Consequences of Expanded Audit Reports: Evidence from the Justifications of Assessments in France

2018 ◽  
Vol 38 (3) ◽  
pp. 23-45 ◽  
Author(s):  
Jean Bédard ◽  
Nathalie Gonthier-Besacier ◽  
Alain Schatt
Keyword(s):  
Trading Volume ◽  
Audit Quality ◽  
Abnormal Returns ◽  
Audit Fees ◽  
Audit Report ◽  
Abnormal Trading Volume ◽  
Audit Reports ◽  
The Impact ◽  
First Time ◽  
The U.S

SUMMARY Since 2003, French auditors must disclose justifications of assessments (JOAs) in expanded audit reports. Like critical audit matters recently introduced in the U.S., and key audit matters introduced by international standard setters, the purpose of JOAs is to enhance the informative value of audit reports. Based on French audit reports from 2002 to 2011, we analyze the impact of first-time implementation of JOAs, and the impact of new JOAs in subsequent years, on investors (measured by abnormal returns and abnormal trading volume) and on the audit (measured by audit report lag, abnormal accruals, and audit fees). For both first-time implementation of JOAs and new JOAs in subsequent years, we find no significant market reaction to their disclosure and no significant effect on audit report lag, audit quality, and audit fees. Our results suggest that the French expanded audit report did not have the expected consequences on investors and the audit.

Does Visibility of an Engagement Partner’s Association with Recent Client Restatements Increase Fee Pressures from Non-Restating Clients?

2021 ◽  
Author(s):  
Wuchun Chi ◽  
Ling Lei Lisic ◽  
Linda A Myers ◽  
Mikhail Pevzner ◽  
Timothy A Seidel
Keyword(s):  
United States ◽  
Audit Quality ◽  
Audit Fees ◽  
The United States ◽  
Limited Evidence ◽  
Partner Disclosure ◽  
Audit Fee ◽  
Using Data ◽  
The Impact ◽  
The U.S

We examine whether engagement partners who have recently been associated with client restatements experience increased audit fee pressures from their non-restating clients. Using data from the United States (U.S.) and Taiwan, we find evidence of lower audit fees among non-restating companies whose audit engagement partner was recently associated with another client’s restatement. These findings are generally strongest when the partner-associated restatement is more prominent or severe, and in the U.S., when non-restating clients are in the same industry as the restating client. Although we find very limited evidence that fee pressures lead to lower quality audits for these partners’ other clients in Taiwan, we find that when the partner-associated restatement is more prominent or severe, fee pressures negatively impact audit quality in the U.S. These findings provide further insight on the impact of engagement partner disclosure for audit quality.

To be or not to be – auditors’ ability to signal going concern problems

2015 ◽  
Vol 11 (2) ◽  
pp. 175-192 ◽  
Author(s):  
Torbjörn Tagesson ◽  
Peter Öhman
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Annual Reports ◽  
Content Type ◽  
Going Concern ◽  
Big 4 ◽  
Audit Firms ◽  
Research Opportunity ◽  
Audit Reports ◽  
The Impact

Purpose – This paper aims to chart Swedish auditors’ likelihood of issuing going concern warnings (GCWs), and to investigate the relationship between formal auditor competence, audit fees and audit firm, respectively, and the likelihood of issuing GCWs. Design/methodology/approach – The empirical data are based on annual reports and audit reports for 2,547 limited companies that went bankrupt in 2010 in the wake of the financial crisis and had filed a financial statement in the year before the bankruptcy. Findings – The findings indicate that Swedish auditors seldom issue GCWs. Moreover, there is a positive relationship between audit fee level and the likelihood of issuing GCWs, and Big 4 auditors being more likely to issue such warnings than other auditors. However, the analyses identify differences between audit firms (within the group of Big 4 firms and within the group of other audit firms) in terms of their predictions of client bankruptcies. This suggests a need for further investigation of firm-specific differences. Contrary to what was predicted, authorized auditors are not more likely to issue GCWs than approved auditors. Research limitations/implications – This paper did not investigate the impact of audit experience and tenure or the possibility that auditors may signal survival problems by resigning. Practical implications – Levying appropriate audit fees creates opportunities for thorough audits, but auditors’ formal competence based on training and qualification is not a factor that enforces audit quality. Based on the findings, the authors also suggest some clarifications of existing standards to reduce ambiguity regarding the reporting of survival problems. Originality/value – The Swedish setting is a context in which most companies are small, creditor interest in accounting and auditing is strong and auditors must issue a modified audit opinion if half of the shareholders’ equity is spent. This setting offers a unique research opportunity because the formal competence differs between Sweden’s two categories of certified auditors, and it allows exploration beyond the dichotomy of Big 4 versus other audit firms.

Costs and Benefits of Requiring an Engagement Partner Signature: Recent Experience in the United Kingdom

2013 ◽  
Vol 88 (5) ◽  
pp. 1511-1546 ◽  
Author(s):  
Joseph V. Carcello ◽  
Chan Li
Keyword(s):  
United Kingdom ◽  
Audit Quality ◽  
Audit Fees ◽  
The United States ◽  
Data Availability ◽  
Recent Experience ◽  
Audit Report ◽  
The United Kingdom ◽  
Before And After ◽  
Audit Reports

ABSTRACT: This paper investigates the effects on audit quality and audit fees of requiring the engagement partner to sign the audit report in the United Kingdom (U.K.). The effect of requiring the engagement partner to sign the audit report is timely since the Public Company Accounting Oversight Board (PCAOB) is considering mandating a similar requirement in the United States (U.S.). In the first year after the introduction of the signature requirement, we find a significant decline in abnormal accruals and the propensity to meet an earnings threshold, and we find a significant increase in the incidence of qualified audit reports and in earnings informativeness. In addition, audit fees are significantly higher in the post-signature period than in the pre-signature period. Moreover, we compare U.K. firms with a matched sample of U.S. firms and firms in other European countries in periods both before and after the U.K. adopted a signature requirement. Our results are generally consistent with the argument of improved audit quality in U.K. firms after the signature requirement is adopted. Data Availability: Data are available from public sources identified in the text.

Assessing the impact of the new auditor’s report

2019 ◽  
Vol 31 (1) ◽  
pp. 110-132 ◽  
Author(s):  
Hong Li ◽  
David Hay ◽  
David Lau
Keyword(s):  
New Zealand ◽  
Audit Quality ◽  
Audit Fees ◽  
Relevant Information ◽  
Content Type ◽  
Reporting Requirements ◽  
Abnormal Accruals ◽  
Auditor Reporting ◽  
Audit Reports ◽  
The Impact

Purpose Changes to the auditor’s report have been proposed and issued internationally to provide more relevant information to users and enhance the perceived value of financial statement audits. This paper aims to investigate the impact of audit reporting changes on audit quality and audit fees in the New Zealand context. Design/methodology/approach The authors examined audit quality measured by absolute abnormal accruals and audit fees for New Zealand listed companies. Findings The evidence suggests the enhanced audit reports were followed by an improvement in audit quality as proxied by a reduction in absolute abnormal accruals upon the adoption of the new audit reporting requirements. There was also a significant increase in audit fees. Practical implications Although the new auditor reporting requirements are associated with improvements in audit quality, such benefit does not come without cost. Originality/value The study provides evidence about the impact of this recent substantial reform to auditing.

Impact of firm’s specific factors on audit fee of quoted consumer goods firms

2020 ◽  
Vol 4 (1) ◽  
pp. 47-55
Author(s):  
Wasiu Ajani Musa ◽  
Ramat Titilayo Salman ◽  
Ibrahim Olayiwola Amoo ◽  
Muhammed Lawal Subair
Keyword(s):  
Consumer Goods ◽  
Audit Quality ◽  
Audit Fees ◽  
Ordinary Least Squares ◽  
P Value ◽  
Chi Square ◽  
Ifrs Adoption ◽  
Audit Fee ◽  
Specific Factors ◽  
The Impact

Greater pricing presume on audit service has been put by the regulations of the auditing and accounting practices for the disclosure of audit fees, since audit fee is directly related to audit quality. However, the audit fees perceived by the client is often different from the amount charged by the auditors. Hence, this study investigated the impact of firm-specific characteristics on audit fees of quoted consumer goods firms in Nigeria using a purposive sampling technique. Secondary data were obtained from annual reports of the companies for the period from 2009-2016. The empirical result from Breusch-Pagan Lagrange Multiplier Test (BP-LM) produced a chi-square value of 13.94 with p-value of 0.0001 indicating that pooled ordinary least squares (OLS) will not be appropriate for the study. The Hausman test showed a chi-square of 23.55 with a p-value of 0.001 indicating that the null hypothesis is strongly rejected. Thus, the only estimate from the fixed effect model was interpreted to explain the relationship between firm-specific characteristics and audit fees of quoted consumer goods firms in Nigeria. The result revealed that auditee size, auditee risk, auditee profitability and IFRS adoption are the firm specific characteristics that impact on audit fees with only auditee size and IFRS adoption being positively related to audit fees while the other factors are negatively related to audit fees. Based on this finding, this study concluded that the firm’s specific factors are the major drivers of audit fees in Nigeria consumer goods firms. This study recommends among others that companies should implement corporate governance principles that address issues relating to board independence and committee sizes to guide activities in the consumer goods sector since profitability behave negatively with audit fees.

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.

The Effect of Office Changes within Audit Firms on Clients' Audit Quality and Audit Fees

2020 ◽  
Vol 39 (1) ◽  
pp. 71-99
Author(s):  
Carl W. Hollingsworth ◽  
Terry L. Neal ◽  
Colin D. Reid
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Additional Analysis ◽  
Audit Firm ◽  
Audit Firms ◽  
Audit Fee ◽  
The Impact ◽  
Audit Partner Rotation

SUMMARY While prior research has examined audit firm and audit partner rotation, we have little evidence on the impact of within-firm engagement team disruptions on the audit. To examine these disruptions, we identify a unique sample of companies where the audit firm issuing office changed but the audit firm did not change and investigate the effect of these changes on the audit. Our results indicate that companies that have a change in their audit firm's issuing office exhibit a decrease in audit quality and an increase in audit fees. In additional analysis, we partition office changes into two groups—client driven changes and audit firm driven changes. This analysis reveals that client driven changes are more likely to result in a higher audit fee while audit quality is unchanged. Conversely, audit firm driven changes do not result in a higher audit fee but do experience a decrease in audit quality.

Market Reactions to a High-Quality Auditor and Managerial Preference for Audit Quality

2019 ◽  
Vol 38 (4) ◽  
pp. 131-149 ◽  
Author(s):  
Patrick J. Hurley ◽  
Brian W. Mayhew
Keyword(s):  
Loss Aversion ◽  
Audit Quality ◽  
Data Availability ◽  
Quality Competition ◽  
High Quality ◽  
Market Reactions ◽  
Comprehensive Theory ◽  
Audit Reports ◽  
The Impact ◽  
Quality Theory

SUMMARY We insert an automated high-quality (HQ) auditor into established experimental audit markets to test the impact of high-quality competition on other auditors' supply of and managers' demand for audit quality. Theory predicts that managers will demand high levels of audit quality to avoid investors' price-protecting behavior. This demand should result in the HQ auditor dominating the market and increase other auditors' audit quality provision to compete with the HQ auditor. However, we find that the HQ auditor does not dominate the market—despite holding audit costs constant and investors placing a premium on HQ auditor reports. We also find that adding an HQ auditor results in other auditors lowering audit quality. Additional analyses indicate some managers demand lower audit quality to avoid negative audit reports, consistent with loss aversion as a potential explanation. Our findings indicate a need to develop a more comprehensive theory of the demand for auditing. Data Availability: The laboratory market data used in this study are available from the authors upon request.

scholarly journals The Effect of Independence and Integrity on Audit Quality: Is There A Moderating Role for E-Audit?

2021 ◽  
Vol 23 (3) ◽  
Author(s):  
Diza Dianeke Budi Prabowo ◽  
Dwi Suhartini
Keyword(s):  
Industrial Revolution ◽  
Audit Quality ◽  
Practical Implication ◽  
Financial Statements ◽  
Auditor Independence ◽  
Audit Process ◽  
Accounting Firms ◽  
Audit Reports ◽  
The Impact

The financial statements must be reliable and become a benchmark in considering an audit decision on the financial statements. In order for this to be achieved, independence and integrity is required in carrying out the audit process. E-Audit helps overcome challenges in the industrial revolution 4.0 and prevent fraud. This research aims of testing and analyzing the role of e-audit in moderating the impact of auditor independence and integrity on audit quality. The data was collected through a questionnaire distributed to auditors at Public Accounting Firms in Surabaya. There are 36 respondents involved. The data were analyzed using SmartPLS. The results showed that auditor independence positively effect audit quality, auditor integrity positively effect audit quality; e-audit does non moderate the effect of auditor independence on audit quality; ande-Audit negatively moderates the effect of auditor integrity on audit quality. The practical implication of this research is that when determining high audit quality, independent auditors should at least increase their independence and integrity so that the resulting audit reports are of high quality and can be a reference for decision makers.

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