scholarly journals What Does “Say on Pay” Say about Audit Risk?

2014 ◽  
Vol 9 (1) ◽  
pp. A1-A12 ◽  
Author(s):  
X. Jasmine Bordere ◽  
Conrad S. Ciccotello ◽  
C. Terry Grant
Keyword(s):  
Executive Compensation ◽  
Audit Fees ◽  
Internal Controls ◽  
Risk Assessments ◽  
Control Group ◽  
Audit Risk ◽  
Say On Pay ◽  
Risk Environments ◽  
Ceo Pay ◽  
Compensation Plan

SUMMARY This paper examines a sample of 36 firms that received a majority of negative shareholder votes on their executive compensation plan in the first round of Dodd-Frank mandated “say-on-pay” voting in 2011. Relative to a control group, the 36 firms tend to perform poorly and have high CEO pay in the pre-vote period, and especially in 2010. We find that about 20 percent of the rejected firms also had income-decreasing restatements that impact the five-year period before the vote, compared to only 3 percent for a control group. The rejected firm sample also has weaker internal controls, as well as greater increases in audit fees in the year before the vote. The voting highlights how rejected firms tend to have higher audit risk environments in the years preceding the say-on-pay vote. In addition, since over half of the restatements occur after the say-on-pay vote, the findings also suggest that auditors should use voting as an input to their risk assessments.

CEO and CFO Equity Incentives and the Pricing of Audit Services

2013 ◽  
Vol 33 (2) ◽  
pp. 1-25 ◽  
Author(s):  
B. Anthony Billings ◽  
Xinghua Gao ◽  
Yonghong Jia
Keyword(s):  
Positive Association ◽  
Audit Fees ◽  
Internal Controls ◽  
Audit Risk ◽  
Pricing Decisions ◽  
Equity Incentives ◽  
Accounting Scandals ◽  
Using Data ◽  
Distinctive Role

SUMMARY: The alleged perverse role of managerial incentives in accounting scandals, and the distinctive role of auditors in identifying and intervening in attempted earnings manipulation, highlight the importance of explicitly considering executive incentive plans by auditors in the auditing process. By empirically testing auditors' responses to CEO/CFO equity incentives in planning and pricing decisions using data from 2002 through 2009, we document compelling evidence that CFO equity incentives are positively associated with audit fees and CEO equity incentives are not statistically related to audit fees, suggesting that auditors perceive heightened audit risk associated with CFO equity incentives. Our further analyses reveal that the positive association between CFO equity incentives and audit fees is more pronounced in firms with weak internal controls, indicating heightened risk associated with CFO equity incentives in this setting perceived by auditors. JEL Classifications: G30, G34, M42, M52.

SOX Disclosure and the Effect of Internal Controls on Executive Compensation

2016 ◽  
Vol 33 (2) ◽  
pp. 277-295 ◽  
Author(s):  
Angelo Paletta ◽  
Genc Alimehmeti
Keyword(s):  
Executive Compensation ◽  
Control Systems ◽  
Internal Control ◽  
Negative Relationship ◽  
Personal Characteristics ◽  
Internal Controls ◽  
Organizational Impact ◽  
Ceo Pay ◽  
Macroeconomic Determinants ◽  
Cfo Compensation

We study the organizational impact of internal control systems, by examining 1,593 firms with 15,606 executives over 2002-2010. We find that internal control systems explain a significant amount of executive and, in particular, CFO compensation, after controlling for other governance, executive personal characteristics, firm, and macroeconomic determinants of pay. Moreover, the negative relationship between pay and internal control systems suggests that executives operating in firms with ineffective internal control systems earn greater compensation. The results of the longitudinal analysis suggest that firms with ineffective internal control systems have greater agency problems and, consequently, greater levels of executive compensation. The CEO pay shows a nonsignificant relationship with internal control systems.

scholarly journals Pay for performance: Beating "best practices"

2006 ◽  
Vol 2 (3) ◽  
pp. 36-40
Author(s):  
Marc Hodak
Keyword(s):  
Best Practices ◽  
Executive Compensation ◽  
Empirical Research ◽  
Value Creation ◽  
Pay For Performance ◽  
Public Companies ◽  
Compensation Plans ◽  
Ceo Pay ◽  
Compensation Plan ◽  
Compensation Design

Widespread criticism of CEO pay packages have spurred directors to engage in a diligent search for best practices. This vigilance is transforming the process of executive compensation design, administration and oversight at many major public companies. But have all these process changes improved the compensation plans? We conducted empirical research on the way various compensation structures work for or against shareholder value creation. We looked at S&P 500 executive compensation plan data, supplemented by conversations with hundreds of executives and consultants. Against this standard, the evidence indicates that certain practices prove out favorably; some with plausible rationales have questionable value, at best, and some are clearly counter productive.

Financial Restatements, Audit Fees, and the Moderating Effect of CFO Turnover

2009 ◽  
Vol 28 (1) ◽  
pp. 205-223 ◽  
Author(s):  
Dorothy A. Feldmann ◽  
William J. Read ◽  
Mohammad J. Abdolmohammadi
Keyword(s):  
Audit Fees ◽  
Organizational Legitimacy ◽  
Matched Pair ◽  
Control Group ◽  
Executive Turnover ◽  
Audit Risk ◽  
Audit Fee ◽  
Financial Restatements ◽  
Prior Literature ◽  
Legitimacy Crisis

SUMMARY: We examine post-restatement audit fees and executive turnover for a sample of firms that restated their 2003 financial statements. We investigate and find evidence that audit fees are higher for restatement firms compared with a matched-pair control group of non-restatement firms. We propose that the higher audit fees reflect a cost of both an increase in perceived audit risk and a loss of organizational legitimacy. Prior literature suggests that changing top management is a response to a legitimacy crisis; thus we expect to find that executive turnover moderates the positive relationship between restatement and audit fees. Our results indicate that a change in CFO for a restatement firm moderates the increased audit fee, but a change in CEO does not.

scholarly journals Executive Compensation and Regulation-Imposed Governance: Evidence from the California Nonprofit Integrity Act of 2004

2014 ◽  
Vol 90 (2) ◽  
pp. 443-466 ◽  
Author(s):  
Sandip Dhole ◽  
Saleha B. Khumawala ◽  
Sagarika Mishra ◽  
Tharindra Ranasinghe
Keyword(s):  
Executive Compensation ◽  
Ceo Compensation ◽  
Relative Increase ◽  
Unintended Consequences ◽  
Control Group ◽  
For Profit ◽  
Ceo Pay ◽  
Regulatory Cost ◽  
The Impact ◽  
Compensation Costs

ABSTRACT This study examines the impact of the California Nonprofit Integrity Act of 2004 on CEO compensation costs in affected organizations. Contrary to the stated objective of the Act that executive compensation is “just and reasonable,” we find that CEO compensation costs for affected nonprofits during the post-regulation periods have increased by about 6.3 percent when compared with a control group of comparable unaffected nonprofits. In addition, the relative increase in CEO compensation appears to come from nonprofits that have experienced greater regulatory cost increases. We do not find evidence that the Act resulted in a change in CEO pay performance sensitivity. The observed CEO pay increase is not systematically different across nonprofits that underpaid versus those that overpaid their CEOs during pre-Act periods. Overall, this paper highlights the unintended consequences of regulatory attempts to enhance governance in the not-for-profit sector.

Conditional Conservatism and Audit Fees

2014 ◽  
Vol 29 (1) ◽  
pp. 83-113 ◽  
Author(s):  
Hye Seung (Grace) Lee ◽  
Xu Li ◽  
Heibatollah Sami
Keyword(s):  
Corporate Governance ◽  
Potential Benefit ◽  
Audit Fees ◽  
Accounting Conservatism ◽  
Audit Risk ◽  
Debt Contracting ◽  
Conditional Conservatism ◽  
Governance Quality ◽  
Corporate Governance Quality ◽  
The Impact

SYNOPSIS In this study, we examine the impact of conditional conservatism on audit fees and, more importantly, the influence of corporate governance on this relationship. Prior literature presents evidence regarding explanations for the existence and pervasiveness of accounting conservatism such as compensation and debt contracting, shareholder litigation, taxation, and accounting regulation. However, there is very limited evidence or discussion of the potential benefit of accounting conservatism on audit risk and thus audit fees, and how the potential benefit can be attenuated by corporate governance quality. Using a sample of firm-year observations over the period of 2004–2009, we provide evidence consistent with conditional conservatism and firms' commitment to such conservatism reducing their audit fees. However, our evidence shows that this reduction in audit fees is moderated by higher corporate governance quality. These results have implications for auditors, regulators, standard setters, and firms' managers. In addition, our study extends the literature on the determinants of audit fees. JEL Classifications: M41; M42; D81; D22.

Sign in / Sign up

Export Citation Format

Share Document