Financial Restatements and Shareholder Ratifications of the Auditor

2009 ◽  
Vol 28 (1) ◽  
pp. 225-240 ◽  
Author(s):  
Li-Lin Liu ◽  
K. Raghunandan ◽  
Dasaratha Rama
Keyword(s):  
Audit Quality ◽  
Empirical Support ◽  
Securities And Exchange Commission ◽  
Financial Statement ◽  
Shareholder Voting ◽  
Financial Restatements ◽  
Preceding Period ◽  
Significant Attention ◽  
The U.S ◽  
Selection Of

SUMMARY: Regulators and legislators have focused significant attention on financial statement restatements in recent years, and the U.S. Securities and Exchange Commission (SEC) and financial statement users view restatements as audit failures. The SEC (2000, 2003a) suggests that shareholder voting on auditor ratification will be impacted by perceptions of audit quality. In this paper we examine shareholder voting on auditor ratifications in 2005 or 2006 following restatement announcements by SEC registrants. We find that shareholders are more likely to vote against auditor ratification after a restatement when compared with votes at (1) firms without restatements or (2) restating firms in the preceding period. Overall, the results provide empirical support to the SEC's assertion that shareholder voting on auditor ratification will be related to perceptions of audit quality, and also support recent actions by shareholder activists to require all firms to submit the selection of the auditor for a ratification vote by shareholders.

Does Audit Committee Disclosure of Partner-Selection Involvement Signal Greater Audit Quality?

2021 ◽  
Author(s):  
Jimmy F. Downes ◽  
Michelle A. Draeger ◽  
Abbie E. Sadler
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Selection Process ◽  
Partner Selection ◽  
Analyst Forecasts ◽  
Securities And Exchange Commission ◽  
Audit Committees ◽  
Voluntary Disclosures ◽  
Level Of Involvement ◽  
Selection Of

We investigate whether audit committees use voluntary disclosures to signal the committees’ higher level of involvement in the audit partner-selection process, which contributes to higher levels of audit quality. Audit committees more involved in the partner-selection process should ensure the selection of a more rigorous partner. We test this conjecture by first identifying partners new to audit engagements. We then compare audit quality for companies whose audit committees disclose involvement in the selection of the new partner to those without this disclosure. We find that this disclosure is positively associated with audit quality (measured using discretionary accruals, misstatements, and meeting consensus analyst forecasts by a very small margin). Our results are more salient for complex companies and those with powerful audit committees. These findings highlight that audit committees use their disclosures to signal involvement in the partner-selection process and are relevant to the Securities and Exchange Commission.

SEC XBRL Filing Requirements: An Instructional Case on Tagging Financial Statement Disclosures

2010 ◽  
Vol 25 (3) ◽  
pp. 489-511 ◽  
Author(s):  
Ernest Capozzoli ◽  
Stephanie Farewell
Keyword(s):  
Oil And Gas ◽  
Financial Statements ◽  
Securities And Exchange Commission ◽  
Financial Statement ◽  
Publicly Traded ◽  
Item Level ◽  
Interactive Data ◽  
The U.S

ABSTRACT: On January 20, 2009, the U.S. Securities and Exchange Commission (SEC) released Rule 33-9002 for the phase-in of interactive data (SEC 2009a). An important component of this rule is the phase-in of detailed tagging of financial statement note disclosures. Tagging is the process of associating a taxonomy element with a financial statement concept for a particular context. While some of the filers have participated in the SEC Voluntary Filing Project and prepared instance documents tagged at the line item level most have not prepared detail-tagged notes to accompany the financial statements (SEC 2005; Choi et al. 2008). This case discusses the structure of disclosures, as they exist in the 2009 U.S. GAAP Taxonomy, followed by a discussion of dimensional extensions and concludes with an example of block and detailed disclosure tagging using Rivet Software’s Dragon Tag (Rivet 2009). The example uses the capitalized costs disclosure for Anadarko Petroleum, a publicly traded company. Following the example, the case requires students to block and detail tag the capitalized costs disclosure for Dig Deep, a hypothetical oil and gas company. By completing the case, students develop an understanding of the current U.S. GAAP taxonomy, skills relating to mapping and tagging processes, and make use of a commonly used XBRL taxonomy and instance document creation program.

Shareholder Dissatisfaction and Subsequent Audit Outcomes

2020 ◽  
Vol 34 (4) ◽  
pp. 181-200
Author(s):  
Paul N. Tanyi ◽  
Dasaratha V. Rama ◽  
K. Raghunandan ◽  
Gregory W. Martin
Keyword(s):  
Empirical Evidence ◽  
Audit Quality ◽  
Audit Fees ◽  
Securities And Exchange Commission ◽  
Financial Statement ◽  
Audit Report ◽  
Subsequent Period ◽  
Abnormal Accruals ◽  
Auditor Selection

SYNOPSIS This study examines the association between shareholder dissatisfaction, as proxied using auditor ratification voting, and subsequent auditor effort and audit quality. We document that increases in shareholder dissatisfaction are associated with (1) higher audit fees and longer audit report lags, and (2) lower abnormal accruals and reduced likelihood of financial statement misstatements, in the subsequent period. These findings inform the debate about auditor ratification voting, as governance activists and some regulators argue to increase the role of shareholders in auditor selection despite opposition from some firms and the staff of the Securities and Exchange Commission. We provide empirical evidence that increases in shareholder dissatisfaction with the auditor are associated with increases in subsequent auditor effort and audit quality. This suggests that shareholder action (even nonbinding) may potentially influence subsequent audit outcomes.

Adios! Airways: An Assignment on Mapping Financial Statements to the U.S. GAAP XBRL Taxonomy

2010 ◽  
Vol 25 (3) ◽  
pp. 465-488 ◽  
Author(s):  
Roger Debreceny ◽  
Stephanie Farewell
Keyword(s):  
Financial Reporting ◽  
Financial Statements ◽  
Securities And Exchange Commission ◽  
Financial Statement ◽  
Annual Reports ◽  
Business Reporting ◽  
Instructional Resource ◽  
Mapping Process ◽  
Interactive Data ◽  
The U.S

ABSTRACT: XBRL, based on XML, is an Internet language for disclosure of business reporting language. XBRL is the technological foundation for the interactive data mandate by the Securities and Exchange Commission (SEC). The mandate requires corporate filers to disclose data in quarterly and annual reports in XBL. A key building block supporting the mandate is a substantial U.S. GAAP XBRL taxonomy that encapsulates most of the reporting concepts found in financial reporting. Filers must align their existing reports to the taxonomy. The accuracy of mapping financial statement line items to the U.S. GAAP taxonomy is of fundamental importance. Mapping errors may be as simple as mapping to an incorrect taxonomy concept, which should be discovered during review. Ineffective mapping may lead to unnecessary extensions, which hinders comparability. This instructional resource guides students through the steps in mapping financial statement line items to the taxonomy. While the case does not require students to create an extended taxonomy, it does require completion of a spreadsheet detailing the mapping process that is typical of practice. In addition, the resource provides a checklist that users can refer to during the mapping process.

The impact of Big 4 consulting on audit reporting lag and restatements

2017 ◽  
Vol 32 (1) ◽  
pp. 19-49 ◽  
Author(s):  
Michele D. Meckfessel ◽  
Drew Sellers
Keyword(s):  
Audit Quality ◽  
Empirical Support ◽  
Financial Statements ◽  
Securities And Exchange Commission ◽  
Content Type ◽  
Practice Size ◽  
Big 4 ◽  
Public Company ◽  
The Impact ◽  
Practical Implications

Purpose This paper responds to concerns raised by the Securities and Exchange Commission (SEC), Public Company Accounting Oversight Board (PCAOB) and scholars over the rapid growth of Big 4 consulting practices. This paper aims to explores the question: Does the regrowth of sizable consulting practices by the Big 4 influence audit reporting lag and restatement rates? Design/methodology/approach A population of the SEC-registered US audit clients of the Big 4 was used in this study. Longitudinal data on Big 4 audit clients from 2000 through 2009 were analyzed to determine the impact of consulting practice size on the clients’ audit reporting lag and restatement rate. Findings This paper finds that consulting practice size has a positive and statistically significant influence on audit reporting lag and restatement rate. The results are robust to alternative specifications of the sample and controlling for the level of non-audit services provided to audit clients. Practical implications The findings contribute to the discussion of the scope-of-services issue. They provide empirical support for Zeff’s (2003) and Wyatt’s (2004) intuition that the loss of Big 4 professional focus – not simply conflicts of interests – is a major factor affecting the audit quality. Originality/value The uniqueness of this paper is in how it counts restatements. Each year this paper counts that annual financial statements are restated as opposed to each disclosure of a restatement. This paper’s contribution is to examine the association between the regrowth of Big 4 accounting firm consulting practices with audit reporting lag and restatements.

Shareholder Voting on Auditor Selection, Audit Fees, and Audit Quality

2011 ◽  
Vol 87 (1) ◽  
pp. 149-171 ◽  
Author(s):  
Mai Dao ◽  
K Raghunandan ◽  
Dasaratha V. Rama
Keyword(s):  
Advisory Committee ◽  
Audit Quality ◽  
Audit Fees ◽  
Experimental Results ◽  
Shareholder Voting ◽  
Public Companies ◽  
Abnormal Accruals ◽  
Auditor Selection ◽  
Using Data ◽  
The U.S

ABSTRACT The Advisory Committee on the Auditing Profession (ACAP), formed by the U.S. Department of the Treasury, has recommended that all public companies be required to have shareholder ratification of auditor selection. Using data from 1,382 firms for the year ending December 31, 2006, we find that audit fees are higher in firms with shareholder voting on auditor ratification. We also find that firms that started having a shareholder vote pay higher fees than firms that stopped having a shareholder vote. In the second part of our study, we find that in firms with shareholder voting on auditor selection (1) subsequent restatements are less likely and (2) abnormal accruals are lower. Our findings are consistent with the experimental results in Mayhew and Pike (2004), and provide empirical grounding for the debate about mandating shareholder voting on auditor selection.

THE SEC PREEMPTS THE ACCOUNTING PRINCIPLES BOARD IN 1965: THE CLASSIFICATION OF THE DEFERRED TAX CREDIT RELATING TO INSTALLMENT SALES

2007 ◽  
Vol 34 (1) ◽  
pp. 1-23 ◽  
Author(s):  
Stephen A. Zeff
Keyword(s):  
Securities And Exchange Commission ◽  
Accounting Practice ◽  
Slow Pace ◽  
Accounting Principles ◽  
Private And Public ◽  
Deferred Tax ◽  
Accounting Procedure ◽  
The U.S ◽  
Do So

In 1959, the Accounting Principles Board (APB) replaced the Committee on Accounting Procedure because the latter was unable to deal forthrightly with a series of important issues. But during the APB's first half-dozen years, its record of achievement was no more impressive than its predecessor's. The chairman of the Securities and Exchange Commission (SEC), Manuel F. Cohen, criticized the APB's slow pace and unwillingness to tackle difficult issues. This article discusses the circumstances attending the SEC's issuance of an Accounting Series Release in late 1965 to demonstrate forcefully to the APB that, when it is unable to carry out its responsibility to “narrow the areas of difference” in accounting practice, the SEC is prepared to step in and do so itself. In this sense, the article deals with the tensions between the private and public sectors in the establishment of accounting principles in the U.S. during the mid-1960s. The article makes extensive use of primary resource materials in the author's personal archive, which have not been used previously in published work.

Fee Discounting and Audit Quality Following Audit Firm and Audit Partner Changes: Chinese Evidence

2014 ◽  
Vol 90 (4) ◽  
pp. 1517-1546 ◽  
Author(s):  
Hua-Wei Huang ◽  
K Raghunandan ◽  
Ting-Chiao Huang ◽  
Jeng-Ren Chiou
Keyword(s):  
Earnings Management ◽  
Audit Quality ◽  
Audit Fees ◽  
Audit Firm ◽  
Audit Fee ◽  
Significant Attention

ABSTRACT Issues related to low-balling of initial year audit fees and the resultant impact on audit quality have received significant attention from regulators in many countries. Using 9,684 observations from China during the years 2002–2011, we find that there is a significant initial year audit fee discount following an audit firm change when both of the signing audit partners are different from the prior year. The evidence is mixed if one or both of the signing partners from the prior year also moves with the client to the new audit firm. We find evidence of audit fee discounting in our analysis of fee levels, but not in our analysis of changes in audit fees from the prior year. Sanctions for problem audits and greater earnings management are more likely when there is an audit firm change that involves two new signing partners together with initial year audit fee discounting.

The SEC's Revolving Door: Insights from Boards of Directors

2020 ◽  
Author(s):  
Juliane B. Wutzler
Keyword(s):  
Boards Of Directors ◽  
Securities And Exchange Commission ◽  
Revolving Door ◽  
Regulatory Capture ◽  
Accounting Quality ◽  
Shed Light ◽  
The U.S

This study aims to shed light on the determinants and consequences of the revolving door at the U.S. Securities and Exchange Commission (SEC). While revolvers may be good monitors due to their SEC experience and, thus, continuously create benefits for the economy ("schooling"), it is possible that they exploit their insights into the enforcement process and private connections to undermine enforcement ("regulatory capture"). Using a newly created dataset of revolvers who moved from the SEC to company boards, this study shows that not all revolvers are appointed for the same reasons and create the same benefits for their new employers. I demonstrate that those revolvers most closely involved in the enforcement process are associated with fewer future enforcement actions while accounting quality does not improve. Contrarily, external revolvers seem to use their monitoring and advising duties to improve accounting quality.

Workplace Mindfulness and its Effect on Staff Auditors' Audit Quality-Threatening Behavior

2018 ◽  
Vol 31 (1) ◽  
pp. 55-64 ◽  
Author(s):  
David N. Herda ◽  
Nathan H. Cannon ◽  
Randall F. Young
Keyword(s):  
Indirect Effect ◽  
Audit Quality ◽  
Review Process ◽  
Effective Means ◽  
Data Availability ◽  
Financial Statement ◽  
Work Setting ◽  
Effective Technique ◽  
Staff Level

ABSTRACT This study investigates the effect of staff auditors' workplace mindfulness on premature sign-off—a serious audit quality-threatening behavior that can go undetected through the review process. We also examine whether supervisor coaching is an effective means to engender workplace mindfulness. Using a sample of 115 auditors, we predict and find that (1) auditors who are coached by supervisors to appreciate the importance of their work to external financial statement users are more likely to be mindful in their work setting, and (2) greater workplace mindfulness about financial statement user considerations is associated with a reduced likelihood of auditor sign-off on an audit procedure not completed. We also find that supervisor coaching has an indirect effect on premature sign-off through workplace mindfulness. The results underscore the importance of workplace mindfulness in reducing audit quality-threatening behavior and indicate that supervisor coaching may be an effective technique in eliciting mindfulness among staff-level auditors. Data Availability: Contact the authors.

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