An Analysis of Cross-Sectional Differences in Big and Non-Big Public Accounting Firms' Audit Programs

2006 ◽  
Vol 25 (1) ◽  
pp. 27-48 ◽  
Author(s):  
Hans Blokdijk ◽  
Fred Drieenhuizen ◽  
Dan A. Simunic ◽  
Michael T. Stein
Keyword(s):  
Risk Assessment ◽  
Empirical Evidence ◽  
Audit Quality ◽  
Audit Fees ◽  
Public Accounting ◽  
Accounting Firms ◽  
Big 5 ◽  
Public Accounting Firms ◽  
Audit Approach ◽  
Control Risk

A significant body of prior research has shown that audits by the Big 5 (now Big 4) public accounting firms are quality differentiated relative to non-Big 5 audits. This result can be derived analytically by assuming that Big 5 and non-Big 5 firms face different loss functions for “audit failures” and is consistent with a variety of empirical evidence from studies of audit fees, auditor changes, and the stock price reaction to audited earnings. However, there is no existing evidence (of which we are aware) concerning the underlying production differences between Big 5 and non-Big 5 audits. As a result, existing empirical evidence cannot distinguish between the possibility that Big 5 audits are simply perceived to be different (e.g., by investors) or actually differ in how they are produced. Our research objective is to identify the production characteristics of audit engagements that may explain the differences in expected audit quality between Big 5 and non-Big 5 firms. In this archival study, we examine the total audit effort and the allocation of effort to four audit phases—planning, (control) risk assessment, substantive testing, and completion—for a cross-section sample of 113 audits of Dutch companies in 1998/99 by 14 public accounting firms. We find that, after controlling for client characteristics: (1) both types of auditors exert about the same amount of total audit effort; (2) Big 5 auditors allocate relatively more effort to planning and (control) risk assessment, and relatively less to substantive testing and completion; and (3) client size, use of the business-risk-based audit approach, and reliance on client internal controls affect audit hours differently for the two auditor types. We conclude that the Big 5 firms actually produce a higher audit quality level, and that this quality difference is related to how audit hours are deployed in a more contextual and less procedural audit approach.

scholarly journals Moderating Role of Audit Fees on the Effect of Task Complexity and Independence towards Audit Judgment

2020 ◽  
Vol 23 (2) ◽  
Author(s):  
Nur Eny ◽  
Ratna Mappanyukki
Keyword(s):  
Audit Quality ◽  
Task Complexity ◽  
Audit Fees ◽  
Auditor Independence ◽  
Survey Method ◽  
Public Accounting ◽  
Accounting Firms ◽  
Audit Judgment ◽  
Public Accounting Firms

This study examines the effect of task complexity and auditor independence on audit judgment with audit fees as a moderating variable. Samples were obtained from auditors working in public accounting firms in West Jakarta and South Jakarta. Data collection was done using a survey method by distributing questionnaires to 100 auditors as respondents. The method of analysis used was Moderated Regression Analysis. The results show that task complexity hurts audit judgment. Auditor independence has a positive effect on audit judgment. Audit fees can strengthen the effect of task complexity on audit judgment. Besides, audit fees moderate the effect of auditor independence on audit judgment. It is recommended that public accounting firms consider the interaction of variables that affect audit judgment, such as task complexity, independence, and audit fees, to improve audit quality.

The relationship between non-audit fees and audit quality: dealing with the endogeneity issue

2015 ◽  
Vol 25 (6) ◽  
pp. 777-795 ◽  
Author(s):  
Pedro Carmona ◽  
Alexandre Momparler ◽  
Carlos Lassala
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Listed Companies ◽  
Auditor Independence ◽  
Public Accounting ◽  
Accounting Firms ◽  
Content Type ◽  
Consulting Services ◽  
Public Accounting Firms ◽  
Abnormal Accruals

Purpose – The purpose of this paper is to explore whether the provision of non-audit services (NAS) by public accounting firms undermines audit quality. The study addresses this question by testing for an association between the provision of consulting services and auditor independence in listed companies. Design/methodology/approach – The authors study if the magnitude of non-audit fees explains variations in earnings management by looking at the joint determination of non-audit fees, audit fees, and abnormal accruals using the SURE-regression estimation method. Findings – Evidence from tested models suggests that audit services quality is uncompromised by the provision of NAS. In other words, high non-audit fees do not necessarily result in poor quality financial reporting. Research limitations/implications – A different research methodology and a different sample (e.g. non-listed companies) may lead to differing results. As the paper analyses only one country, generalizability of the results might be a limitation. There is no need to increase legal restrictions on the provision of consulting services by public accounting firms in order to better safeguard audit quality. Practical implications – Consulting clients may be more confident to hire both audit and NAS with the same firm and can make a case before the general Shareholders’ meeting. By providing both audit and NAS, consulting firms obtain knowledge spillovers and synergies while appealing highly qualified professionals. Originality/value – The use of simultaneous equations (SURE-regression) to establish the auditor-client relation allows us to better model theoretical relations between audit fees, non-audit fees, and abnormal accruals. Likewise, joint modeling takes account of correlations between the error terms of the individual models, yielding more efficient estimates than ordinary least squares. Performing this analysis in a non-Anglo-American country with low litigation risk is also a valuable contribution to extant literature.

scholarly journals The Effect of Auditor Independence and Ethics on Audit Quality with Audit Fee as a Moderating Variable in Public Accounting Firms in Medan

2021 ◽  
Vol 04 (10) ◽  
Author(s):  
Qing Yixin ◽  
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Auditor Independence ◽  
Partial Least Square ◽  
Least Square ◽  
Primary Data ◽  
Coefficient Of Determination ◽  
Public Accounting ◽  
Accounting Firms ◽  
Public Accounting Firms

This study discusses the effect of auditor independence and ethics on audit quality with audit fees as a moderating variable. This analysis used two independent variables: independence and auditor ethics. Audit quality was the dependent variable, while audit fees were the moderating variable. This research was conducted in 4 Public Accounting Firms (KAP) in the Medan City area, using 70 auditors from 21 Public Accounting Firms (KAP). A quantitative method was employed in this research. The sampling technique used was simple random sampling. In this study, data was collected by surveys or the distribution of questionnaires. Primary data was used as a source. The statistical method employed Partial Least Square Analysis with partial statistical test hypothesis testing (t) in the coefficient of determination (R2 ). SmartPls program was used in this research. The results of this study indicate that independence has a significant effect on audit quality, partially. Meanwhile, auditor ethics has no significant effect on audit quality, and audit fees cannot be a moderating variable on the effect of independence and auditor ethics on audit quality.

Auditor Characteristics, Audit Tenure, Audit Fee and Audit Quality

2017 ◽  
Vol 5 (3) ◽  
pp. 94-99
Author(s):  
Melya Senjaya ◽  
Friska Firnanti
Keyword(s):  
Work Experience ◽  
Audit Quality ◽  
Statistical Tests ◽  
Audit Fees ◽  
Jel Classification ◽  
Public Accounting ◽  
Accounting Firms ◽  
Audit Fee ◽  
Public Accounting Firms ◽  
One Year

Objective - The purpose of this research is to obtain empirical evidence about the factors that affect audit quality for auditors working in Public Accounting Firms in DKI Jakarta. Methodology/Technique - The independent variables used in this research are: independence, work experience, competency, accountability, audit tenure, and audit fee. The object of this research consists of 25 Public Accounting Firms located in DKI Jakarta. There are 164 respondents used as samples in this study. The sample was selected based on a convenience sampling method with criteria including auditors working at public accounting firms located in DKI Jakarta, with a minimum of one year work duration. This research used statistical tests of multiple regression. Findings - The result shows that independence, accountability, and audit tenure have an effect on audit quality. Meanwhile, work experience, competency, and audit fees have no influence on audit quality. Novelty - The study suggests that to improve audit quality, Public Accounting Firms should pay attention to the independence and accountability of its auditors. Type of Paper: Empirical Keywords: Audit Quality; Independence; Work Experience; Competency; Accountability; Audit Tenure; Audit Fee. JEL Classification: M41, M42.

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

scholarly journals DOES AUDITOR INDEPENDENCE, SKEPTICISM, AND PROFESSIONALISM INFLUENCE AUDIT QUALITY?

2020 ◽  
Vol 4 (2) ◽  
pp. 251
Author(s):  
Putri Puspitarani ◽  
Supeni Anggraeni Mapuasari
Keyword(s):  
Empirical Evidence ◽  
Cognitive Dissonance ◽  
Audit Quality ◽  
Auditor Independence ◽  
Professional Organizations ◽  
Survey Method ◽  
Public Accounting ◽  
Accounting Firms ◽  
The Stability ◽  
High Sense

Riset ini menyajikan bukti empiris faktor-faktor yang mempengaruhi kualitas audit yang bersumber dari kognisi auditor. Faktor kognisi yang diujikan antara lain independensi, skeptisme, dan profesionalisme. Independensi didefinisikan sebagai kemauan auditor untuk netral dan tidak bias dalam mengambil keputusan. Skeptisme adalah kemauan auditor untuk mempertanyakan dan melakukan prosedur audit tambahan ketika terjadi keraguan dalam penentuan pertimbangan audit. Profesionalisme merepresentasikan pemahaman dan sikap auditor atas hak dan kewajibannya yang diatur oleh organisasi profesi. Untuk menguraikan logika hipotesis, riset ini menggunakan teori disonansi kognitif. Auditor tentu mengalami berbagai dinamika dalam menjalankan tugasnya. Dinamika ini terkadang mengandung ketidaksesuaian antara kognisi yang dimilikinya dengan apa yang ditemukannya. Dalam kondisi tersebut, penelitian ini menduga bahwa auditor yang memiliki rasa independensi yang tinggi akan lebih mampu menghasilkan kualitas audit yang baik. Auditor dengan skeptisme yang semakin tinggi tentu akan mau untuk mengeluarkan upaya tambahan demi meraih kualitas audit yang sesuai. Sementara itu, profesionalisme mampu mendukung kemantapan auditor dalam mengupayakan kualitas audit yang tinggi. Dengan menggunakan metode survei yang disebarkan pada para auditor di kantor akuntan publik di kota jakarta, riset ini menemukan bahwa independensi, skeptisme, dan profesionalisme secara signifikan mendukung persepsi kualitas audit. Ini artinya, kantor akuntan publik dapat mempertimbangkan faktor-faktor ini dalam perumusan kebijakan rekrutmen dan pelatihan.  This research presents empirical evidence of the factors that influence audit quality sourced from auditor cognition. Cognition factors tested included independence, skepticism, and professionalism. Independence is defined as the auditor's willingness to be neutral and not biased in making decisions. Skepticism is the auditor's willingness to question and carry out additional audit procedures when there is doubt in determining audit considerations. Professionalism represents the auditor's understanding and attitude towards his rights and obligations governed by professional organizations. To outline the logic of the hypothesis, this research uses the theory of cognitive dissonance. Auditors naturally experience various dynamics in carrying out their duties. This dynamic sometimes contains a mismatch between the cognition it has and what it finds. Under these conditions, this study suspects that auditors who have a high sense of independence will be better able to produce good audit quality. Auditors with increasing skepticism will certainly want to spend additional effort to achieve appropriate audit quality. Meanwhile, professionalism can support the stability of auditors in seeking high audit quality. Using a survey method distributed to auditors at public accounting firms in Jakarta, this research found that independence, skepticism, and professionalism significantly support the perception of audit quality.

scholarly journals Pengaruh Pengalaman Auditor, Time Budget Pressure dan Ukuran Kantor Akuntan Publik Terhadap Audit Report LAG Pada Auditor Kantor Akuntan Publik Di Kota Surabaya

2020 ◽  
Vol 11 (2) ◽  
pp. 80
Author(s):  
Dewi Sutjahyani
Keyword(s):  
Audit Quality ◽  
Planning Process ◽  
Time Budget ◽  
Audit Report ◽  
Public Accounting ◽  
Accounting Firms ◽  
Audit Planning ◽  
Public Accounting Firms ◽  
Inspection Tasks ◽  
Time Budget Pressure

The job of the auditor is to provide useful information, therefore when the audited report is delayed it will reduce the use value of the financial statements presented. Therefore, it is important to identify and have a deeper look at several factors related to the occurrence of audit report lag. Thus, it is necessary to study whether these factors significantly influence the audit report lag. This is important because the audit report lag phenomenon can reduce client interest and affect the reputation of auditors and public accounting firms where auditors work. Hypothesis 1 in this study is rejected, this means that the experience of auditors does not significantly affect the Audit Report Tag. work and the number of inspection tasks. The experience variable does not have a significant effect because audit quality is not determined by the length of work and the number of audit tasks. Hypothesis 2, namely that time budget pressure has an effect on audit report lag, is rejected. Time budget pressure is vital in the process of completing an audit report. In this case the time budget pressure does not have a significant effect because the budget pressure is determined when planning to determine the audit task but the implementation of the audit can be different influenced by the existing situation. For example during a pandemic, uncontrollable situations lead to leeway in the completion of audited reports. So that the existing time budget pressure must be adjusted. The hypothesis in this study is accepted, this is because the size of KAP basically determines the level of efficiency and effectiveness of each auditor's task. In medium and large KAPs, there is usually a structured system and maturity from the audit planning process to the audit. This is because large public accounting firms usually try to maintain quality and reputation to keep their clients interested

scholarly journals Showcasing Audit Quality through Voluntary Public Disclosure of Audit Quality Indicators

2021 ◽  
Author(s):  
Owen Brown ◽  
Velina Popova
Keyword(s):  
Quality Indicators ◽  
Audit Quality ◽  
Quality Enhancement ◽  
Individual Investors ◽  
Public Disclosure ◽  
Public Accounting ◽  
Accounting Firms ◽  
Audit Firm ◽  
Stakeholder Groups ◽  
Public Accounting Firms

Public accounting firms continuously invest significant resources into enhancing audit quality. In this paper, we summarize Brown and Popova’s (2019) key findings related to public disclosure of audit quality indicators (AQIs) and discuss important implications for audit practitioners. Specifically, we discuss the current landscape of AQI disclosure from a regulatory and practitioner standpoint, and we provide recommendations for audit practitioners to consider when developing their own framework for AQI disclosure. Finally, we discuss how important stakeholder groups such as individual investors are influenced by AQI disclosures when making significant decisions concerning the audit firm (e.g., making auditor ratification decisions) and the audit client (e.g., making investment changes). The insights provided in our summary inform audit practitioners on how to showcase their audit quality enhancement efforts through voluntary AQI disclosure.

scholarly journals PEOPLE AND AUDIT PROCESS ATTRIBUTES OF AUDIT QUALITY: EVIDENCE FROM MALAYSIA

2019 ◽  
Vol 18 (2) ◽  
pp. 47
Author(s):  
NOOR ADWA SULAIMAN ◽  
SUHAILY SHAHIMI ◽  
RANJIT KAUR NASHTAR SINGH
Keyword(s):  
Audit Quality ◽  
Internal Quality ◽  
Audit Process ◽  
Public Accounting ◽  
Accounting Firms ◽  
External Auditors ◽  
Public Accounting Firms ◽  
Group 2 ◽  
Audit Team ◽  
Group 1

This study seeks to add to understanding of the concept and attributes of audit quality from the perspective of those responsible for delivery audit services, the auditors, as a key constituent group in the auditing system. The study surveyed two groups of external auditors (group 1- audit partners and managerial level and, group 2 - senior auditors and junior auditors), as a basis to compare their perceptions on important of auditors and audit process attributes in achieving audit quality in practice. The study was conducted in the form of a survey, with data being gathered via questionnaire. Returned surveys from external auditors yielded a 37% response rate. Overall, top 5 highest rated attributes of audit quality reported to be most important in determining audit quality are: compliance with the International Standard Quality Control (ISCQ) 1, obtaining credible and sufficient audit evidence, technical expertise of audit team, audit work meeting the audit firms’ quality standards, and competency of the audit team. Further analysis shows that the two groups of respondents have differential views on attributes of audit quality in practice. Group 1 perceived attributes of audit quality are related to auditor’s assessment of risk and internal quality review procedures within the audit firm. In comparison, group 2 perceived auditors’ competency and compliance with relevant standards as indicators of audit quality. This study suggests differences in underlying view about attributes audit quality in practice by the two groups of auditors. Public accounting firms might be interested to understand such underlying differences so that efforts in improving audit quality in practice would be focusing on the key attributes that perceived to be important on delivery high-quality audit services. This study is significant by extending the literature on audit quality and also provides useful input to public accounting firms in improving audit quality in practice.

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