Audit Quality Indicators: A Status Update on Possible Public Disclosures and Insights from Audit Practice

2010 ◽  
Vol 4 (1) ◽  
pp. C12-C19 ◽  
Author(s):  
Jean C. Bedard ◽  
Karla M. Johnstone ◽  
Edward F. Smith
Keyword(s):  
Advisory Committee ◽  
Quality Indicators ◽  
Audit Quality ◽  
Public Reporting ◽  
Global Network ◽  
Current Status ◽  
Sarbanes Oxley ◽  
Public Disclosures ◽  
The U.S

SUMMARY: This paper addresses the current status of the recommendation by the Advisory Committee on the Auditing Profession (ACAP) that auditing firms provide periodic reporting on audit quality indicators. We first consider several reasons why public reporting of audit quality indicators in the U.S. is highly controversial. We then report some information on how global network auditing firms are internally measuring audit quality in the post-Sarbanes-Oxley environment.

Audit Firm Tenure and Fraudulent Financial Reporting

2004 ◽  
Vol 23 (2) ◽  
pp. 55-69 ◽  
Author(s):  
Joseph V. Carcello ◽  
Albert L. Nagy
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Auditor Independence ◽  
Fraudulent Financial Reporting ◽  
Audit Firm ◽  
Auditor Tenure ◽  
Sarbanes Oxley ◽  
Client Relationship ◽  
Mandatory Audit Firm Rotation ◽  
The U.S

The Sarbanes-Oxley Act (2002) required the U.S. Comptroller General to study the potential effects of requiring mandatory audit firm rotation. The General Accounting Office (GAO) concludes in its recently released study of mandatory audit firm rotation that “mandatory audit firm rotation may not be the most efficient way to strengthen auditor independence” (GAO 2003, Highlights). However, the GAO also suggests that mandatory audit firm rotation could be necessary if the Sarbanes-Oxley Act's requirements do not lead to improved audit quality (GAO 2003, 5). We examine the relation between audit firm tenure and fraudulent financial reporting. Comparing firms cited for fraudulent reporting from 1990 through 2001 with both a matched set of non-fraud firms and with the available population of non-fraud firms, we find that fraudulent financial reporting is more likely to occur in the first three years of the auditor-client relationship. We fail to find any evidence that fraudulent financial reporting is more likely given long auditor tenure. Our results are consistent with the argument that mandatory audit firm rotation could have adverse effects on audit quality.

scholarly journals Corporate governance, audit quality and risk taking in the U.S. property casualty insurance industry

2009 ◽  
Vol 7 (1) ◽  
pp. 84-95 ◽  
Author(s):  
Chia-Ling Ho ◽  
Gene Lai ◽  
Jin-Ping Lee
Keyword(s):  
Corporate Governance ◽  
Risk Taking ◽  
Audit Quality ◽  
Net Present Value ◽  
Insurance Industry ◽  
Deep Understanding ◽  
Sarbanes Oxley ◽  
The Impact ◽  
The U.S ◽  
Property Casualty

This paper examines the impact of corporate governance and audit quality on risk-taking in the U.S. property casualty insurance industry. The evidence shows that some corporate governance variables, as well as some audit quality variables are related to risk-taking. We find that longer board tenure is associated with low underwriting risk. But the higher percentage of financial experts on the board is associated with high underwriting risk. The possible reason is that financial experts possess a deep understanding of a firm’s financial situation and may encourage the management to take higher risk in anticipation of a higher return for a positive net present value project. The results are consistent with agency theory and wealth transfer hypothesis in that high risk taking is consistent with shareholder interest maximization. In addition, we find a non-monotonic relation between insider ownership and leverage risk. Finally, we do not find evidence that the Sarbanes-Oxley act have impact on the risk taking behavior.

Sarbanes-Oxley and Public Reporting on Internal Control: Hasty Reaction or Delayed Action?

2013 ◽  
Vol 27 (2) ◽  
pp. 371-408 ◽  
Author(s):  
Parveen P. Gupta ◽  
Thomas R. Weirich ◽  
Lynn E. Turner
Keyword(s):  
Internal Control ◽  
Public Reporting ◽  
Section 404 ◽  
Wall Street ◽  
Public Companies ◽  
The Public ◽  
Sarbanes Oxley ◽  
Legislative Proposals ◽  
Set Up ◽  
The U.S

SYNOPSIS Since its passage, the Sarbanes-Oxley Act of 2002 has been criticized, and praised, by many on numerous grounds and claims. However, no single provision of this law has come under more attack than Section 404, which mandates public reporting of internal control effectiveness by an issuer's management as well as its independent auditors. Even after 10 years, the opposition to the Section 404 internal control requirements has continued to the point where the U.S. Congress through two separate Acts—the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, and the 2012 Jump Start Our Business Startups (JOBS) Act—have permanently exempted the non-accelerated SEC filers and the “emerging growth” issuers with revenues of $1 billion or less from Section 404(b) of the Sarbanes-Oxley Act of 2002. Many of those who oppose the Section 404 requirements rest their claim on grounds that the U.S. Congress acted in haste in mandating the public reporting of internal controls by U.S.-listed companies and that the issue was not well thought out or debated. They also contend that the U.S. Congress acted under pressure because of the public outrage over the bankruptcy filings of Enron and WorldCom. To the contrary, this paper shows that the debate over public reporting of internal control by U.S. public companies is more than six decades old, dating back to the McKesson & Robbins fraud. This paper reviews relevant legislative proposals, bills introduced in both the House and the Senate, regulatory efforts by the SEC, and the recommendations of many commissions set up by the private sector to inform the reader how these efforts were the deliberative precursors to what was eventually codified in Section 404 of the Sarbanes-Oxley Act of 2002.

scholarly journals The PCAOB Audit Quality Indicator Framework Project: Feedback From Stakeholders

2019 ◽  
Vol 16 (1) ◽  
pp. 1-8 ◽  
Author(s):  
Arianna S. Pinello ◽  
Ara G. Volkan ◽  
Justin Franklin ◽  
Michael Levatino ◽  
Kimberlee Tiernan
Keyword(s):  
Quality Indicators ◽  
Financial Reporting ◽  
Audit Quality ◽  
The United States ◽  
Audit Committees ◽  
Tone At The Top ◽  
Reporting Framework ◽  
Public Company ◽  
Auditor Reporting ◽  
The U.S

Audit Quality Indicators (AQIs), as defined by the Center for Audit Quality, include four different elements:firm leadership and tone at the top; engagement team knowledge, experience, and workload; monitoring; and auditor reporting. AQIs are quantitative and qualitative measures designed to improve audit quality and help audit committees select the best audit firm for their current needs. They are intended to increase the reliability and accuracy of financial reporting. The Public Company Accounting Oversight Board (PCAOB) has issued a concept release proposing twenty-eight potential AQIs for use in the United States. The PCAOB release describes the AQI reporting framework and asks for public opinion on whether or not it should be implemented. This study reviews the comment letters in response to PCAOB Docket 041,Concept Release on Audit Quality Indicators, and the AQI reporting frameworks currently in place in the United Kingdom, Singapore, and other countries. After reviewing the PCAOB’s proposed AQI framework, response letters to Docket 041, and the AQI frameworks used in other countries, this paper provides an opinion on how the PCAOB should proceed with the AQI framework initiative in the U.S. The analysis suggests that AQI reporting should not be mandated in the U.S., but should become a flexible and voluntary framework that provides valuable information, enhances transparency in the audit profession, and establishes a commitment to the improvement of audit quality.

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.

Changes in Risk of Foreign Firms Listed in the U.S. Following Sarbanes-Oxley

2008 ◽  
Author(s):  
Aigbe Akhigbe ◽  
Anna D. Martin ◽  
Takeshi Nishikawa
Keyword(s):  
Foreign Firms ◽  
Sarbanes Oxley ◽  
Changes In Risk ◽  
The U.S

Current Status of Audiology in the U.S.

2006 ◽  
Vol 2 (1) ◽  
pp. 1-6
Author(s):  
Sung-Min Koo ◽  
Jin-Sook Kim ◽  
Dukhwan Lim ◽  
Jung-Hak Lee
Keyword(s):  
Current Status ◽  
The U.S

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 Evidence for Publicly Reported Quality Indicators in Residential Long-Term Care: A Systematic Review

2020 ◽  
Vol 4 (Supplement_1) ◽  
pp. 181-181
Author(s):  
Franziska Zúñiga ◽  
Magdalena Osinska ◽  
Franziska Zuniga
Keyword(s):  
New Zealand ◽  
Quality Indicators ◽  
Long Term Care ◽  
Grey Literature ◽  
Public Reporting ◽  
Assessment Instrument ◽  
Term Care ◽  
Data Set ◽  
Residential Long Term Care

Abstract Quality indicators (QIs) are used internationally to measure, compare and improve quality in residential long-term care. Public reporting of such indicators allows transparency and motivates local quality improvement initiatives. However, little is known about the quality of QIs. In a systematic literature review, we assessed which countries publicly report health-related QIs, whether stakeholders were involved in their development and the evidence concerning their validity and reliability. Most information was found in grey literature, with nine countries (USA, Canada, Australia, New Zealand and five countries in Europe) publicly reporting a total of 66 QIs in areas like mobility, falls, pressure ulcers, continence, pain, weight loss, and physical restraint. While USA, Canada and New Zealand work with QIs from the Resident Assessment Instrument – Minimal Data Set (RAI-MDS), the other countries developed their own QIs. All countries involved stakeholders in some phase of the QI development. However, we only found reports from Canada and Australia on both, the criteria judged (e.g. relevance, influenceability), and the results of structured stakeholder surveys. Interrater reliability was measured for some RAI QIs and for those used in Germany, showing overall good Kappa values (>0.6) except for QIs concerning mobility, falls and urinary tract infection. Validity measures were only found for RAI QIs and were mostly moderate. Although a number of QIs are publicly reported and used for comparison and policy decisions, available evidence is still limited. We need broader and accessible evidence for a responsible use of QIs in public reporting.

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