Clients' Expectations on Audit Judgments: A Note

2004 ◽  
Vol 16 (1) ◽  
pp. 63-74 ◽  
Author(s):  
Venkataraman M. Iyer ◽  
Dasaratha V. Rama
Keyword(s):  
Audit Quality ◽  
Financial Statements ◽  
Early Years ◽  
Relative Power ◽  
Client Perceptions ◽  
Audit Firm ◽  
Auditor Tenure ◽  
Start Up ◽  
Nonaudit Services ◽  
The Impact

Audited financial statements can be viewed as the product of negotiations between a company's management and its auditor. Relative power of these two parties is a major factor that determines the outcome of the negotiation. This study examines the impact of auditor tenure, importance of a client to an audit partner, nonaudit purchases, and prior audit firm experience of client personnel on client perceptions about their ability to persuade the auditor in the context of an accounting disagreement. We obtained responses to a survey from 124 CPAs in industry who are employed as CEOs, CFOs, controllers, or treasurers. Our results indicate that respondents from companies with short auditor tenures were somewhat more likely to indicate that they could persuade the auditor to accept their (client's) position in case of a disagreement. This finding is consistent with the argument that auditors are susceptible to influence in the early years as they are still in the process of recouping start-up costs, but is not consistent with concerns expressed by legislators and others that long auditor tenures will adversely affect audit quality. Respondents who believed their business was more important for the audit partner were also more likely to believe that they could persuade the auditor. However, the purchase of nonaudit services and prior audit experience were not related to client's perceptions about their ability to persuade the auditor.

scholarly journals Audit Fees and Financial Performance of Deposit Taking Saccos in North RIFT, Kenya

2020 ◽  
Vol 6 (5) ◽  
pp. 15-27
Author(s):  
Dorris Serem ◽  
Dr. Rashid Fwamba ◽  
Dr. Alala Benedict
Keyword(s):  
Financial Performance ◽  
Audit Quality ◽  
Secondary Data ◽  
Financial Statements ◽  
Audit Fees ◽  
Positive Influence ◽  
Auditor Independence ◽  
Audit Firm ◽  
Firm Experience ◽  
The Impact

The collapse of Deposit-Taking SACCOS and financial institutions in Kenya has caught the attention of the public and supervisory agencies to query the quality of audit. SACCO Societies Regulatory Authority on its inspection report indicated that SACCOs have been implicated in maladministration, scams and fraudulent dealings that led to their eventual collapse. SASRA also revoked licenses and rejected audited financial statements of some Deposit Taking SACCOs between 2013 to 2017.These financial scandals have been traced to poor audit quality. The study aimed to test the impact of audit quality on financial performance of Deposit-Taking SACCOs in North Rift Region, Kenya. The study sought to establish the influence of audit fees on financial performance; determine the influence of audit firm tenure on financial performance; establish the influence of auditor independence on financial performance and to determine the influence of audit firm experience on financial performance of Deposit-Taking SACCOs in North Rift Region, Kenya. This study was based on Agency theory, Role theory and the Concept of audit expectation gap, and Stakeholders’ theory. This research adopted descriptive cross-sectional research design. The target population for the study was 266 staff of all the 16 registered Deposit-Taking SACCOs in North Rift Region, Kenya. The sample size was 48 respondents comprising of chief executive officers, finance officers and internal auditors of the Deposit-Taking SACCOs selected using purposive sampling method. Primary and secondary data was used. Questionnaires collected primary data while audited annual financial statements of SACCOs provided secondary data. Inferential and descriptive statistics was used in analyzing data through SPSS version 25. It emerged that audit fees, audit firm tenure and audit firm experience have a significant positive influence on financial performance of Deposit-Taking SACCOs in North Rift Region, Kenya. Auditor independence had an insignificant positive influence on financial performance of Deposit-Taking SACCOs in North Rift Region, Kenya. The study concluded that audit quality has a positive noteworthy impact on financial performance of Deposit-Taking SACCOs in Kenya. The study recommends that regulatory authorities should formulate strict rules on audit fee charges and oversee the implementation of the same. Also, SASRA should ensure DT-SACCOs implement auditor rotation in compliance with auditing regulations and standards. DT-SACCOs to consider auditor’s professional competence and experience before initiating any audit engagement. Finally, DT-SACCOs and auditors should reinforce the professional code of ethics in regard to auditor independence in terms of familiarity between auditor and the client that may lead audit work into jeopardy.

Threats to Auditor Independence: The Impact of Relationship and Economic Bonds

2011 ◽  
Vol 30 (1) ◽  
pp. 121-148 ◽  
Author(s):  
Ping Ye ◽  
Elizabeth Carson ◽  
Roger Simnett
Keyword(s):  
Audit Quality ◽  
Joint Effect ◽  
Auditor Independence ◽  
Audit Firm ◽  
Going Concern ◽  
Long Duration ◽  
Going Concern Opinion ◽  
Negative Effect ◽  
Nonaudit Services ◽  
The Impact

SUMMARY: This study examines the association of a comprehensive set of auditor-client relationship bonds (audit firm tenure, audit engagement partner tenure, long duration director-auditor relationships, and alumni affiliation) with the level of economic bonds provided to an audit client (nonaudit services [NAS]). We further examine the effect of these economic and relationship bonds on auditor independence in the context of nonaudit services fees and the propensity to issue going-concern opinions. It is these economic and relationship bonds that have attracted the interest of regulators in their consideration of audit quality. This study was undertaken in Australia in 2002, which provided a context in which all these relationships could be examined before new regulations were introduced. Results show that audit firm tenure and alumni affiliation are associated with clients purchasing auditor-provided NAS, with stronger associations for clients with low agency costs. We further find that long audit engagement partner tenure and a joint effect of auditor-provided NAS and alumni affiliation have a negative effect on the auditor’s propensity to issue a going-concern opinion.

scholarly journals Auditing quality characteristics and accounting conservatism: an empirical study of the listed companies in Egypt

2014 ◽  
Vol 11 (2) ◽  
pp. 352-361 ◽  
Author(s):  
Mohammed Moustafa Soliman
Keyword(s):  
Firm Size ◽  
Audit Quality ◽  
Stock Exchange ◽  
Quality Characteristics ◽  
Accounting Conservatism ◽  
Company Size ◽  
Audit Firm ◽  
Auditor Tenure ◽  
The Impact ◽  
Auditor Specialization

The growing issues on the quality of audit and accounting conservatisms have long been regarded and seemed as a hot debated since both could impact on the capital market efficiency. This study aims to investigate the impact of the audit quality which is characterized by audit firm size, auditor specialization, and auditor tenure on accounting conservatisms in the financial reports of the more active 50 non-financial companies listed at Egyptian stock exchange across four years of period from 2007 to 2010. After controlling for company size, leverage and profitability, the results show that auditing quality characteristics (audit firm size, auditor specialization, and auditor tenure) have significant positive relation with accounting conservatism. On the other hand, no significant relationship is found between company size and accounting conservatism. Based on these results, the study provided recommendations to the interested parties.

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.

Auditor Tenure and the Timeliness of Misstatement Discovery

2017 ◽  
Vol 93 (2) ◽  
pp. 315-338 ◽  
Author(s):  
Zvi Singer ◽  
Jing Zhang
Keyword(s):  
Natural Experiment ◽  
Audit Quality ◽  
Client Engagement ◽  
Audit Firm ◽  
Auditor Tenure ◽  
Sarbanes Oxley ◽  
Auditor Change ◽  
Negative Effect ◽  
Extended Analysis ◽  
Arthur Andersen

ABSTRACT Using the timeliness of misstatement discovery as a proxy for audit quality, we examine the association between audit firm tenure and audit quality in a setting that alleviates the endogeneity problem endemic to this line of research. We find that longer audit firm tenure leads to less timely discovery and correction of misstatements, which is consistent with a negative effect of long auditor tenure on audit quality. In addition, using the non-voluntary auditor change following the demise of Arthur Andersen in 2002 as a natural experiment, we show that the misstatements of its former clients were discovered faster than those of comparable companies that retained their auditors throughout the misstatement. This finding speaks to the benefit of a fresh look by a new auditor. An extended analysis shows that longer auditor tenure also leads to misstatements of greater magnitudes, and that the Sarbanes-Oxley Act has mitigated, but not eliminated, the negative effect of long auditor tenure. Last, we show that the negative association between auditor tenure and timely discovery of misstatements is mainly present in the first ten years of an audit engagement. Our study has implications for regulators who continue to express concern regarding lengthy auditor-client engagement. JEL Classifications: K22; K23; L51; M41; M42; M48.

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.

scholarly journals The adoption of IFRS in publicly listed enterprises of high and medium capitalization and the impact of the size of the audit firm in Greece

2014 ◽  
Vol 11 (4) ◽  
pp. 707-716 ◽  
Author(s):  
Michail Pazarskis ◽  
Andreas Koutoupis ◽  
George Drogalas ◽  
Konstantinos Tsakiris
Keyword(s):  
Stock Exchange ◽  
Accounting Standards ◽  
Financial Statements ◽  
International Accounting Standards ◽  
Audit Firm ◽  
The Past ◽  
Big 4 ◽  
The Difference ◽  
Athens Stock Exchange ◽  
The Impact

In 2002, developments in the global markets during the past decades have highlighted the need for common accounting standards among companies all around the world so as the financial statements to be comparable. From 2005 onwards the Greek Companies listed on the Athens Exchange was an accounting “revolution” of the 21st century, given the difference in philosophy between the Greek GAAP and the International Accounting Standards-IAS (next, IFRS). This study evaluates the implementation of IFRS on the financial statements of Greek publicly listed companies of high and medium capitalization, which are companies that are included in the FTSE 20 and FTSE 40 indexes of the Athens Stock Exchange-ASE, respectively. Also, for those firms we examined the effect of the size of the audit firm. The research was conducted based on the analysis of thirteen ratios. According to our analysis only few of the ratios have changed significantly. Finally, regarding the impact of the size of the audit firm the results reveal controversy with the present bibliography concerning “Big 4” in comparison with “non-Big 4” firms in Greece

Investigating the impact of audit features on money laundering

2020 ◽  
Vol 23 (4) ◽  
pp. 913-930
Author(s):  
Shaban Mohammadi ◽  
Nader Naghshbandi ◽  
Zahra Moridahmadibezdi
Keyword(s):  
Money Laundering ◽  
Audit Quality ◽  
Screening Method ◽  
Audit Fees ◽  
Statistical Population ◽  
Content Type ◽  
Quality Audit ◽  
Auditor Tenure ◽  
Audit Fee ◽  
The Impact

Purpose The purpose of the present study is to investigate the impact of audit features, including audit quality, audit fees and auditor tenure on money laundering in Iranian stock companies. Design/methodology/approach This research is descriptive-correlational and applied in terms of purpose. To evaluate the audit features, variables including audit quality, audit fee and auditor tenure were used. The statistical population of this study includes all companies listed in Tehran Stock Exchange and the research period from 2012 to 2018. A sample of 150 companies was selected by the screening method. In this study, logistic regression and Eviews 10 software were used for data analysis and hypothesis testing. Findings The results showed that variables including audit quality, normal audit fee and auditor tenure have a significant effect on money laundering. Originality/value Observing money laundering rules and regulations for businesses involves is a critical issue. In auditing the financial statements of the business units subject to these laws, the auditor reviews their actions to obtain reasonable assurance of guaranteeing the money laundering laws, evaluates their effectiveness and gains approval of managers regarding observing laundering regulations. In this regard, the auditor is required to report definitive or suspected money-laundering cases or its certain or suspected evidence to the relevant authorities. Although the law prohibits the auditor from disclosing such matters to the client, it is not necessary. It seems that even if the auditors perform non-audit functions, they should report money laundering or suspicious operations and transactions.

Auditor Tenure and Shareholder Ratification of the Auditor

2008 ◽  
Vol 22 (3) ◽  
pp. 297-314 ◽  
Author(s):  
Mai Dao ◽  
Suchismita Mishra ◽  
K. Raghunandan
Keyword(s):  
Audit Quality ◽  
Direct Evidence ◽  
Empirical Basis ◽  
Auditor Tenure ◽  
Using Data ◽  
The Impact

SYNOPSIS: Legislators and regulators have expressed concerns about the effect of long auditor tenure on audit quality. There is little direct evidence on investors’ perceptions about long auditor tenure. In this paper, we use shareholder votes on auditor ratification as a proxy for investor perceptions about audit quality. We find, using data from 635 firms during 2006, that shareholder votes against (or abstaining from) auditor ratification are positively correlated with auditor tenure. The results suggest that shareholders view long auditor tenure as adversely affecting audit quality, and provide an empirical basis for arguments related to the impact of long auditor tenures on shareholders’ perceptions of audit quality.

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