scholarly journals Auditor Fees and Going-Concern Reporting Decisions on Bankrupt Companies: Additional Evidence

2015 ◽  
Vol 9 (1) ◽  
pp. A13-A27 ◽  
Author(s):  
William J. Read
Keyword(s):  
Audit Fees ◽  
Auditor Independence ◽  
Data Availability ◽  
Audit Failure ◽  
The Public ◽  
Going Concern ◽  
Audit Firms ◽  
Public Company ◽  
Reporting Decisions ◽  
Auditor Fees

SUMMARY The recent growth in non-audit services (NAS) at the major audit firms has the attention of auditing regulators. On several occasions recently, board members of the Public Company Accounting Oversight Board (PCAOB) have indicated that the rise in NAS may place auditor independence at risk (Harris 2014; Tysiac 2014). Impaired independence can result in audit failure, which includes situations when auditors fail to issue going-concern (GC) audit opinions to soon-to-be bankrupt companies. In this paper, I examine the association between the propensity of auditors to issue GC opinions and NAS fees (and audit fees) to 203 bankrupt companies during 2002–2013. In analysis, I find no significant relation between GC decisions and NAS fees and audit fees. My results may interest U.S. regulators, who recently expressed concerns about the threat to auditor independence from the spike in NAS at the major firms. Data Availability: Publicly available from sources identified in the paper.

Hiring Auditors with a Part II Quality Control Report: An Opportunity for Increased Earnings Management or Lower Audit Fees?

2020 ◽  
Vol 5 (1) ◽  
pp. 73-93
Author(s):  
Jared Eutsler ◽  
D. Kip Holderness ◽  
Megan M. Jones
Keyword(s):  
Quality Control ◽  
Audit Quality ◽  
Audit Fees ◽  
Data Availability ◽  
Fiscal Year ◽  
The Public ◽  
Audit Firms ◽  
Public Company ◽  
General Demand ◽  
Systemic Quality

ABSTRACT The Public Company Accounting Oversight Board's (PCAOB) Part II inspection reports, which disclose systemic quality control issues that auditors fail to remediate, signal poor audit quality for triennially inspected audit firms. Auditors that receive a Part II inspection report typically experience a decrease in clients, which demonstrates a general demand for audit quality. However, some companies hire auditors that receive Part II inspection reports. We examine potential reasons for hiring these audit firms. We find that relative to companies that switch to auditors without Part II reports, companies that switch to auditors with Part II reports have higher discretionary accruals in the first fiscal year after the switch, which indicates lower audit quality and a heightened risk for future fraud. We find no difference in audit fees. Our results suggest that PCAOB Part II inspection reports may signal low-quality auditors to companies that desire low-quality audits. Data Availability: Data are available from the public sources cited in the text.

Auditor Fees and Auditor Independence—Evidence from Going Concern Reporting Decisions in Germany

2013 ◽  
Vol 32 (4) ◽  
pp. 129-168 ◽  
Author(s):  
Nicole V. S. Ratzinger-Sakel
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Auditor Independence ◽  
Litigation Risk ◽  
Manufacturing Companies ◽  
Anglo Saxon ◽  
Going Concern ◽  
Big 4 ◽  
Reporting Decisions ◽  
Auditor Fees

SUMMARY This study examines the potential for non-audit services to impair auditor independence using going concern modifications as a proxy for audit quality. While prior research has focused primarily on Anglo-Saxon environments, this study focuses on Germany because of the country's unique reporting attributes and lower litigation risk when compared to Anglo-Saxon settings. Based on a sample of financially stressed manufacturing companies during the period 2005–2009, the results do not suggest that German auditors are less independent when the level of non-audit fees is high. However, there is some evidence that Big 4 audit firms are less likely than their non-Big 4 counterparts to issue a going concern emphasis-of-matter paragraph for engagements characterized by both relatively high levels of non-audit fees and financial stress.

Auditor Independence and Auditor-Provided Tax Service: Evidence from Going-Concern Audit Opinions Prior to Bankruptcy Filings

2008 ◽  
Vol 27 (2) ◽  
pp. 31-54 ◽  
Author(s):  
Dahlia Robinson
Keyword(s):  
Audit Quality ◽  
Auditor Independence ◽  
The Public ◽  
Going Concern ◽  
Sarbanes Oxley ◽  
Public Company ◽  
Reporting Decisions ◽  
Going Concern Opinion ◽  
Information Spillover

SUMMARY: This study examines whether auditors’ provision of tax services impairs auditor independence by focusing on auditors’ going-concern opinions among a sample of bankruptcy filing firms. The evidence from the bankruptcy setting is particularly salient given that the bankruptcy of corporations such as Enron motivated several provisions of the Sarbanes-Oxley Act (SOX) of 2002. More recently, auditors’ provision of tax service to their audit clients has been the focus of new rules by the Public Company Accounting Oversight Board (PCAOB). Consistent with improved audit quality from information spillover, the study documents a significant positive correlation between the level of tax services fees and the likelihood of correctly issuing a going-concern opinion prior to the bankruptcy filing. One implication of this result is that restricting tax services by auditors of poorly performing firms may diminish the quality of auditors’ reporting decisions without leading to an improvement in auditor independence.

A Reexamination of Audit Fees for Initial Audit Engagements in the Post-SOX Period

2013 ◽  
Vol 33 (2) ◽  
pp. 59-78 ◽  
Author(s):  
Rosemond Desir ◽  
Jeffrey R. Casterella ◽  
Julia Kokina
Keyword(s):  
Audit Fees ◽  
Auditor Independence ◽  
Data Availability ◽  
Sample Period ◽  
Accounting Firms ◽  
The Public ◽  
Sarbanes Oxley ◽  
Big 4 ◽  
Public Company ◽  
Client Relationships

SUMMARY: On August 16, 2011, the Public Company Accounting Oversight Board (PCAOB) issued a concept release seeking comments on ways to enhance auditor independence. The Board notes that higher failure rates in new audit engagements might be linked to unrealistic pricing. The Board's concern is that a new auditor might be more susceptible to management pressure if initial-year audit fees are set artificially low. Prior to the Sarbanes-Oxley Act (SOX) of 2002, empirical evidence shows that auditors discounted their initial-year audit fees. This practice, known as lowballing, was expected to decrease significantly after the enactment of SOX. Indeed, findings in Huang, Raghunandan, and Rama (2009) seem to confirm that Big 4 auditors charged a fee premium on new auditor-client relationships in 2006. However, it is not clear if more recent post-SOX initial-year audits are free of lowballing. We investigate whether lowballing exists in new auditor-client relationships in an “extended” post-SOX environment for the years 2007 to 2010. Our results suggest that both Big 4 and non-Big 4 accounting firms discounted their initial-year audit fees during our sample period (2007–2010). These findings should be of interest to the PCAOB as it searches for ways to bolster auditor independence. Data Availability: Available from public sources.

Going-Concern Audit Opinions and the Provision of Nonaudit Services: Implications for Auditor Independence of Bankrupt Firms

2009 ◽  
Vol 28 (1) ◽  
pp. 153-169 ◽  
Author(s):  
Joseph Callaghan ◽  
Mohinder Parkash ◽  
Rajeev Singhal
Keyword(s):  
Negative Relationship ◽  
Audit Fees ◽  
Managerial Incentives ◽  
Auditor Independence ◽  
Empirical Question ◽  
Going Concern ◽  
Nonaudit Services ◽  
Auditor Fees ◽  
The Relationship ◽  
The U.S

SUMMARY: Researchers in the area of auditor independence have examined the relationship between auditors' opinions and auditor-provided services. While DeFond et al. (2002) and Geiger and Rama (2003) fail to find auditor impairment for distressed U.S. companies, Sharma (2001) and Sharma and Sidhu (2001) find a negative relationship between the likelihood of a going-concern (GC) opinion and nonaudit fees paid to auditors for bankrupt Australian companies. These conflicting results may arise from jurisdictional differences between Australia and the U.S. or differential managerial incentives and firm costs between distressed and bankrupt firms. In light of these differences, an empirical question exists as to whether the results of the Australian studies will obtain in the U.S. We examine the relationship between the propensity of auditors to render GC opinions and nonaudit fees (and other auditor fees) for a sample of bankrupt U.S. firms. We do not observe any association between GC opinions and nonaudit fees, audit fees, total fees, or the ratio of nonaudit fees to total fees.

scholarly journals Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Release No. 2016-003, Proposed Auditing Standard—The Auditor's Report on an Audit of Financial Statements when the Auditor Expresses an Unqualified Opinion and Related Amendments to PCAOB Standards

2016 ◽  
Vol 11 (1) ◽  
pp. C26-C40 ◽  
Author(s):  
Marcus M. Doxey ◽  
Stephen H. Fuller ◽  
Marshall A. Geiger ◽  
Willie E. Gist ◽  
Karl E. Hackenbrack ◽  
...  
Keyword(s):  
Financial Statements ◽  
Auditor Independence ◽  
Data Availability ◽  
Financial Statement ◽  
Specific Information ◽  
Reporting Standard ◽  
The Public ◽  
Auditor Tenure ◽  
Public Company ◽  
Auditor Reporting

SUMMARY On May 11, 2016 the Public Company Accounting Oversight Board (PCAOB) issued a request for comment on Proposed Auditing Standard—The Auditor's Report on an Audit of Financial Statements when the Auditor Expresses an Unqualified Opinion and Related Amendments to PCAOB Standards, a reproposal of its August 2013 proposed auditor reporting standard. The reproposal retains the pass/fail model of the existing auditor's report while seeking to enhance the form and content of the report. The reproposal solicited public comment on the following significant changes to the existing auditor's report: (1) add a description of “critical audit matters” that provides audit-specific information about especially challenging, subjective, or complex aspects of the audit as they relate to the relevant financial statement accounts and disclosures, (2) add a statement about auditor independence and the phrase “whether due to error or fraud” when describing the auditor's responsibilities to obtain reasonable assurance about whether the financial statements are free of material misstatements, (3) add a statement related to auditor tenure, and (4) standardize the form of the auditor's report, requiring the opinion be the first section of the auditor's report and requiring section titles to guide the reader. The comment period ended on August 15, 2016. This commentary summarizes the participating committee members' views on the alternatives presented in the request for comment. Data Availability: The concept release, proposed and reproposed rules, and supplemental information are available at: http://pcaobus.org/Rules/Rulemaking/Pages/Docket034.aspx

scholarly journals Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Rulemaking Docket Matter No. 37: PCAOB Release No. 2011-006, Concept Release on Auditor Independence and Audit Firm Rotation

2012 ◽  
Vol 6 (1) ◽  
pp. C15-C27 ◽  
Author(s):  
Keith L. Jones ◽  
Jagadison K. Aier ◽  
Duane M. Brandon ◽  
Tina D. Carpenter ◽  
Lisa M. Gaynor ◽  
...  
Keyword(s):  
Exposure Period ◽  
Auditor Independence ◽  
Data Availability ◽  
Professional Skepticism ◽  
Audit Firm ◽  
The Public ◽  
Public Comment ◽  
Public Company ◽  
Auditing Standards ◽  
Mandatory Audit Firm Rotation

SUMMARY In August 2011, the Public Company Accounting Oversight Board (PCAOB or Board) issued a concept release to solicit public comment on the potential direction of a proposed standard-setting project on means to enhance auditor independence, objectivity, and professional skepticism. The Concept Release sought comments on and explores in detail the possibility of mandatory audit firm rotation. The PCAOB provided for a 121-day exposure period (from August 16 to December 14, 2011) for interested parties to examine and provide comments on the concept release. The Auditing Standards Committee of the Auditing Section of the American Accounting Association provided the comments in the letter below (dated December 13, 2011) to the PCAOB on PCAOB Rulemaking Docket Matter No. 37: PCAOB Release No. 2011-006, Concept Release on Auditor Independence and Audit Firm Rotation. Data Availability: Information about and access to the release are available at: http://pcaobus.org/Rules/Rulemaking/Docket037/Release_2011-006.pdf

scholarly journals Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Release No. 2015-004, Supplemental Request for Comment: Rules to Require Disclosure of Certain Audit Participants on a New PCAOB Form

2015 ◽  
Vol 10 (1) ◽  
pp. C1-C10 ◽  
Author(s):  
Marcus M. Doxey ◽  
Marshall A. Geiger ◽  
Karl E. Hackenbrack ◽  
Sarah E. Stein
Keyword(s):  
Data Availability ◽  
The Public ◽  
Related Information ◽  
Audit Firms ◽  
Public Company ◽  
Auditing Standards ◽  
New Form

SUMMARY On June 30, 2015 the Public Company Accounting Oversight Board (PCAOB) issued a supplemental request for comment on its 2013 reproposal to require auditors to disclose in the auditor's report the name of the engagement partner and information about certain other participants in the audit. The supplemental request solicited public comments on an alternative to disclosure of this information in the auditor's report, namely that audit firms report (1) the name of the engagement partner, and (2) the names, locations, and extent of participation of other audit participants in a new form (Form AP) to be filed with the PCAOB within 30 days of the date the auditor's report is first included in a document filed with the SEC. The comment period ended on August 31, 2015. This commentary summarizes the participating committee members' views on the alternatives presented in the supplemental request for comment. Data Availability: The exposure drafts of the proposed and reproposed rules, the supplemental request for comment, and related information are available at: http://pcaobus.org/Rules/Rulemaking/Pages/Docket029.aspx

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