Narcissism is known as a distorted personal characteristic that may obstruct an auditor's opinion statement according to the scope of the examination.The samples are all external auditors in KAP which operating in Manado area. Multiple linear regression analysis is an analysis thecnique that used in this research. Instrument in this research is questionnaire and processed using SPSS program.The results of this study indicate that the Audit fee and Independence have a significant effect on audit judgment. While Client Narsism, Professional Skepticism, and Interlock external auditors have no significant effect on audit judgment. Key Words: Narcissism, Fee, Independence, Skepticism, Interlock, Judgment

scholarly journals Kualitas Audit: Ditinjau dari Fee Audit, Risiko Audit dan Skeptisme Profesional Auditor sebagai Variabel Moderating

2020 ◽  
Vol 8 (1) ◽  
pp. 9
Author(s):  
Muslim Muslim ◽  
Syamsuri Rahim ◽  
Muhammad Faisal AR Pelu ◽  
Alma Pratiwi
Keyword(s):  
Regression Analysis ◽  
Audit Quality ◽  
Audit Fees ◽  
Public Accounting ◽  
Audit Risk ◽  
Accounting Firms ◽  
Professional Skepticism ◽  
Audit Fee ◽  
The Relationship ◽  
Positive Effect

The purpose of this study was to determine the effect of audit fees and audit risk on audit quality with auditor professional skepticism as a moderating variable. This research was conducted at 8 public accounting firms in Makassar city with 40 respondents. The analytical method used is multiple regression analysis (Moderated Regression Analysis) which is used to measure the strength of the relationship between two or more variables. The results of this study found that the audit fee variable had a negative and not significant effect on audit quality. These results illustrate that the higher the audit fee received by the auditor, the audit quality will decrease. While audit risk is not a significant positive effect on audit quality. The results of this study illustrate that the higher the audit risk, the audit quality will decrease. The auditor's professional skepticism as a moderating variable is not able to strengthen the effect of audit fees on audit quality. Furthermore, auditor professional skepticism as a moderating variable is also unable to strengthen the effect of audit risk on audit quality

Do Auditors Recognize the Potential Dark Side of Executives' Accounting Competence?

2018 ◽  
Vol 93 (6) ◽  
pp. 1-28 ◽  
Author(s):  
Anne Albrecht ◽  
Elaine G. Mauldin ◽  
Nathan J. Newton
Keyword(s):  
Financial Reporting ◽  
Prior Experience ◽  
Financial Statements ◽  
Audit Fees ◽  
Data Availability ◽  
Dark Side ◽  
Audit Fee ◽  
Aggressive Attitude ◽  
Jel Classifications

ABSTRACT Practice and research recognize the importance of extensive knowledge of accounting and financial reporting experience for generating reliable financial statements. However, we consider the possibility that such knowledge and experience increase the likelihood of material misstatement when executives have incentives to misreport. We use executives' prior experience as an audit manager or partner as a measure of extensive accounting and financial reporting competence. We find that the interaction of this measure and compensation-based incentives increases the likelihood of misstatements. Further, auditors discount the audit fee premium associated with compensation-based incentives when executives have accounting competence. Together, our results suggest that a dark side of accounting competence emerges in the presence of certain incentives, but auditors view accounting competence favorably despite the heightened risk. In further analyses, we demonstrate that executives' aggressive attitude toward reporting exacerbates the effect of accounting competence and compensation-based incentives on misstatements, but not on audit fees. JEL Classifications: M41; M42. Data Availability: Data are available from public sources identified in the text.

Customer-Base Concentration: Implications for Audit Pricing and Quality

2018 ◽  
Vol 31 (1) ◽  
pp. 129-152 ◽  
Author(s):  
Gopal V. Krishnan ◽  
Panos N. Patatoukas ◽  
Annika Yu Wang
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Customer Relationships ◽  
Data Availability ◽  
Audit Process ◽  
Audit Pricing ◽  
External Auditors ◽  
Customer Base ◽  
Conventional View ◽  
Audit Fee

ABSTRACT What are the implications of major customer dependency, i.e., the degree of a supplier firm's dependency on its major customers, for external auditors? While the conventional view emphasizes the negatives of major customer dependency for client business risk, we find that suppliers with more concentrated customer bases spend less on audit fees. The evidence is consistent with reduced audit effort due to efficiency gains in the audit process, especially when suppliers with more concentrated customer bases share the same auditors with their long-standing major customers. The audit fee discount we identify does not imply that audit quality declines with customer-base concentration. In fact, we find that suppliers with more concentrated customer bases are less likely to experience material restatements of previously audited financial statements. Taking the external auditors' perspective, our study provides new managerial insights on the costs and benefits of major customer relationships for supplier firms. Data Availability: All data are available from sources identified in the text.

scholarly journals Bank Audit Fees and Asset Securitization Risks

2017 ◽  
Vol 37 (1) ◽  
pp. 21-48 ◽  
Author(s):  
Grant Cullen ◽  
Dominic Gasbarro ◽  
Gary S. Monroe ◽  
Greg Shailer ◽  
Yuyu Zhang
Keyword(s):  
Audit Quality ◽  
Global Financial Crisis ◽  
Positive Association ◽  
Audit Fees ◽  
Asset Securitization ◽  
Sample Period ◽  
Bank Holding Company ◽  
Holding Company ◽  
The Global Financial Crisis ◽  
Jel Classifications

SUMMARY We examine whether bank auditor effort, proxied by audit fees, is related to asset securitization risks (ASR) and whether the incremental auditor effort attributed to ASR is related to audit quality. Our sample period encompasses the global financial crisis (GFC) and the introduction of FAS No. 166 and FAS No. 167, which were intended to constrain accounting for asset securitizations as sales. Using U.S. bank holding company (BHC) data from 2003 to 2013, we find significantly positive associations between ASR and audit fees for Big N auditors but not for non-Big N auditors. Pre-GFC audit fees have a positive association with ASR, and are more significant for BHCs reporting a loss. After the implementation of FAS Nos. 166 and 167, this positive association persists, mainly driven by BHCs reporting a loss. With respect to the incremental auditor effort attributed to ASR, we find that, prior to the GFC, the incremental audit effort by Big N auditors, but not by non-Big N auditors, reduced the likelihood of subsequent restatements and constrained reported gains on securitizations. JEL Classifications: G14; G21; M42.

scholarly journals Bank Audit Fee Pressure During the Financial Crisis

2019 ◽  
Vol 14 (1) ◽  
pp. A31-A45
Author(s):  
Christine M. Porter
Keyword(s):  
Financial Crisis ◽  
Audit Fees ◽  
Audit Fee ◽  
Jel Classifications

SUMMARY This study examines the pressure on bank audit fees during the height of the financial crisis. I employ a prior year benchmark audit fee method and compare it to the actual audit fee to determine the amount of fee pressure applied in a year. Results show a significant amount of fee pressure exerted upon bank auditors during 2008, more so than that found in studies of other industries. This study also investigates a bank specific fee model during the crisis finding differences in determinants of fees for those banks that did apply fee pressure. JEL Classifications: M42.

External Auditor Responses to Tax Risk

2019 ◽  
pp. 0148558X1986782
Author(s):  
John L. Abernathy ◽  
Andrew R. Finley ◽  
Eric T. Rapley ◽  
James Stekelberg
Keyword(s):  
Tax Avoidance ◽  
Positive Association ◽  
Audit Fees ◽  
Tax Rates ◽  
Material Weakness ◽  
Effective Tax Rates ◽  
Generally Accepted Accounting Principles ◽  
Tax Aggressiveness ◽  
External Auditors ◽  
Auditor Reporting

Both practitioners and academics are increasingly focusing their attention on the riskiness of firms’ tax planning activities. In this study, we examine how external auditors respond to tax risk, measured using the volatility of firms’ annual cash and GAAP (Generally Accepted Accounting Principles) effective tax rates. Consistent with the notion that tax risk represents a source of engagement risk that is priced by external auditors, we first document a positive association between audit fees and tax risk incremental to fee premiums arising from tax aggressiveness. We also find that knowledge spillover benefits related to the provision of tax nonaudit services moderate this positive association. In supplemental tests, we provide evidence on additional auditor responses to tax risk. In particular, we document that tax risk is positively associated with both audit report lag and the likelihood of the auditor reporting a tax-related material weakness in the client’s internal controls. Our findings add to the growing literature at the intersection of corporate taxation and auditing, and to the literature distinguishing between the level and riskiness of firms’ tax avoidance strategies.

scholarly journals PENGARUH SKEPTISME PROFESIONAL, PENGALAMAN KERJA, AUDIT FEE DAN INDEPENDENSI TERHADAP KUALITAS AUDIT PADA KAP DI DKI JAKARTA

2019 ◽  
Vol 5 (2) ◽  
pp. 151
Author(s):  
Susi Dwi Mulyani ◽  
Jimmi Osamara Munthe
Keyword(s):  
Work Experience ◽  
Audit Quality ◽  
Hypothesis Test ◽  
Linear Regression Analysis ◽  
Audit Fees ◽  
Multiple Linear Regression Analysis ◽  
Primary Data ◽  
Professional Skepticism ◽  
Audit Fee ◽  
Positive Effect

<p><em>The purpose of this study was to determine the Influence of Professional Skeptism, Work Experience, Audit Fee and Independence to Audit Quality at Public Accountants in DKI Jakarta. The data used in this study are the primary data in the form of a respondent's answers from questionnaire data collection. Sample taking use a coevicience sampling method were 150 samples that meet the criteria. This study used multiple linear regression analysis for hypothesis test. The results showed variable professional skepticism and audit fees that have positive effect on audit quality and work experience variables and independence not have influences audit quality.</em></p>

Sign in / Sign up

Export Citation Format

Share Document