scholarly journals The Influence of the CEO on Auditor Choice in Private Firms: An Interplay of Willingness and Ability

2021 ◽  
Vol 13 (12) ◽  
pp. 6710
Author(s):  
Maarten Corten ◽  
Tensie Steijvers ◽  
Nadine Lybaert ◽  
Céline Coeckelbergs
Keyword(s):  
Financial Reporting ◽  
Financial Stability ◽  
Audit Quality ◽  
Private Firms ◽  
Auditor Choice ◽  
Control Effectiveness ◽  
Sufficient Power ◽  
Big Four ◽  
Entire Economy

Reliable financial reporting is highly important when aiming for sustainable development and the long-term financial stability of the entire economy. An external audit is one of the main monitoring mechanisms to warrant this reliability. While auditing serves as an independent monitoring mechanism towards management, studies indicate that management is often the driving force behind auditor appointments and terminations, especially if it is willing to drive auditor choice. While this raises questions about an auditor’s independence and resulting audit quality, willingness will only have an impact when management is also able to exert its will. This study, therefore, examines to what extent ability strengthens the CEO’s willingness to appoint a non-Big Four auditor. Using a dataset of 316 private firms, regression results show that when the CEO is willing to appoint a non-Big Four auditor and also has sufficient power, it is less likely that a Big Four auditor is actually appointed, at least when the control effectiveness of the board is weak such that the CEO can exert his/her power. This emphasizes the need for both shareholders and legislators to ensure that the independence of the auditor is guaranteed and to implement complementary monitoring mechanisms like a strong board.

Company reputation and auditor choice: evidence from fortune 1000 companies

2018 ◽  
Vol 31 (2) ◽  
pp. 232-248 ◽  
Author(s):  
Xuan Huang ◽  
Fei Kang
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Planning Process ◽  
Practical Implication ◽  
Least Square ◽  
Content Type ◽  
Auditor Choice ◽  
Company Reputation ◽  
Auditor Selection ◽  
The Impact

Purpose The purpose of this paper is to investigate how companies’ reputation affects their selection of auditors. Design/methodology/approach This paper measures company reputation using the reputation scores from Fortune’s “America’s Most Admired Companies” list. Multivariate analysis is performed to examine the impact of company reputation on public companies’ auditor choice. Robustness checks include conducting Heckman procedures and instrumental-variable two-stage least square regressions to control for self-selection bias and using alternative measures to proxy for company reputation and auditor industry expertise. Findings This paper finds that companies with higher reputations are more likely to hire industry-specialist auditors than their counterparts. The results suggest that because of reputation concerns, high-reputation companies have strong incentives to maintain and signal their financial reporting quality, which in turn increase their demand for audit quality. Practical implication This paper suggests that company reputation constitutes an important determinant of auditor selection and, therefore, has both policy and practical implications for the demand of audit services. The paper provides policy-makers and practitioners with insights into critical factors influencing companies’ complex decision process of auditor selection. Originality/value The findings of this paper on the empirical link between company reputation and auditor choice contribute to the auditing literature by enhancing the understanding of the effects of different company-level characteristics in financial reporting and audit planning process. This paper also adds to the growing literature on the influence of company reputation on corporate behavior by documenting the important role that company reputation plays in the managerial decision-making process.

scholarly journals АНАЛИЗА РЕВИЗОРСКИХ ИЗВЕШТАЈА ОСИГУРАВАЈУЋИХ КОМПАНИЈА У РЕПУБЛИЦИ СРБИЈИ

TEME ◽  
2019 ◽  
pp. 1277
Author(s):  
Biljana Jovkovic
Keyword(s):  
Financial Reporting ◽  
Financial Statements ◽  
Insurance Companies ◽  
Social Significance ◽  
Financial Reporting Standards ◽  
Insurance Sector ◽  
Audit Firms ◽  
The Social ◽  
Big Four

Successful and long-term compliance of insurance company’s operations with assumed risks is of fundamental importance for the economic system. Starting from the social significance of insurance institution and the need for stability in this activity, the systematization and analysis of the independent auditors’ reports of insurance companies’ financial statements between 2009 and 2016 was conducted. The structure and frequency of qualifications in auditors' reports, which are the result of non-compliance with financial reporting standards, were analyzed. All insurance companies are stratified to companies that were always issued auditor’s unmodified opinion in the observed period and companies that were at least once issued some form of qualification in the observed period, including the reasons for issuing unmodified opinion with on emphasis of matter. The results of the analysis showed that companies with unmodified opinion were mostly profitable, of foreign capital origin, and engaged auditors of the “Big Four”. Companies that were at least once issued some form of qualification in auditor’s opinion are predominant in the insurance sector, mostly operated at a loss and were of domestic sources of financing. Companies that were continuously issued modified opinion disappeared from the insurance market, entered into a voluntary liquidation procedure, or their operating license was revoked. Moreover, the frequency of certain audit firms in the verification of companies’ financial statements was analyzed. The results show that PWC audit firm had the largest participation in the audit of insurance companies, Deloitte of companies which were issued modified in opinion, while KPMG auditing firm reported the highest number of unmodified opinions in the insurance sector.

scholarly journals Analysis of Fraudulent Financial Reporting With the Role of KAP Big Four as a Moderation Variable: Crowe's Fraud's Pentagon Theory

2020 ◽  
Vol 11 (5) ◽  
pp. 180
Author(s):  
Maylia Pramono Sari ◽  
Nindya Pramasheilla ◽  
Fachrurrozie ◽  
Trisni Suryarini ◽  
Imang Dapit Pamungkas
Keyword(s):  
Financial Reporting ◽  
Financial Stability ◽  
Audit Committee ◽  
Stock Exchange ◽  
Sampling Technique ◽  
Fraudulent Financial Reporting ◽  
Ceo Duality ◽  
Fraud Risk ◽  
Big Four

The purpose of this study is to provide empirical evidence of pentagon fraud risk factors sush as financial targets, financial stability, number of audit committee members, nature of industry, change in auditors, auditor opinion, change in director, proportion of the independent commissary, frequent number of CEO pictures, and CEO duality on fraudulent financial reporting with KAP big four as a moderating variable. The samples in this study were all state-owned companies listed on the Indonesia Stock Exchange in 2014-2018. The purposive sampling technique was used in sampling so that 55 companies were obtained. This study uses logistic regression analysis techniques with SPSS version 26. The results of the study indicate that financial stability and the auditor's opinion influence the fraudulent financial reporting. However, financial targets, number of audit committee members, nature of industry, change in auditors, change in director, proportion of the independent commissary, frequent number of CEO pictures, and CEO duality not effect on fraudulent financial reporting.

scholarly journals DID IFRS REPORTING BY UK FIRMS REDUCE EARNINGS MANAGEMENT?

2014 ◽  
Vol 11 (2) ◽  
pp. 488-510 ◽  
Author(s):  
Medhat Naguib El Guindy
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Quality ◽  
Earnings Quality ◽  
Management Incentives ◽  
Financial Reporting Standards ◽  
Benchmark Tests ◽  
Mandatory Adoption ◽  
The Uk ◽  
Big Four

This paper investigates the effect of reporting under International Financial Reporting Standards (hereafter IFRS) versus reporting under UK GAAP on earnings management in the UK. Prior studies find mixed evidence regarding the effect of voluntary and mandatory adoption of IFRS on earnings quality. I test whether the effect of reporting under IFRS on earnings management is sufficient to overcome earnings management incentives. Furthermore, I test whether the effect of IFRS reporting is conditional on audit quality surrogated by audit firm size. I build the analysis on measures of discretionary accruals and earnings benchmark tests. I find evidence that reporting under IFRS generally reduces levels of earnings management and furthermore, the mitigating effect of IFRS is stronger for income decreasing than for income increasing earnings management. In addition, I find that audit quality plays a key role in IFRS reporting, with only firms audited by big four auditors having a significant IFRS reporting effect.

scholarly journals The Moderating impact of the Big-4 on Audit Committee and Earnings Management: During Pre-Post IFRS Adoption in Malaysia

2020 ◽  
Vol 17 (1A) ◽  
Author(s):  
Mohamed Bayou ◽  
Magdi El-Bannany ◽  
Mohamad Abdul Hamid
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Committee ◽  
Audit Quality ◽  
Management Practice ◽  
Statistical Significance ◽  
Reporting Quality ◽  
Auditor Choice ◽  
Dummy Variable ◽  
Big 4

Abstract This study investigates the moderating impart of Audit Quality (AQ) on Audit Committee (AC) and Financial Reporting Quality (FRQ) during pre-post IFRS full adoption. It argues that the AC improves FRQ but subject to the choice of auditor. This study considers several variables on its measurements related to dependent, independent, moderate, control variables which include measures such as discretionary accruals, the yearly number of AC meetings and the dummy variable. AQ is measured by a firm’s auditor choice of the Big-4 and Non-Big 4 as an indication for the demand for high/low quality financial reporting. Using 567 listed firm-year observations from 2009 to 2015, investigations were deducted by examining the statistical significance difference during pre-post IFRS full adoption, using multiple regression analysis and paired sample t-test. The findings show that the Big-4 choice, increase the relationship on the AC and FRQ when companies are adopting IFRS. The level of difference on earnings management practice was not significant. However, the result shows that IFRS full adoption have limited managerial discretion and the possibility for Earnings Management for Malaysian companies. Keywords: IFRS Full Adoption, Audit Quality, Audit Committee, Earnings Management Mohamed Salem M.S. Bayou*, [email protected] Magdi Ahmed Fathi El-Bannany**, [email protected] Mohamad Ali Bin Abdul Hamid

scholarly journals Does Audit Quality Matters in Malaysian Public Sector Auditing?

2019 ◽  
Vol 10 (3) ◽  
pp. 203
Author(s):  
Aida Hazlin Ismail ◽  
Natasha Binti Muhammad Merejok ◽  
Muhamad Ridhuan Mat Dangi ◽  
Shukriah Saad
Keyword(s):  
Public Sector ◽  
Financial Reporting ◽  
Financial Stability ◽  
Audit Quality ◽  
Financial Statements ◽  
High Quality ◽  
The Public ◽  
Auditor Switching ◽  
Regression Test

Auditors play a key role in contributing to the credibility of the financial statements on which they are reporting. High-quality audits support financial stability. The responsibility for performing quality audits of financial statements rests with the auditors. However, audit quality is best achieved in an environment where there is support from and appropriate interactions among participants in the financial reporting supply chain. Most prior studies look into audit quality from the perspective of private sector however this study focus on the quality of public sector auditing in Malaysia. There are three independent variables being investigated in this study that are the auditor’s independence, auditor’s competency and auditor’s workload. Data were collected through the distribution of questionnaires to 114 samples of auditors involved in public sector audit in Malaysia. The data were analysed using correlation test and regression test. The findings of this study show that there are positively significant relationship between auditor’s independence and auditor’s competency on audit quality. The results revealed that auditor’s competency is the most significant factor affecting the audit quality in public sector audit. However, results show that auditor’s workload has a negative and insignificant impact on audit quality. Hence, this study recommends that the audit departments to strengthen the audit quality and could improve the quality of the financial reporting in the public sector. In addition, auditor’s competency should be enhanced among the auditors in public sector to ensure high quality of audit work performed. Future studies should explore other variables such as client satisfaction, auditor switching and auditor’s turnover in public sector auditing.

scholarly journals PEMBUKTIAN FRAUD TRIANGLE THEORY PADA FINANCIAL REPORT QUALITY

2018 ◽  
Vol 3 (3) ◽  
pp. 380
Author(s):  
Edi Edi ◽  
Elis Victoria
Keyword(s):  
Financial Reporting ◽  
Financial Stability ◽  
Audit Quality ◽  
Institutional Ownership ◽  
Financial Statements ◽  
External Pressure ◽  
Fraud Triangle ◽  
Fraudulent Financial Reporting ◽  
External Audit ◽  
Triangle Theory

<p><em>A perfect and qualified financial statements are the financial statements that each company wants to present. In this competitive era, presenting a good quality reports is a difficult thing for companies, so the thought arises to commit fraudulent financial reporting. A poor quality financial statements is a financial statements that have an element of fraud. Factors in the fraud triangle theory include financial targets, financial stability, external pressure, ineffective monitoring, institutional ownership, external audit quality and change in auditor. The object of this study is the financial statements of all companies listed on the Indonesia Stock Exchange during the period 2012-2016. The sample in this research is taken by using purposive sampling method with total sample as many as 372 companies. The data obtained will be tested using SPSS version 22.0 with binary logistic regression method. Based on the results of research that has been done shows that ineffective monitoring and change in auditor have a significant influence on fraudulent financial reporting. Meanwhile, financial targets, financial stability, external pressure, institutional ownership and external audit quality have no significant influence on fraudulent financial reporting.</em></p><p> </p><p>Laporan keuangan yang sempurna dan berkualitas merupakan laporan keuangan yang ingin disajikan oleh setiap perusahaan. Di era yang semakin kompetitif ini, menyajikan laporan yang berkualitas adalah hal yang sulit bagi perusahaan sehingga muncul pemikiran untuk melakukan tindakan kecurangan terhadap laporan keuangan. Tujuan dari penelitian ini adalah untuk membuktikan faktor-faktor yang terdapat dalam teori fraud triangle terhadap kualitas laporan keuangan. Laporan keuangan dikatakan tidak berkualitas apabila memiliki unsur kecurangan didalam laporan keuangan. Faktor-faktor yang terdapat dalam teori <em>fraud triangle</em> antara lain target keuangan, stabilitas keuangan, tekanan eksternal, ketidakefektifan pengawasan, kepemilikikan saham institusi, kualitas audit eksternal serta pergantian auditor. Objek dari penelitian ini berupa laporan keuangan dari seluruh perusahaan yang terdaftar di Bursa Efek Indonesia selama periode 2012-2016. Sampel dalam penelitian ini diambil dengan menggunakan metode <em>purposive sampling</em> dengan jumlah sampel sebanyak 372 perusahaan. Data yang diperoleh akan diuji dengan menggunakan SPSS versi 22.0 dengan metode regresi logistik biner. Dari hasil pengujian terhadap data yang telah dikumpulkan, terbukti bahwa ketidakefektifan pengawasan dan pergantian auditor berpengaruh signifikan terhadap kecurangan pelaporan keuangan. Sementara, target keuangan, stabilitas keuangan, tekanan eksternal, kepemilikan saham institusi dan kualitas audit eksternal tidak berpengaruh signifikan terhadap kecurangan pelaporan keuangan.</p>

scholarly journals Use of Big Four auditors and fund raising: evidence from developing and emerging markets

2018 ◽  
Vol 13 (2) ◽  
pp. 371-390
Author(s):  
Leif Atle Beisland ◽  
Roy Mersland ◽  
Øystein Strøm
Keyword(s):  
Emerging Markets ◽  
Audit Quality ◽  
Emerging Countries ◽  
Data Set ◽  
Content Type ◽  
Auditor Choice ◽  
For Profit ◽  
Debt Capital ◽  
The Relationship ◽  
Big Four

Purpose This study is motivated by recent research suggesting that the funding benefits of using Big Four auditors may not be as uniform as were previously assumed. The purpose of this paper is to analyze the relationship between use of Big Four auditors and access to debt capital by applying data from microfinance institutions (MFIs) in emerging countries, a population typically not investigated in accounting research. Design/methodology/approach The authors apply a unique hand-collected data set from 60 emerging markets and empirically investigate whether access to various debt categories is related to the use of Big Four auditors. Findings The authors find that access to international commercial debt, international subsidized debt and government agency debt is positively related to the use of a Big Four auditor. For local commercial debt, the authors find no association between auditor type and access to debt capital. The association between auditor choice and access to debt capital is stronger for nonprofit than for-profit MFIs. Originality/value This is the first audit quality study to include a broad sample of emerging countries, which in itself is an important contribution. As far as general audit quality research is concerned, the authors take the literature one step further by showing that the benefits of using a Big Four auditor may be dependent on the specific source of debt financing a firm or organization seeks to use. Moreover, the authors demonstrate that the for-profit vs nonprofit dimension influences the relationship between auditor choice and access to capital.

Discretionary Accruals in Italian Private Firms and Non-Linear Bank Loan Granting

2017 ◽  
pp. 83-99
Author(s):  
Elisabetta Mafrolla ◽  
Viola Nobili
Keyword(s):  
Financial Reporting ◽  
Banking System ◽  
Regulatory System ◽  
Discretionary Accruals ◽  
Bank Loans ◽  
Bank Loan ◽  
Banking Union ◽  
Private Firms ◽  
European Banking Union

This paper investigates whether and at what extent private firms reduce the quality of their accruals in order to signal a better portrait to the bank and obtain new or larger bank loans. We measure earnings discretionary accruals of a sample of Italian private firms, testing whether new and larger bank loans are associated with a higher (lower) quality of earnings in borrowers' financial reporting. We study bank loan levels and changes and how they impact discretionary accruals and found that, surprisingly, private firms' discretionary accruals are systematically positively affected by an increase in bank loans, although they are negatively affected by the credit worthiness rating assigned to the borrowers. We find that the monitoring role of the banking system with regard to the adoption of discretionary accruals is effective only when the loan is very large. This paper may have implications for policy-makers as it contributes to the understanding of the shortcomings of the banking regulatory system. This is an extremely relevant issue since the excessive amount of non-performing loans held by Italian banks recently threatened the stability of the European Banking Union as a whole.

Analyzing the accuracy of bank reliability assessment based on official reporting

2020 ◽  
Vol 26 (2) ◽  
pp. 327-348
Author(s):  
O.I. Razumova
Keyword(s):  
Financial Reporting ◽  
Financial Stability ◽  
Systems Approach ◽  
Reliability Assessment ◽  
Financial Statements ◽  
Rating Agencies ◽  
Short Term Forecasting ◽  
One Year ◽  
Key Indicators ◽  
Correct Forecast

Subject. The article considers ratings of banks' reliability. Objectives. The aim is to evaluate the accuracy of existing methodology for bank reliability assessment based on official reporting, to identify patterns between indicators and factors that can affect the financial sustainability of a bank. Methods. The study draws on the comparative analysis of key indicators of bank's financial statements one year prior to the introduction of provisional administration, and evaluates the results of existing methods for analyzing the financial standing of banks. Results. The findings show that those methods that use only official reporting to assess the reliability of banks are not sufficient for short-term forecasting of financial stability. Ratings of the majority of agencies that rest on official reporting have a high percentage of erroneous results, therefore, rating agencies are not able to predict the regulator's decisions regarding a credit institution. Conclusions. Currently, there are no universal methods to determine reliability, which would provide a correct forecast of deteriorated financial position of the bank. It is important to use a systems approach, where financial reporting is not a key component.

Sign in / Sign up

Export Citation Format

Share Document