scholarly journals MANDATORY JOINT AUDIT AND AUDIT QUALITY IN THE CONTEXT OF THE EUROPEAN BLUE CHIPS

2021 ◽  
Vol 22 (5) ◽  
pp. 1378-1395
Author(s):  
Josep Garcia-Blandon ◽  
David Castillo-Merino ◽  
Josep M. Argilés-Bosch ◽  
Diego Ravenda
Keyword(s):  
Audit Quality ◽  
Discretionary Accruals ◽  
Ongoing Debate ◽  
Earnings Benchmarks ◽  
Literature Evidence ◽  
Single Audit ◽  
The Impact ◽  
First Time ◽  
Blue Chip

This study investigates audit quality under joint and single audit regimes with a sample of large European firms. Both, the economic relevance of these companies, and the fact that the impact of joint audit on audit quality should be stronger when the audited company is a blue-chip firm motivate the study. If mandatory joint audit were positively associated with audit quality, French firms, under mandatory joint audit since 1966, should present higher audit quality compared to their European peers. The results do not indicate this to be the case. Specifically, similar levels of discretionary accruals are observed for French and other European firms. Furthermore, for the first time in the literature, evidence is reported indicating that French firms may even present lower audit quality than their European peers, when audit quality is measured by the likelihood of just beating earnings benchmarks. These results are expected to inform the ongoing debate in several countries about joint audits.

Who Did the Audit? Audit Quality and Disclosures of Other Audit Participants in PCAOB Filings

2014 ◽  
Vol 90 (5) ◽  
pp. 1939-1967 ◽  
Author(s):  
Carol Callaway Dee ◽  
Ayalew Lulseged ◽  
Tianming Zhang
Keyword(s):  
Audit Quality ◽  
Market Reaction ◽  
Audit Fees ◽  
Discretionary Accruals ◽  
Multivariate Model ◽  
Significant Decline ◽  
Earnings Response Coefficients ◽  
Absolute Value ◽  
Earnings Response ◽  
First Time

ABSTRACT We empirically test whether audit quality is affected when part of an SEC issuer's audit is outsourced to auditors other than the principal auditor (“participating auditors”). We find a significantly negative market reaction and a significant decline in earnings response coefficients (ERCs) for experimental issuers disclosed for the first time as having participating auditors involved in their audits. However, we find no market reaction and no decline in ERCs for a matching sample of issuers that are not disclosed as using participating auditors, nor for issuers disclosed for the second or third time as using participating auditors. We also find actual audit quality as measured by absolute value of performance-matched discretionary accruals is lower for the experimental issuers, although we find no difference in audit fees paid by the experimental and matching issuers in a multivariate model. Our findings suggest that the PCAOB's proposed rule requiring disclosure of the use of other auditors in addition to the principal auditor would provide information useful to investors in assessing audit quality for SEC issuers.

The impact of audit quality on earnings management and cost of equity capital: evidence from a developing market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ben Le ◽  
Paula Hearn Moore
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Discretionary Accruals ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Content Type ◽  
Big 4 ◽  
The Government ◽  
The Impact

Purpose This study aims to examine the effects of audit quality on earnings management and cost of equity capital (COE) considering the impact of two owner types: government ownership and foreign ownership. Design/methodology/approach The study uses a panel data set of 236 Vietnamese firms covering the period 2007 to 2017. Because the two main dependent variables of the COE capital and the absolute value of discretionary accruals receive fractional values between zero and one, the paper uses the generalised linear model (GLM) with a logit link and the binomial family in regression analyses. The paper uses numerous audit quality measures, including hiring Big 4 auditors or the industry-leading Big 4 auditor, changing from non-Big 4 auditors to Big 4 auditors or the industry-leading Big 4 auditor, and the length of Big 4 auditor tenure. Big 4 companies include KPMG, Deloitte, EY and PwC, whereas the non-big 4 are the other audit companies. Findings The study finds a negative relationship between audit quality and both the COE capital and income-increasing discretionary accruals. The effects of audit quality on discretionary accruals and the COE capital depend on the ownership levels of two important shareholders: the government and foreign investors. Foreign ownership is negatively associated with discretionary accruals; however, the effect is more pronounced in the sub-sample of state-owned enterprises (SOEs), the firms where the government owns 50% or more equity, than in the sub-sample of Non-SOEs. Originality/value To the best of the knowledge, no prior similar study exists that used the GLM with a logit link and the binomial family regression. Global investors may be interested in understanding how unique institutional settings and capital markets of each country impact the financial reporting quality and cost of capital. Further, policymakers of developing markets may have incentives to improve the quality of financial reporting and reduce the cost of capital which should result in attracting more foreign investments.

Overseeing the external audit function: Evidence from audit committees’ reported activities

2022 ◽  
Author(s):  
Brian Bratten ◽  
Monika Causholli ◽  
Valbona Sulcaj
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Discretionary Accruals ◽  
Audit Committees ◽  
Composite Measure ◽  
External Audit ◽  
Earnings Benchmarks ◽  
Prior Literature ◽  
External Auditor

Recently, in response to calls for more transparency, many firms have begun reporting the activities undertaken by their audit committees in overseeing the work of the external auditor. We use a composite measure of audit committees’ reported oversight activities for a sample of S&P 1500 firms and examine the extent to which these reported activities are associated with audit quality. We find that when firms’ audit committees report exerting strong oversight, they have higher audit quality as proxied by audit fees, discretionary accruals, the likelihood of meeting or beating earnings benchmarks, and restatements. We also find that the market reacts positively to reports indicating strong oversight, consistent with perceptions of higher audit quality. This study extends prior literature on audit committees by introducing a new comprehensive measure of audit committees’ reported oversight activities and sheds light on how these activities map into audit quality.

Consequences of the implementation of expanded audit reports with key audit matters (KAMs) on audit quality

2020 ◽  
Vol 35 (8) ◽  
pp. 1095-1119
Author(s):  
Weerapong Kitiwong ◽  
Naruanard Sarapaivanich
Keyword(s):  
Design Methodology ◽  
Audit Quality ◽  
Discretionary Accruals ◽  
Regression Analyses ◽  
Content Type ◽  
Weak Evidence ◽  
Financial Restatements ◽  
Audit Reports ◽  
The Impact ◽  
Made In

Purpose This paper aims to ask whether the implementation of the expanded auditor’s report, which included a requirement to disclose key audit matters (KAMs) in Thailand since 2016, has improved audit quality. Design/methodology/approach To answer this question, the authors examined audit quality two years before and two years after its adoption by analysing 1,519 firm-year observations obtained from 312 companies. The authors applied logistic regression analyses to the firm-year observations. Findings The authors found some weak evidence that KAMs disclosure improved audit quality because of auditors putting more effort into their audits and audits being performed thoroughly after the implementation of KAMs. Interestingly, the number of disclosed KAMs and the most common types of disclosed KAMs are not associated with audit quality. Only disclosed KAMs related to acquisitions are more informative because the presence of this type of disclosed KAMs signals the greater likelihood of financial restatements being made in a later year. Originality/value Unlike previous studies on the impact of KAMs disclosure on audit quality, which used discretionary accruals as proxy for audit quality, this study used the occurrence of financial restatements.

PCAOB International Inspections and Audit Quality

2016 ◽  
Vol 92 (5) ◽  
pp. 143-166 ◽  
Author(s):  
Jagan Krishnan ◽  
Jayanthi Krishnan ◽  
Hakjoon Song
Keyword(s):  
Audit Quality ◽  
Value Relevance ◽  
Accounting Firms ◽  
The Public ◽  
Public Company ◽  
Accounting Numbers ◽  
Abnormal Accruals ◽  
Relevance Measure ◽  
The Impact ◽  
First Time

ABSTRACT We investigate the impact of the Public Company Accounting Oversight Board's (PCAOB) first-time inspections of foreign accounting firms by examining abnormal accruals around the inspection year, and the value relevance of accounting numbers around the inspection report date, for their U.S. cross-listed clients. We document lower abnormal accruals in the post-inspection period, and greater value relevance of accounting numbers in the post-report period for clients of the inspected auditors, compared with non-cross-listed clients or clients of non-inspected auditors within the inspected countries. Comparisons of the PCAOB's joint inspections with PCAOB stand-alone inspections indicate that while both experience lower post-inspection abnormal accruals, the former benefit more than the latter. The value relevance measure, in contrast, shows greater increases for the PCAOB stand-alone inspections than for joint inspections. Comparing the inspection effects for auditors with and without deficiency reports, we find no systematic differences for accruals or for value relevance.

Do government-experienced auditors reduce audit quality?

2019 ◽  
Vol 34 (6) ◽  
pp. 722-748
Author(s):  
Murat Ocak ◽  
Gökberk Can
Keyword(s):  
Audit Quality ◽  
Data Access ◽  
Discretionary Accruals ◽  
Small Sample ◽  
Content Type ◽  
Audit Firm ◽  
Audit Firms ◽  
Government Experience ◽  
The Impact ◽  
Independent Audit

Purpose Recent studies regarding auditor experience generally focus on auditor overall experience in accounting, auditing, finance and related fields (Hardies et al., 2014), auditor sector and domain experience (Bedard and Biggs, 1991; Hammersley, 2006), auditor experience as CPA (Ye et al., 2014; Sonu et al., 2016) or big N experience (Chi and Huang, 2005; Gul et al., 2013; Zimmerman, 2016) or auditors’ international working experience (Chen et al., 2017). But there is little attention paid to where auditors obtained their experience from? And how do auditors with government experience affect audit quality (AQ)? This paper aims to present the effect of auditors with government experience on AQ. Design/methodology/approach The authors used Turkish publicly traded firms in Borsa Istanbul between the year 2008 and 2015 to test the hypothesis. The sample comprises 1,067 observations and eight years. Two main proxies of government experience are used in this paper. The first proxy is auditor’s government experience in the past. The second proxy is the continuous variable which is “the logarithmic value of the number of years of government experience”. Further, auditor overall experience in auditing, accounting, finance and other related fields are also used as a control variable. Audit reporting aggressiveness, audit reporting lag and discretionary accruals are used as proxies of AQ. Besides this, the authors adopted the model to estimate the probability of selecting a government-experienced auditor, and they presented the regression results with the addition of inverse Mills ratio. Findings The main findings are consistent with conjecture. Government-experienced auditors do not enhance AQ. They are aggressive, and they complete audit work slowly and they cannot detect discretionary accruals effectively. Spending more time in a government agency makes them more aggressive and slow, and they do not detect earnings management practices. The Heckman estimation results regarding the variable of interest are also consistent with the main estimation results. In addition, the authors found in predicting government-experienced auditor choice that family firms, domestic firms and firms that reported losses (larger firms, older firms) are more (less) likely to choose government-experienced auditors. Research limitations/implications This study has some limitations. The authors used a small sample to test the impact of government-experienced auditors on AQ because of data access problems. Much data used in this study were collected manually. Earnings quality was calculated using only discretionary accruals. Real activities manipulation was not used as the proxy of AQ in this paper. The findings from emerging markets might not generalize to the developed countries because the Turkish audit market is developing compared to Continental Europe or USA. Practical implications The findings are considered for independent audit firms. Audit firms may employ new graduates and train them to offer more qualified audit work for their clients. The results do not mean that government-experienced auditors should not work in an audit firm, or that they should not establish an audit firm. It is clear that government-experienced auditors provide low AQ in terms of audit reporting aggressiveness, audit report lag and discretionary accruals. But as they operate more in the independent audit sector, they will become successful and provide qualified audit work. One other thing we can say is that it is perhaps better for government-experienced auditors to work in the tax department of independent audit firms. Originality/value This paper tries to fill the gap in the literature regarding the effect of auditor experience on AQ and concentrates on a different type of experience: Auditors with government experience.

Impact of IPO grading on earnings management

2015 ◽  
Vol 13 (2) ◽  
pp. 142-158 ◽  
Author(s):  
Yogesh Maheshwari ◽  
Khushbu Agrawal
Keyword(s):  
Earnings Management ◽  
Initial Public Offering ◽  
Design Methodology ◽  
Discretionary Accruals ◽  
Alternative Measure ◽  
Cross Sectional ◽  
Content Type ◽  
Public Offering ◽  
The Impact ◽  
First Time

Purpose – This paper aims to examine the impact of initial public offering (IPO) grading on earnings management by Indian companies in their IPOs. Specifically, it investigates whether earnings management significantly differs in the pre-IPO grading regime and post-IPO grading regime. Further, it examines whether earnings management significantly differs between high-graded and low-graded IPOs. Design/methodology/approach – The cross-sectional modified Jones model is used to obtain the discretionary accruals, a proxy for earnings management. The impact of IPO grading on earnings management is assessed using multiple regression analysis. Findings – Earnings management is significantly lower in graded IPOs as compared to the ones that are not graded. Further, among the graded IPOs, the high-graded IPOs exhibit lower earnings management as compared to the low-graded IPOs. The findings are robust to the use of an alternative measure for discretionary accruals. Originality/value – IPO grading in India is a unique certification mechanism, introduced for the first time in any market. This paper establishes the efficacy of this mandatory certification mechanism in reducing earnings management. The findings could be valuable to issuer companies, investors and market regulators.

scholarly journals KUALITAS AUDIT SEBAGAI PEMODERASI PENGARUH MANAJEMEN LABA TERHADAP NILAI PERUSAHAAN

2020 ◽  
Vol 3 (2) ◽  
pp. 174-190
Author(s):  
I Putu Edi Darmawan
Keyword(s):  
Earnings Management ◽  
Firm Value ◽  
Audit Quality ◽  
Stock Exchange ◽  
Sampling Technique ◽  
Discretionary Accruals ◽  
Real Earnings Management ◽  
Manufacturing Companies ◽  
Negative Effect ◽  
The Impact

This study aims to test and analyze the impact of accrual earnings management and real earnings management on firm value empirically. Also, audit quality's role on the effect of accrual earnings management and total earnings management on firm value. The analytical method used is Moderated Regression Analysis (MRA). This research's population is manufacturing companies listed on the Indonesia Stock Exchange during the period 2013 to 2017. The sampling technique used is purposive sampling. This study found that accrual earnings management, which is proxied by discretionary accruals, positively affects firm value. Real earnings management has a negative effect on firm value. Audit quality cannot weaken the effect of accrual earnings management on firm value. However, audit quality weakens the effect of real earnings management on firm value.

Does Fee Disclosure Type Matter? Evidence from Price Adjustment in the Audit Market of Taiwan

2019 ◽  
Vol 18 (3) ◽  
pp. 41-61
Author(s):  
Jengfang Chen ◽  
Rong-Ruey Duh ◽  
Kuei-Fu Li
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Discretionary Accruals ◽  
Financial Statement ◽  
Price Adjustment ◽  
Regulatory Change ◽  
Public Companies ◽  
Audit Market ◽  
Audit Fee ◽  
The Impact

ABSTRACT While mandatory audit fee disclosure makes fee information transparent, there have been concerns about the impact of price adjustment on audit quality. Taking advantage of a regulatory change in Taiwan that required public companies to disclose audit fee but allowed two alternative disclosure forms (amount disclosure or range disclosure), this study investigates the impact of the fee disclosure form on price adjustment and the influence of such adjustment on audit quality. Using a dataset including audit fees under the two disclosure forms, we find that, for overcharged companies, the downward adjustment is larger for amount disclosure companies than range disclosure companies and such downward adjustment increase discretionary accruals in amount disclosure companies but not for range disclosure companies. Our study helps understand the impact of different fee disclosure forms on price adjustment and audit quality, which should be of interest to regulators and financial statement users in Taiwan and beyond.

scholarly journals Audit Quality under Influences of Audit Firm and Auditee Characteristics: Evidence from the Romanian Regulated Market

2021 ◽  
Vol 13 (12) ◽  
pp. 6924
Author(s):  
Mihai Carp ◽  
Costel Istrate
Keyword(s):  
Audit Quality ◽  
Discretionary Accruals ◽  
Audit Opinion ◽  
Audit Firm ◽  
Listed Firms ◽  
Big 4 ◽  
Accruals Quality ◽  
Dependent Variables ◽  
The Impact

We have estimated the impact of some characteristics of the auditors and of the audited companies on audit quality for the Romanian listed firms (943 observations for the 2007–2019 period), using as a proxy for the audit quality the level of discretionary accruals, measured following the Jones (1991) model, and the accruals quality, estimated through the Dechow and Dichey (2002) model. These dependent variables have been related to variables that reflect both the characteristics of the audit firm (for example, Big 4 membership) and the characteristics of the audited firms (dimension, financial leverage, accounting standards applied, growth and profitability). Our results show that the auditor’s Big 4 membership contributes to an increase in discretionary accruals, decreasing the quality of the audit. The transition to IFRS did not have a significant influence on the quality of the audit. The audit opinion may have an effect on the discretionary accruals and the accruals quality in the sense that a modified opinion leads to an increase in the quality of the audit in the following financial year(s).

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