Financial Statement Footnote Readability and Corporate Audit Outcomes

2018 ◽  
Vol 38 (2) ◽  
pp. 1-26 ◽  
Author(s):  
John L. Abernathy ◽  
Feng Guo ◽  
Thomas R. Kubick ◽  
Adi Masli
Keyword(s):  
Annual Report ◽  
Audit Fees ◽  
Data Availability ◽  
Financial Statement ◽  
Incremental Information ◽  
Going Concern Opinion ◽  
Financial Misstatements ◽  
Prior Literature ◽  
First Time ◽  
To Receive

SUMMARY We examine whether the readability of financial statement footnotes in the annual report is informative about audit engagement risk. Using various readability measures, we predict and find that firms with less readable footnotes have longer audit report lag, incur higher audit fees, and are more likely to receive a first time modified going concern opinion. We also show that readability of footnotes is associated with a higher likelihood of financial misstatements and future accounting-related litigation. Our results are robust to several measures of readability used in prior literature, as well as different specifications and design choices, revealing that financial statement footnote readability provides incremental information about audit engagement risk that affects auditor-client contracting. Data Availability: Data are obtained from public sources identified in the paper.

The Relationship between Audit Team Composition, Audit Fees, and Quality

2017 ◽  
Vol 36 (3) ◽  
pp. 115-135 ◽  
Author(s):  
Sarowar Hossain ◽  
Kenichi Yazawa ◽  
Gary S. Monroe
Keyword(s):  
Audit Quality ◽  
Positive Association ◽  
Audit Fees ◽  
Professional Staff ◽  
Data Availability ◽  
Team Composition ◽  
Going Concern ◽  
Going Concern Opinion ◽  
Audit Team ◽  
First Time

SUMMARY Using Japanese data, we investigate whether there is a positive association between audit team composition based on the number of senior auditors, assistant auditors, and other professional staff on the audit team and audit fees and a variety of commonly used measures of audit quality (likelihood of issuing a going concern opinion and a first-time going concern opinion for a sample of financially distressed companies, the absolute value of discretionary and working capital accruals). We find that the number of senior auditors, assistant auditors, and other professional staff on the audit team are positively associated with audit fees. We find that the number of senior auditors on the audit team has a positive association with audit quality. However, the number of assistant auditors and other professional staff on the audit team are not significantly associated with any of our audit quality measures. JEL Classifications: M41; M42. Data Availability: All data are publicly available from the sources indicated in the paper.

Auditors’ response to readability of financial statement notes

2020 ◽  
Vol 28 (3) ◽  
pp. 463-480
Author(s):  
Mahdi Salehi ◽  
Mahmoud Lari Dasht Bayaz ◽  
Shaban Mohammadi ◽  
Mohammad Seddigh Adibian ◽  
Seyed Hamed Fahimifard
Keyword(s):  
Stock Exchange ◽  
Financial Statements ◽  
Audit Fees ◽  
Financial Statement ◽  
Audit Report ◽  
Financial Reports ◽  
Statistical Population ◽  
Content Type ◽  
Listed Firms ◽  
Going Concern Opinion

PurposeThe main objective of the present study is to assess the potential impact of readability of financial statement notes on the auditor's report lag, audit fees and going concern opinion (GCO).Design/methodology/approachThe statistical population of this study includes all listed firms on the Tehran Stock Exchange (TSE) for the period of 2012–2017. The systematic elimination method is used for sampling and multiple regression and EViews software are used for testing the hypothesis models.FindingsThe obtained results show that there is a significant and positive relationship between audit report lags and readability of financial statements. Moreover, it is also revealed that readability of financial statements is positively associated with audit fees. Furthermore, the findings suggest a negative correlation between readability indexes and issuing GCOs, denoting hard-to-read statements is considered as a risk factor by auditors. Finally, the observations of our robustness tests suggest that the association between audit report lag and readability of financial statements is robust.Originality/valueThis is the first conducted investigation concerning auditor's response to the readability of financial statement notes in TSE. The outcome of current paper may pave the way for revising and developing Iranian accounting standards in order to give a fairer and clearer picture of financial reports.

Client Deadline Concentration in Audit Offices and Audit Quality

2019 ◽  
Vol 38 (4) ◽  
pp. 55-75 ◽  
Author(s):  
Keith Czerney ◽  
Daun Jang ◽  
Thomas C. Omer
Keyword(s):  
Audit Quality ◽  
Data Availability ◽  
Financial Statement ◽  
Relevant Research ◽  
Quality Outcomes ◽  
Audit Failure ◽  
Public Company ◽  
Negative Effect ◽  
Prior Literature

SUMMARY This research investigates the effect on audit quality of concentrated public company financial statement filing deadlines in audit offices. Audit offices must effectively manage their resources to meet clients' audit service requirements. When an audit office has deadlines that are more concentrated in time, effective resource management is of greater importance to reduce the likelihood of audit failure. Drawing on relevant research from the auditing and management literatures, we hypothesize and find that audit quality is lower when an audit office's clients' financial statement deadlines concentrate in time, which we term client deadline concentration. The significant, negative effect of client deadline concentration on audit quality is incremental to the effects of other resource-based constraints from the prior literature and to controls for unobservable differences in audit offices that explain a significant amount of the variation in audit quality outcomes. JEL Classifications: M40; M41; M42; M48. Data Availability: Data are available from public sources identified in the text.

scholarly journals Non-executive directors and audit committee: a study on their authority and effectiveness

2008 ◽  
Vol 5 (2) ◽  
pp. 296-305 ◽  
Author(s):  
Zulkarnain Muhamad Muhamad Sori ◽  
Mohamad Ali Abdul Hamid ◽  
Siti Shaharatulfazzah Mohd Saad ◽  
Jonathan Gerard Evans
Keyword(s):  
Questionnaire Survey ◽  
Audit Committee ◽  
Annual Report ◽  
Audit Fees ◽  
Listed Companies ◽  
Financial Statement ◽  
Committee Report ◽  
Executive Directors ◽  
Senior Managers ◽  
Survey Technique

This study aimed to investigate the perceptions of senior managers of Malaysian publicly listed companies on issues relating to audit committee authority and effectiveness. Questionnaire survey technique was employed to seek the respondents perceptions on seven issues, namely audit committee appoints the auditor, audit committee determines and reviews audit fees, audit committee determines and reviews the auditor’s scope and duties, and audit committee’s reports, meetings, charter and roles. The majority of respondents agreed that auditor would be more effective and independent if audit committee assumed the responsibility to appoint the auditor, determine and review the audit fees, and determine and review the external auditor’s scope and duties. It is also found that disclosure of audit committee report, quarterly meeting and disclosure charter in annual report would enhance the perceptions of users of financial statement concerning the effectiveness of the committee.

Business Strategy and Auditor Reporting

2016 ◽  
Vol 36 (2) ◽  
pp. 63-86 ◽  
Author(s):  
Yu Chen ◽  
John Daniel Eshleman ◽  
Jared S. Soileau
Keyword(s):  
Business Strategy ◽  
Data Availability ◽  
Material Weakness ◽  
Going Concern ◽  
Going Concern Opinion ◽  
Auditor Reporting ◽  
The Cost ◽  
Type Ii Errors ◽  
To Receive ◽  
Organizational Literature

SUMMARY This study examines whether a firm's business strategy influences auditor reporting. We rely on the organizational literature to develop our prediction that firms utilizing the innovative “prospector” strategy will be more likely than firms utilizing the cost-leadership “defender” strategy to receive both going concern and material weakness opinions. Our empirical evidence supports this prediction. Specifically, we find that, among a sample of financially troubled firms, prospectors are significantly more likely than defenders to receive a going concern opinion. We then analyze a sample of clients who subsequently filed for bankruptcy and find that auditors are less likely to issue going concern opinions to prospector clients. This indicates that auditors commit more Type II errors when auditing prospector clients. We also find that prospectors are significantly more likely than defenders to receive a material weakness opinion. Taken together, the evidence suggests that business strategy is a significant determinant of both going concern and material weakness auditor reporting. JEL Classifications: M41; M42; L10. Data Availability: All data are available from public sources identified in the text.

Abnormal Audit Fees and Audit Quality: The Importance of Considering Managerial Incentives in Tests of Earnings Management

2013 ◽  
Vol 33 (1) ◽  
pp. 117-138 ◽  
Author(s):  
John Daniel Eshleman ◽  
Peng Guo
Keyword(s):  
Audit Quality ◽  
Negative Relationship ◽  
Audit Fees ◽  
Discretionary Accruals ◽  
Data Availability ◽  
Analyst Forecast ◽  
Earnings Forecast ◽  
Conflicting Evidence ◽  
Research Designs ◽  
Prior Literature

SUMMARY Are high audit fees a signal that the auditor exerted more effort or a signal that the auditor may be losing her independence? Prior literature offers conflicting evidence. In this paper, we reexamine the issue on a sample of clients who have both the incentive and the ability to use discretionary accruals to meet or beat the consensus earnings forecast. We find a negative relationship between the level of abnormal audit fees paid by the client and the likelihood of using discretionary accruals to meet or beat the consensus analyst forecast. The evidence is consistent with the notion that abnormal audit fees are indicative of greater effort on the engagement. In other words, the results suggest a positive relationship between abnormal audit fees and audit quality. We show that the conflicting evidence in prior research was caused by research designs that did not consider the incentives of the manager. JEL Classifications: M42; M41. Data Availability: All data are available from public sources quoted in the text.

There's No Place Like Home: The Influence of Home-State Going-Concern Reporting Rates on Going-Concern Opinion Propensity and Accuracy

2015 ◽  
Vol 35 (2) ◽  
pp. 23-51 ◽  
Author(s):  
Allen D. Blay ◽  
James R. Moon ◽  
Jeffrey S. Paterson
Keyword(s):  
Audit Quality ◽  
Type I Error ◽  
State Level ◽  
Error Rates ◽  
Data Availability ◽  
Type I ◽  
Going Concern ◽  
Going Concern Opinion ◽  
Financial Characteristics ◽  
First Time

SUMMARY Prior research has had success identifying client financial characteristics that influence auditors' going-concern reporting decisions. In contrast, relatively little research has addressed whether auditors' circumstances and surroundings influence their propensities to issue modified opinions. We investigate whether auditors' decisions to issue GC opinions are affected by the rate of GC opinions being given in their proximate area. Controlling for factors that prior research associates with going-concern opinions and state-level economics, we find that non-Big 4 auditors located in states with relatively high first-time going-concern rates in the prior year are up to 6 percent more likely to issue first-time going-concern opinions. The results from our state-based GC measure casts doubt that this increased propensity is explained by economic factors and suggests that psychological factors may explain this behavior among auditors. Interestingly, this higher propensity increases auditors' Type I error rates without decreasing their Type II error rates, further suggesting economics alone do not explain these results. Such evidence challenges the generally accepted notion that a higher propensity to issue a going-concern opinion always reflects higher audit quality. JEL Classifications: M41; M42. Data Availability: All data are available from public sources.

Surveillance of adverse events following immunisation in Australia annual report, 2017

2019 ◽  
Vol 43 ◽  
Author(s):  
Aditi Dey ◽  
Han Wang ◽  
Helen Quinn ◽  
Rona Hiam ◽  
Nicholas Wood ◽  
...  
Keyword(s):  
Adverse Events ◽  
Annual Report ◽  
Injection Site Reaction ◽  
Reporting Rate ◽  
Vaccination Programs ◽  
National Immunisation ◽  
National Immunisation Program ◽  
Conjugate Vaccination ◽  
Reporting Rates ◽  
To Receive

This report summarises Australian passive surveillance data for adverse events following immunisation (AEFI) for 2017 reported to the Therapeutic Goods Administration and describes reporting trends over the 18-year period 1 January 2000 to 31 December 2017. There were 3,878 AEFI records for vaccines administered in 2017; an annual AEFI reporting rate of 15.8 per 100,000 population. There was a 12% increase in the overall AEFI reporting rate in 2017 compared with 2016. This increase in reported adverse events in 2017 compared to the previous year was likely due to the introduction of the zoster vaccine (Zostavax®) provided free for people aged 70–79 years under the National Immunisation Program (NIP) and also the state- and territory-based meningococcal ACWY conjugate vaccination programs. AEFI reporting rates for most other individual vaccines in 2017 were similar to 2016. The most commonly reported reactions were injection site reaction (34%), pyrexia (17%), rash (15%), vomiting (8%) and pain (7%). The majority of AEFI reports (88%) described non-serious events. Two deaths were reported that were determined to have a causal relationship with vaccination; they occurred in immunocompromised people contraindicated to receive the vaccines.

Accelerated Filing Deadlines, Internal Controls, and Financial Statement Quality: The Case of Originating Misstatements

2015 ◽  
Vol 29 (3) ◽  
pp. 551-575 ◽  
Author(s):  
Colleen M. Boland ◽  
Scott N. Bronson ◽  
Chris E. Hogan
Keyword(s):  
Internal Control ◽  
Internal Controls ◽  
Data Availability ◽  
Financial Statement ◽  
Similar Increase ◽  
Section 404 ◽  
Regulatory Changes ◽  
Rule Change ◽  
Initial Decrease

SYNOPSIS We examine whether regulations requiring accelerated filing deadlines and internal control reporting and testing affect financial statement reliability. Unlike prior research, we examine whether these regulatory changes are associated with an increase in the likelihood that misstatements originate in the period following the respective change. If the implementation of these rules causes a misstatement, then the misstatement would most likely occur in the period immediately following the rule change. We provide evidence that accelerated filers (AFs) experience an increase in the likelihood of an originating misstatement following the acceleration of filing deadlines from 90 to 75 days. Large accelerated filers (LAFs), however, do not experience a similar increase following this acceleration or the subsequent acceleration from 75 to 60 days. After the implementation of the SOX Section 404 internal control requirements, we find that the likelihood of an originating misstatement declined for AFs but not for LAFs. Taken together, the findings suggest that, although AFs experienced an initial decrease in financial statement reliability, this decrease was temporary. Data Availability: Data are publicly available from the sources identified in the text.

Who Did the Audit? Audit Quality and Disclosures of Other Audit Participants in PCAOB Filings

2014 ◽  
Vol 90 (5) ◽  
pp. 1939-1967 ◽  
Author(s):  
Carol Callaway Dee ◽  
Ayalew Lulseged ◽  
Tianming Zhang
Keyword(s):  
Audit Quality ◽  
Market Reaction ◽  
Audit Fees ◽  
Discretionary Accruals ◽  
Multivariate Model ◽  
Significant Decline ◽  
Earnings Response Coefficients ◽  
Absolute Value ◽  
Earnings Response ◽  
First Time

ABSTRACT We empirically test whether audit quality is affected when part of an SEC issuer's audit is outsourced to auditors other than the principal auditor (“participating auditors”). We find a significantly negative market reaction and a significant decline in earnings response coefficients (ERCs) for experimental issuers disclosed for the first time as having participating auditors involved in their audits. However, we find no market reaction and no decline in ERCs for a matching sample of issuers that are not disclosed as using participating auditors, nor for issuers disclosed for the second or third time as using participating auditors. We also find actual audit quality as measured by absolute value of performance-matched discretionary accruals is lower for the experimental issuers, although we find no difference in audit fees paid by the experimental and matching issuers in a multivariate model. Our findings suggest that the PCAOB's proposed rule requiring disclosure of the use of other auditors in addition to the principal auditor would provide information useful to investors in assessing audit quality for SEC issuers.

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