scholarly journals AUDITOR PROVIDED TAX SERVICES, INCOME SHIFTING, AND DEFAULT RISK

2021 ◽  
Author(s):  
◽  
Arfian Zudana
Keyword(s):  
Financial Crisis ◽  
Default Risk ◽  
Positive Relationship ◽  
Audit Quality ◽  
Earnings Quality ◽  
Knowledge Spillover ◽  
Multinational Companies ◽  
Income Shifting ◽  
The Impact

<p>This study investigates two capital markets effects of auditor provided tax services (APTS), a particular form of auditor provided non-audit services (APNAS). Firstly, this study examines the influence of APTS on income shifting by United States of America (U.S.) multinational companies and, secondly, this study examines the impact of APTS on default risk of all U.S. companies. There are two competing hypotheses on the impact of APNAS on the quality of the work of auditors and the empirical evidence is mixed. One strand of literature suggests that APNAS provide knowledge spillover effects and thus improve the quality of the work of the auditor. The other strand of literature suggests that APNAS impair the independence of the auditor and therefore lead to a decrease in the quality of the audit. APNAS may thus increase or decrease the value of audit as a governance mechanism. The U.S. Securities Exchange Commission (SEC) has banned several previously allowed APNAS such as bookkeeping, financial information systems design and implementation, appraisal and valuation, and internal audit. However, the SEC continues to permit auditors to provide tax services. This study extends the literature on APNAS by examining the effect of APTS on income shifting by multinational companies and on default risk. Using a sample of 10,248 firm-year observations on U.S. multinationals over the period 2002 – 2015 and the income shifting measurement model developed by Dyreng and Markle (2016), this study finds that APTS reduce outbound income shifting, which is consistent with knowledge spillover rather than impairment of independence. The result holds after addressing potential endogeneity concern and is robust to excluding observations from the financial crisis periods. Furthermore, the result holds after including firm-specific characteristics as influences on the income shifting parameters. Using a sample of 21,364 firm-year observations on U.S. firms over the period 2003 – 2016, this study finds that APTS have a positive relationship with default risk, consistent with impaired independence of the auditor. The result holds after addressing potential endogeneity concern and is robust to excluding the global financial crisis period. The effects of APTS on income shifting and default risk are therefore opposite in direction. However, the positive relationship between APTS and default risk is weaker for firms with high institutional holdings and a strong information environment, indicating that stronger corporate governance mitigates the impact of APTS on default risk. Furthermore, this study finds that the channel for the effect of APTS on default risk appears to be earnings quality. That is, APTS lower audit quality, thereby lowering earnings quality and increasing default risk. Given the cost of default, this is an important finding. Thus, taking the results on income shifting and default risk in combination, the question of the SEC continuing to permit auditors to provide tax services is left open to question.</p>

scholarly journals AUDITOR PROVIDED TAX SERVICES, INCOME SHIFTING, AND DEFAULT RISK

2021 ◽  
Author(s):  
◽  
Arfian Zudana
Keyword(s):  
Financial Crisis ◽  
Default Risk ◽  
Positive Relationship ◽  
Audit Quality ◽  
Earnings Quality ◽  
Knowledge Spillover ◽  
Multinational Companies ◽  
Income Shifting ◽  
The Impact

<p>This study investigates two capital markets effects of auditor provided tax services (APTS), a particular form of auditor provided non-audit services (APNAS). Firstly, this study examines the influence of APTS on income shifting by United States of America (U.S.) multinational companies and, secondly, this study examines the impact of APTS on default risk of all U.S. companies. There are two competing hypotheses on the impact of APNAS on the quality of the work of auditors and the empirical evidence is mixed. One strand of literature suggests that APNAS provide knowledge spillover effects and thus improve the quality of the work of the auditor. The other strand of literature suggests that APNAS impair the independence of the auditor and therefore lead to a decrease in the quality of the audit. APNAS may thus increase or decrease the value of audit as a governance mechanism. The U.S. Securities Exchange Commission (SEC) has banned several previously allowed APNAS such as bookkeeping, financial information systems design and implementation, appraisal and valuation, and internal audit. However, the SEC continues to permit auditors to provide tax services. This study extends the literature on APNAS by examining the effect of APTS on income shifting by multinational companies and on default risk. Using a sample of 10,248 firm-year observations on U.S. multinationals over the period 2002 – 2015 and the income shifting measurement model developed by Dyreng and Markle (2016), this study finds that APTS reduce outbound income shifting, which is consistent with knowledge spillover rather than impairment of independence. The result holds after addressing potential endogeneity concern and is robust to excluding observations from the financial crisis periods. Furthermore, the result holds after including firm-specific characteristics as influences on the income shifting parameters. Using a sample of 21,364 firm-year observations on U.S. firms over the period 2003 – 2016, this study finds that APTS have a positive relationship with default risk, consistent with impaired independence of the auditor. The result holds after addressing potential endogeneity concern and is robust to excluding the global financial crisis period. The effects of APTS on income shifting and default risk are therefore opposite in direction. However, the positive relationship between APTS and default risk is weaker for firms with high institutional holdings and a strong information environment, indicating that stronger corporate governance mitigates the impact of APTS on default risk. Furthermore, this study finds that the channel for the effect of APTS on default risk appears to be earnings quality. That is, APTS lower audit quality, thereby lowering earnings quality and increasing default risk. Given the cost of default, this is an important finding. Thus, taking the results on income shifting and default risk in combination, the question of the SEC continuing to permit auditors to provide tax services is left open to question.</p>

scholarly journals KECENDERUNGAN PELANGGARAN PERJANJIAN UTANG PADA PERUSAHAAN KONSTRUKSI DAN PROPERTI DI BEI

2021 ◽  
Vol 14 (2) ◽  
pp. 151-166
Author(s):  
Yunia Panjaitan
Keyword(s):  
Default Risk ◽  
Earnings Quality ◽  
Multiple Linear Regression Model ◽  
Return On Assets ◽  
Current Ratio ◽  
Independent Variables ◽  
Debt Covenant ◽  
Debt Covenant Violation ◽  
The Impact

The importance of debt covenant violation is to minimize the debtholder default risk. The possibility of debtholder’s default risk may be caused by liquidity problems, low profitability, and bad quality of earnings. Hence, this study aims to proof the tendency of debtholder to violate debt covenants by measuring current ratio volatility, return on assets, and earnings quality as independent variables. By using five companies from construction and property sub-sector that listed on Indonesia Stocks Exchange in 2016- 2018, the data are analyzed with multiple linear regression model for panel data. From this study, we can conclude that the impact of return on assets to debt covenant violation is significantly negative, debtholders with poor financial performance have higher potential to do debt covenant violation. However, there is no evidence that debt covenant violation is affected current ratio volatility and earnings quality.

scholarly journals The Impact of Audit Quality Features on Enhancing Earnings Quality: The Evidence of Listed Manufacturing Firms at Amman Stock Exchange

2015 ◽  
Vol 7 (2) ◽  
pp. 255
Author(s):  
Mohammad Abdallah Almomani
Keyword(s):  
Audit Quality ◽  
Stock Exchange ◽  
Earnings Quality ◽  
Manufacturing Firms ◽  
External Audit ◽  
Quality Properties ◽  
Amman Stock Exchange ◽  
The Impact ◽  
Quality Features

<p>The study aims at investigating the impact of external audit quality features on enhancing the quality of accounting profits of the listed manufacturing firms at Amman Stock Exchange (ASE), where continuity of profit has been used as Proxy variable to express the quality of earnings. Indicators of quality of audit, audit office size, auditors' fees, period of customer's retention, type of auditor's opinion, and the specialization in client's industry, were used to measure audit quality. A sample of 45 firms had been selected, and data covering the period 2009-2013 had been collected from these firms, where 225 observations were used in the analysis. The study finds that the earnings of listed manufacturing firms at Amman Stock Exchange are with good quality, and that there is a linear relationship between external audit quality and the quality of reported earnings. Auditors' fees have most important significant effect on earnings quality, followed by auditors' opinion, where others factors has no significant effect on earnings quality. Based on these findings, the study raises several questions about the reliability of audit quality properties by stakeholders in firms, especially investors, when they check the quality of earnings, whenever they need to take a decision. The study recommends further researches regarding the issue by using other metrics to measure earnings quality, and through the addition of other properties to the quality of the audit, such as linked audit offices with auditing global offices, degree of qualification employees, and the opened lawsuits against audit office.</p>

scholarly journals DIVIDEND POLICY, CORPORATE GOVERNANCE AND EARNINGS QUALITY: A CASE OF NON-FINANCIAL LISTED FIRMS OF PAKISTAN

2021 ◽  
Vol 9 (3) ◽  
pp. 517-530
Author(s):  
Tehmina Afzal ◽  
Atif Atique Siddiqui ◽  
Shiraz Khan ◽  
Muhammad Kamran Khan ◽  
Nader Huseen
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Firm Size ◽  
Dividend Policy ◽  
Audit Quality ◽  
Negative Impact ◽  
Earnings Quality ◽  
Earning Quality ◽  
The Impact

Purpose of the study: This research empirically examined the impact of the dividend policy and corporate governance attributes (board size, board meetings, audit quality, nomination committee, board independence, remuneration committee, and CEO duality) on earnings quality (EQ) of the firms in Pakistan. Methodology: The study used secondary data of 148 non-financial listed companies of the Pakistan Stock Exchange (PSX) with 1450 firm-year observations over 10 years from 2010 to 2019. Earning quality was assessed by the earnings management, while the values of the discretionary accruals were used to measure earnings management by employing the Modified jones model (1995). Panel regression analysis examined the impact of independent variables (dividend policy & characteristics of CG) on the dependent variable (EQ). Main Findings: Results revealed that the dividend policy showed no significant impact on earnings quality. Also, the results indicated that the audit quality and remuneration committee have a significant negative impact on earning management and a positive impact on earning quality. However, the results illustrate that the large board size, board meetings, CEO duality, firm size, and leverage have a positive influence on earnings management and a negative impact on earnings quality. Overall the study found that the corporate governance characteristics, firm size, and leverage influence the earnings quality of the firms in Pakistan. Applications of this study: The empirical results of the study will help to improve the understanding of dividend policy & corporate governance attributes in relationship with the EQ. Second, as dividend is considered one of the most important factors influencing investment decisions, so this endeavour will clarify to the investors and regulators that whether dividend will predict the quality of earnings in Pakistani firms. Novelty/Originality of this study: This study extends the literature of earnings quality that is very thin in Pakistan.

scholarly journals Impact of Applying Governance Standards in Evaluating the Quality of Internal Audit in Yemeni Private Universities

2021 ◽  
Vol 13 (46) ◽  
pp. 81-103
Author(s):  
Ahmed Ali Qassem Mohssen
Keyword(s):  
Audit Quality ◽  
Private Universities ◽  
Relative Weight ◽  
Internal Audit ◽  
Slight Variation ◽  
Internal Auditing ◽  
Audit Process ◽  
Transparency And Disclosure ◽  
The Impact

The study aimed to measure the impact of applying governance standards in evaluating the quality of internal audit in Yemeni private universities. To achieve this, the researcher followed the descriptive and analytical approach and employed a questionnaire to collect data from a sample that included (68) participants. After conducting relative analysis, governance was at an average level of (64.9%). There was also a slight variation in the level of implementation, as the dimension of transparency and disclosure was the most frequent dimension, followed by accountability and independence. Further, there was a medium level of adherence to internal auditing standards at a relative weight (65%). The level of commitment to the audit dimensions was as follows: managing the internal audit activities (67%), communicating the results (66%), assessing the risk and control management (64%), and planning and implementing the audit process (62%). and The study also found that the combined governance standards (transparency and disclosure, accountability, independence) increase the quality of the internal audit in Yemeni private universities and the highest dimensions of governance standards affecting the quality of internal auditing are the dimension of independence (80.3%), accountability (71.7%), and disclosure and transparency (63.7%). In light of this, the study recommended adopting governance standards as an integrated approach to achieve quality performance in private Yemeni universities; spreading the culture of governance in private universities among their leaders and staff by holding training courses, seminars, and conferences in order to be accepted and absorbed. In addition, governance should be included in some related academic courses in the disciplines of administrative and accounting sciences. Keywords: governance standards, internal audit quality assessment, private Yemeni universities.

The effect of the financial crisis on audit quality: European evidence

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Maria I. Kyriakou
Keyword(s):  
Financial Crisis ◽  
Audit Quality ◽  
Ordinary Least Squares ◽  
Least Squares Regression ◽  
Cross Sectional ◽  
Accounting Firms ◽  
Content Type ◽  
Financial Firms ◽  
The Impact ◽  
Big Four

Purpose This paper aims to examine the impact of the recent financial crisis on audit quality by analysing discretionary accruals. Design/methodology/approach This study considers a sample of German, French, Italian and Spanish non-financial firms from 2005 to 2013 to investigate the auditor’s independence. It uses a cross-sectional and time-series ordinary least squares regression model to control for other predictors of the auditor’s independence when the financial crisis produces a decrease in audit quality. Findings The proportion of the non-financial firms having lower audit quality was higher during the financial crisis. In addition, during the crisis auditors were less likely to provide a higher audit quality for these non-financial firms. The level of audit quality returned to normal levels during the post-crisis years when the crisis had ceased. Originality/value These findings contribute to the literature on the impact of economic and financial changes on audit quality. In addition, this research finds that the Big Four accounting firms provide a higher audit quality in different circumstances from non-Big Four accounting firms, and that audit quality decreased during the crisis and returned to normal in the post-crisis period.

The Impact of Cutbacks From a Major State Financial Crisis on Organizational Trust

2021 ◽  
pp. 027507402110530
Author(s):  
Marco Tulio Zanini ◽  
Carmen Migueles ◽  
Juliana Carvalho
Keyword(s):  
Financial Crisis ◽  
Organizational Trust ◽  
Longitudinal Case Study ◽  
Public Servants ◽  
Negative Behaviors ◽  
The Public ◽  
Negative Effect ◽  
The Impact

Previous research has shown that cutbacks in public spending often impact the range and quality of the public services delivered, leading to negative behaviors on the part of public servants. This article examines how sudden cutbacks caused by a major state financial crisis have an impact on interpersonal trust within a special police unit. We present the results of a longitudinal case study using a combination of qualitative methods. The lack of foreseeability and reliability caused by drastic changes resulting from cutbacks has a negative effect on members’ trust in their capacity to perform.

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