scholarly journals An Interview Study to Understand the Reasons Clients Change Audit Firms and the Client's Perceived Value of the Audit Service

2013 ◽  
Vol 7 (1) ◽  
pp. A1-A14 ◽  
Author(s):  
Richard Fontaine ◽  
Soumaya Ben Letaifa ◽  
David Herda
Keyword(s):  
Perceived Value ◽  
Value Added ◽  
Interview Study ◽  
Audit Firm ◽  
Auditor Switching ◽  
Audit Firms ◽  
Client Relationship

SUMMARY Audit firms are concerned that clients perceive the audit service as a commodity, with little value added, resulting in clients switching to firms that offer lower fees. However, the auditing literature lacks qualitative insight from clients on the reasons that they change audit firms and their perceptions of the value of audit services. To better understand the client's perspective, we conducted interviews with 20 financial managers who participate in audit firm appointment decisions. Our results suggest that the quality of the auditor-client relationship is the key determinant of auditor switching and audit value. Interestingly, price becomes an important factor only when the auditor-client relationship is mismanaged (e.g., when clients perceive that their auditor is not available to them).

scholarly journals The effect of audit firm tenure in artificial rotation on audit quality

2015 ◽  
Vol 17 (3) ◽  
pp. 439
Author(s):  
Junaidi Junaidi ◽  
Harun Pamungkas Apriyanto ◽  
Nurdiono Nurdiono ◽  
Eko Suwardi
Keyword(s):  
Audit Quality ◽  
Stock Exchange ◽  
Audit Firm ◽  
Auditor Tenure ◽  
Audit Firms ◽  
Client Relationship ◽  
Going Concern Opinion ◽  
The Relationship

This study aimed to examine the effect of auditor tenure in artificial rotation on audit quality. Tenure shows the relationship between the audit firms and a client that is measured in years. Artificial rotation of auditor (audit firm) indicates a condition that, conceptually, there has been a change of auditors leading to the auditor relationship with the client to be disconnected, whereas substantive auditor-client relationship is ongoing. Formally, the auditor does not violate the rules and is still able to audit for the same client. Yet, in the long-term, it could affect the audit quality. The longer auditor tenure, the closer auditor-client relationship is. Thus, the auditor accommodates the interests of the client at the client's financial statements, including the practice of discretionary accruals as a proxy for audit quality. The samples were selected by purposive sampling method of the companies listed in Indonesia Stock Exchange from the year 2002-2010, with multiple linear regression approach. It shows that tenure, and total assets do not affect the quality of the audit while the size of the audit firm, and debt statistically have significant effect on audit quality. Future studies may extend the period of observation, and using other audit quality measures, such as fraud, and the propensity of auditor to issue going concern opinion..

An Empirical Investigation of IPO Underpricing and the Change to the LLP Organization of Audit Firms

2004 ◽  
Vol 23 (1) ◽  
pp. 53-67 ◽  
Author(s):  
Steven R. Muzatko ◽  
Karla M. Johnstone ◽  
Brian W. Mayhew ◽  
Larry E. Rittenberg
Keyword(s):  
Initial Public Offering ◽  
Audit Quality ◽  
Limited Liability ◽  
Litigation Risk ◽  
Ipo Underpricing ◽  
Audit Firm ◽  
Legal Structure ◽  
Audit Firms ◽  
Public Offering

This paper examines the relationship between the 1994 change in audit firm legal structure from general partnerships to limited liability partnerships (LLPs) on underpricing in the initial public offering (IPO) market. The change in legal structure of audit firms reduces an audit firm's wealth at risk from litigation damages and reduces the incentives for intrafirm monitoring by partners within an audit firm. Prior research suggests that underpricing protects underwriters from litigation damages, and that the level of underpricing varies inversely with both the amount of implicit insurance provided by the audit firm and the quality of the audit services provided. We hypothesize the change in audit firm legal structure reduced the assets available from audit firms in IPO-related litigation and indirectly reduced audit quality by lowering intrafirm monitoring. As a result, underwriters have incentives as a joint and several defendant with the audit firms to increase IPO underpricing, particularly for high-litigation-risk IPOs, following audit firms' shifts to LLP status. Our findings are consistent with this hypothesis.

scholarly journals The relation of auditor tenure to audit quality: Empirical evidence from the German audit market

2013 ◽  
Vol 2 (1) ◽  
pp. 27-43 ◽  
Author(s):  
Patrick Krauß ◽  
Henning Zülch
Keyword(s):  
Audit Quality ◽  
The European Union ◽  
Short Term ◽  
Audit Firm ◽  
Audit Market ◽  
Auditor Tenure ◽  
Client Relationship ◽  
Mandatory Audit Firm Rotation

This study investigates whether and how the length of an auditor-client relationship affects audit quality. Using a sample of 1,071 firm observations of large listed companies for the sample period of 2005 to 2011, the study is one of the first to empirically analyze this auditing issue for the German audit market. The empirical results demonstrate that neither short term nor long term audit firm tenure seems to be a significant factor with regard to audit quality in Germany. In the wake of the ongoing discussion in the European Union regarding the optimal audit tenure length for the quality of the conducted statutory audits, our findings do not support the idea of a mandatory audit firm rotation rule.

Board attributes and external audit firm choice of Nigerian Non-financial Firms

2021 ◽  
Vol 39 (2) ◽  
Author(s):  
Sanyaolu Wasiu Abiodun ◽  
Animasau Rasheed Olatunji
Keyword(s):  
Audit Quality ◽  
Gender Diversity ◽  
Sampling Technique ◽  
Study Data ◽  
Manufacturing Companies ◽  
Audit Firm ◽  
Financial Firms ◽  
Big 4 ◽  
Audit Firms

The paper examined the influence of boards attributes and audit firm choice of Nigerian listed non-financial firms. In an attempt to achieve the objective of this study, data of 21 sampled manufacturing companies were obtained from 2012 to 2017 using purposive sampling technique. Data for the sampled companies were analysed using logit regression analysis.  The result of the study provides evidence for significant influence of board independence, gender diversity and board meetings on audit firm choice while it board size was found to exert positive but no significant effect on audit firm choice. Arising from this, the study recommends that the non-executive directors should be dominated by directors with adequate level of financial directors that will propel them towards appreciating audit quality while choosing audit firm so as to improve quality of audit work. Also, firm should also seek to know whether audit quality of big 4 audit firms always supersedes that of their non-big 4 counterparts.

scholarly journals The mediating role of human capital on the relationship between audit firm size and independent auditor’s opinion: evidence from Iranian audit firms

2016 ◽  
Vol 4 (2) ◽  
pp. 102
Author(s):  
Seyedhossein Naslmosavi ◽  
Agha Jahanzeb
Keyword(s):  
Human Capital ◽  
Firm Size ◽  
Positive Association ◽  
Audit Firm ◽  
Mediating Role ◽  
Audit Firms ◽  
Audit Reports ◽  
The Relationship

This empirical research is aimed to explore the effect of Human Capital (HC) as a mediator in the association of the size of an audit firm and independent auditor’s opinion (IAO). The respondents of this research were senior practicing auditors of audit firms with verse experience. The research has applied ANCOVA and path analysis method in SEM by utilizing LISREL to examine research questions. The results of this study revealed that HC was significantly associated to independent auditor’s opinion and it can significantly create a relationship between audit firm size and IAO and their qualities. Indeed, the link of audit firm size on IAO without HC was found to be insignificant. Furthermore, it contributed to understand that the HC of large audit firm is greater than other audit firms and the audit reports of these kinds of firms possess good quality because of positive association amid firm size and quality of auditors.

Should PCAOB Disciplinary Proceedings Be Made Public? Evidence from Sanctions against a Big 4 Auditor

2012 ◽  
Vol 6 (2) ◽  
pp. P18-P24 ◽  
Author(s):  
Carol Callaway Dee ◽  
Ayalew Lulseged ◽  
Tianming Zhang
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Audit Quality ◽  
Financial Statements ◽  
Audit Firm ◽  
Stock Market Reaction ◽  
Big 4 ◽  
Audit Firms ◽  
Price Effects

SUMMARY: In our paper “Client Stock Market Reaction to PCAOB Sanctions against a Big 4 Auditor” (Dee et al. 2011), we examine stock price effects for clients of a Big 4 audit firm when news of sanctions imposed by the PCAOB against the audit firm was made public. These PCAOB penalties were the first against a Big 4 auditor, and they revealed information about quality-control problems at the audit firm that were not publicly known until the sanctions were announced. Our analysis of stock prices suggests that investors in clients of the penalized Big 4 firm reevaluated their perceptions of the quality of the firm's audit work after learning of the sanctions. The negative stock price effects for the firm's clients were consistent with investors inferring that the financial statements were of lower quality. In the paper, we conclude that investors find information about PCAOB sanctions against audit firms to be relevant in assessing audit quality and use that information in setting stock prices for audit firms' clients. This finding has relevance for the debate on the proposed legislation in Congress (H.R. 3503), which would allow the PCAOB to disclose proceedings against auditors before the investigations are concluded. Our results suggest that, although investors may find early disclosure of this information useful, public disclosure of Board disciplinary proceedings before they are completed could unfairly harm an audit firm's reputation if the firm is ultimately vindicated of wrongdoing.

Economic Dependence and Reputation Concern for the Audit Firm, Audit Groups, and Individual Auditors — The Case of Taiwan

2013 ◽  
Vol 16 (02) ◽  
pp. 1350012
Author(s):  
Pei-Gi Shu ◽  
Tsung-Kang Chen ◽  
Wen-Jye Hung ◽  
Tsui-Lin Chiang
Keyword(s):  
Discretionary Accruals ◽  
Economic Dependence ◽  
Accounting Firm ◽  
Audit Firm ◽  
Sarbanes Oxley ◽  
Audit Firms ◽  
Auditor Quality ◽  
Client Relationship ◽  
Reputation Concern ◽  
The Individual

Using a sample of 3,274 firm-year data from an internationally renowned accounting firm, we investigate the effects of auditor–client relationship on auditor quality (measured by absolute discretionary accruals (ABSDA)) from the perspectives of audit firm, audit group, and individual auditor, respectively. Our empirical results show that after taking account of the client size effect, the client's fee contribution to audit firm and to audit group is positively related to the client firm's ABSDA. The finding that audit firms and audit groups allow their important clients a higher level of ABSDA supports the economic-dependence hypothesis. Moreover, the economic dependence effect is more saliently found prior to the enactment of 2002 Sarbanes–Oxley Act. Furthermore, the other finding that senior individual auditors require their clients a lower level of ABSDA holds the reputation-concern hypothesis. A synopsis of the overall findings indicates that the argument of economic dependence prevails in the analysis of the audit firm and audit group, while the reputation concern prevails in the analysis of the individual auditor.

scholarly journals ЕVALUATION OF ECONOMIC RESOURCES IN ECONOMIC ACTIVITY OF AUDITING FIRMS AS SUBJECTS OF DEVELOPMENT OF ECONOMIC CRIMES

2020 ◽  
Author(s):  
Dymytrii Grytsyshen ◽  
◽  
Zhanna Prokopenko ◽  
Vladyslav Savitsky ◽  
A. Opanasyuk ◽  
...  
Keyword(s):  
Human Resources ◽  
Economic Activity ◽  
Economic Resources ◽  
Financial Control ◽  
Economic Resource ◽  
Audit Firm ◽  
Audit Firms ◽  
Customer Capital ◽  
Labor Resources

The article finds that the study of the problem of economic resource management is associated with the constant change of the economic situation, a significant increase in competition between economic entities for resource markets and markets for finished products. Peculiarities of formation of economic resources of audit firms are revealed. It is established that the key resource of economic activity of the audit firm is the labor resources that form the human resources and determine the quality of the audit service. It is characterized that the quality of the audit service depends on the effectiveness of the audit entity as an entity of external independent financial control in the context of the relevant public functions and as a business entity whose main purpose is to make a profit. It was found that the efficiency of use and formation of economic resources by the audit firm depends on all the effects associated with its operation. It has been proven that both components are interconnected and not mutually exclusive. In addition, it is outlined that the quality of the audit of financial statements determines the reputation of the company, and hence its client capital, which in turn determines the income of the audit company. Accordingly, this indicates that the priority objects of management, and hence economic analysis and accounting are the following: financial potential, human resources, customer capital, reputational capital. All these types of potential and capital are interconnected and form the quality of the audit service both from the standpoint of obtaining financial results and from the standpoint of performing the public functions assigned to the audit as an instrument of independent financial control. It was found that to date, the issue of analytical assessment of these objects is not sufficiently developed, because the existing approaches do not take into account the specifics of the activities of audit firms, which determines the prospects for further research.

Board attributes and external audit firm choice of Nigerian Non-financial Firms

2021 ◽  
Vol 39 (1) ◽  
Author(s):  
Sanyaolu Wasiu Abiodun ◽  
Animasau Rasheed Olatunji
Keyword(s):  
Audit Quality ◽  
Gender Diversity ◽  
Sampling Technique ◽  
Study Data ◽  
Manufacturing Companies ◽  
Audit Firm ◽  
Financial Firms ◽  
Big 4 ◽  
Audit Firms

The paper examined the influence of boards attributes and audit firm choice of Nigerian listed non-financial firms. In an attempt to achieve the objective of this study, data of 21 sampled manufacturing companies were obtained from 2012 to 2017 using purposive sampling technique. Data for the sampled companies were analysed using logit regression analysis.  The result of the study provides evidence for significant influence of board independence, gender diversity and board meetings on audit firm choice while it board size was found to exert positive but no significant effect on audit firm choice. Arising from this, the study recommends that the non-executive directors should be dominated by directors with adequate level of financial directors that will propel them towards appreciating audit quality while choosing audit firm so as to improve quality of audit work. Also, firm should also seek to know whether audit quality of big 4 audit firms always supersedes that of their non-big 4 counterparts.

The Spillover Effect of Audit Firm Office Acquisition on the Audit Quality of the Existing Client Base

2021 ◽  
Author(s):  
Aleksandra B. Zimmerman ◽  
Amirali M. Chaghervand ◽  
R. Drew Sellers ◽  
Timothy J. Fogarty
Keyword(s):  
Audit Quality ◽  
Spillover Effect ◽  
Accounting Firm ◽  
Audit Firm ◽  
Audit Firms ◽  
Local Practices ◽  
The Impact ◽  
Arthur Andersen ◽  
Robust Evidence

This study investigates accounting firm office acquisitions. It explores whether office acquisitions affect post-acquisition office audit quality, particularly whether there is a spillover effect on the existing client base of the acquiring office. We capitalize on a unique circumstance: the 2002 acquisition of Arthur Andersen (Andersen) offices by other audit firms. This setting involves a set of offices in each of the remaining large international audit firms that acquired entire Andersen local practices and a set of offices that did not acquire Andersen practices. Using a within-audit firm matched sample and a difference-in-differences research design, we find robust evidence of higher audit quality post-acquisition among the audits of existing clients of the acquiring offices. These findings extend the literature on office audit quality and provide initial evidence of the impact of audit firm office acquisitions on the existing client base.

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