Timeliness of Financial Reporting: The Examination of Auditor Tenure and Industry Specialization

Purpose This study aims to explore the relationship between audit partner and firm industry specialization and board of director independence on the decision by Taiwanese firms to use International Financial Reporting Standards (IFRS) flexibility concerning reporting interest income and expense and dividends received in different sections of the statement of cash flows. This flexibility existed in Taiwan for the first time in 2013, the year that Taiwan switched from its own generally accepted accounting principle to IFRS. Design/methodology/approach Using 2013 data for a sample of 1,227 firms, 354 of whom changed their reporting classification, this study examined the interaction effect of board independence and partner-level and firm-level auditor industry specialization on the cash flow reporting decision using logistic regression. Findings The results show there is a substitute relationship between board independence and partner-level industry specialization on the change in cash flow reporting classification, but a complementary relationship between board independence and firm-level auditor specialization. Further, both partner-level and firm-level auditor industry specializations have a complementary (but negative) relationship with board independence as to whether the firm is likely to report interest expense paid in the operating or financing activities sections. Practical implications An important implication is that knowing the levels of audit firm and partner specialization and how independent the board is, is useful for researchers and regulators in investigating auditor-client relationships and understanding the influences of variables investigated here on the outcome(s) of accounting policy and regulatory changes. Originality/value This study improved the field’s understanding of the impacts of audit partner and firm specialization, board independence and relevant interactions on cash flow reporting choices.

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The effect of auditor characteristics on tax avoidance of Iranian companies

Journal of Asian Business and Economic Studies ◽

10.1108/jabes-11-2018-0100 ◽

2020 ◽

Vol 27 (2) ◽

pp. 119-134 ◽

Cited By ~ 1

Author(s):

Mahdi Salehi ◽

Hossein Tarighi ◽

Tahereh Alidoust Shahri

Keyword(s):

Stock Exchange ◽

Emerging Market ◽

Tax Avoidance ◽

Audit Fees ◽

Industry Specialization ◽

Content Type ◽

Auditor Industry Specialization ◽

Auditor Tenure ◽

The Relationship ◽

Auditor Characteristics

Purpose The purpose of this paper is to investigate the relationship between auditor characteristics and the level of tax avoidance in an emerging market. Design/methodology/approach In this regard, the effect of various factors such as auditor tenure, auditor industry specialization, audit reports and audit fees on tax avoidance was examined. The study sample includes listed companies in the Tehran Stock Exchange. The time period of study is six years from 2011 to 2016. Also in this study, firm size, leverage, firm age and auditor size were controlled. Findings The results of this research were determined in four hypotheses. First and second hypotheses that explore the relationship between auditor tenure and auditor industry specialization with tax avoidance were not confirmed. But the results showed a significant relationship between the type of audit opinions and audit fees with tax avoidance. Originality/value The current study investigates the auditor characteristics on tax avoidance in a developing nation of Iran and the results may helpful the developing countries.

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Audit Firm Tenure and Fraudulent Financial Reporting

Auditing A Journal of Practice & Theory ◽

10.2308/aud.2004.23.2.55 ◽

2004 ◽

Vol 23 (2) ◽

pp. 55-69 ◽

Cited By ~ 318

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.

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Are earnings strings restrained after SOX?

Review of Accounting and Finance ◽

10.1108/raf-04-2016-0066 ◽

2018 ◽

Vol 17 (1) ◽

pp. 18-40 ◽

Cited By ~ 1

Author(s):

Mark Kohlbeck ◽

Jomo Sankara ◽

Errol G. Stewart

Keyword(s):

Earnings Management ◽

Financial Reporting ◽

Firm Value ◽

Information Environment ◽

Content Type ◽

External Monitoring ◽

Auditor Tenure ◽

Sarbanes Oxley ◽

Reporting Environment ◽

The Impact

Purpose This paper aims to examine whether external monitors (auditors and analysts) constrain earnings strings, an indicator of earnings management, and whether this monitoring is more effective after the implementation of the Sarbanes-Oxley Act of 2002 (SOX), given the emphasis of SOX on improving auditing, financial reporting and the information environment. Design/methodology/approach Agency theory establishes the premise between external monitoring and earnings strings. Auditor tenure and number of analysts following provide measures for external monitoring quality. Using prior research, empirical models explaining the presence of an earnings strings and earnings strings trend are developed to test the hypotheses. Findings Pre-SOX, extreme auditor tenure, indicating lower quality external monitoring, is associated with greater earnings strings trend, and analyst coverage is associated with increased likelihood of earnings strings and greater earnings strings trend consistent with analyst pressure on management. More effective auditor and analyst monitoring occurs post-SOX in terms of reduced likelihood of earnings strings and earnings strings trend. Originality/value The authors provide evidence on how elements of external monitoring are associated with increased earnings strings pre-SOX. Further, they contribute to the debate on the impact of SOX on external firm monitoring and the overall financial information environment. By focusing on earnings strings, the outcome of earnings management, the authors provide a unique understanding of external monitoring that also provides insight on the overvaluation of equity and ultimate destruction of firm value. The evidence demonstrates how regulation has contributed to an improved financial reporting environment and external monitoring.

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Auditor Tenure and Accounting Conservatism: Testing Moderating Effect of Owner’s Importance

Engineering, Technology & Applied Science Research ◽

10.48084/etasr.1135 ◽

2017 ◽

Vol 7 (4) ◽

pp. 1883-1887

Author(s):

M. D. Arabloo

Keyword(s):

Panel Data ◽

Financial Reporting ◽

Data Model ◽

Multivariate Regression ◽

Inverse Relationship ◽

Stock Exchange ◽

Accounting Conservatism ◽

Panel Data Model ◽

Auditor Tenure ◽

Financial Scandals

Conservatism is one of the salient features of financial reporting that has attracted more attention in recent years because of financial scandals. Several recent studies have focused specifically on conservatism. This research tries to investigate the effect of auditor tenure and the importance of the client's accounting conservatism by using panel data model, multivariate regression, and data of 114 companies listed in Tehran Stock Exchange during the years 2011 to 2015. The results showed that there is an inverse relationship between auditor tenure and conservatism of auditees; moreover, the client’s importance has an additive effect on the inverse relationship between auditor tenure and conservatism of client.

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Effect of auditor quality on auditor auditee negotiation outcomes

Corporate Ownership and Control ◽

10.22495/cocv5i4c3p4 ◽

2008 ◽

Vol 5 (4) ◽

pp. 373-383

Author(s):

Manel Hadriche Sahnoun ◽

Mohamed Ali Zarai

Keyword(s):

Financial Reporting ◽

Firm Size ◽

Significant Relationship ◽

Audit Firm ◽

Auditor Tenure ◽

Auditor Quality ◽

And Performance ◽

The Impact ◽

Negotiation Outcome ◽

Industry Specialist

The purpose of this paper is to study the impact of some attributes of auditor quality such as: auditor tenure, auditor industry specialist, auditor experience and the audit firm size on auditor auditee negotiation outcomes. For the entire sample of 81 Tunisians firms, our results indicate positive and significant relationship between auditor tenure, auditor experience and the extent to which the auditee agreed with the auditor over the financial reporting issues. On the other hand, the results indicate a positive but non-significant relationship between the auditor industry specialist and the negotiation outcome. For the audit firm size, we find that auditees are more likely to agree with big 4 audits firms. Indeed, we find no significant relationship between importance, size and performance of the auditee and auditor auditee negotiation outcome

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Does Industry Specialist Auditor Provide More Insights in Their audit report? An Empirical Study of Key Audit Matters Section

10.47260/jafb/1154 ◽

2021 ◽

pp. 69-94

Author(s):

Li-Jen He

Keyword(s):

Financial Reporting ◽

Audit Quality ◽

The United States ◽

International Standards ◽

Audit Report ◽

Disclosure Quality ◽

Industry Specialization ◽

Audit Reports ◽

Industry Specialist

Abstract In 2015, International Auditing and Assurance Standards Board (IAASB) released new International Standards on Auditing 701 and required auditors to disclose key audit matters (KAM) in the audit report. Similar standards were also released in the United States in 2017 and the United Kingdom and Ireland Financial Reporting Council (FRC) in 2014. As KAM are expected to inform on matters of the greatest significance during an audit, before exploring the question regarding whether investors will obtain useful information from additional matter disclosures, the anterior consideration may be in regard to how audit quality affects the disclosure quality of KAM. This study use hand-collected data of the KAM disclosed in the audit reports of Taiwanese listed companies in 2016 to explore the association between auditor industry specialization and audit quality by the disclosure of KAM in new audit reports. The empirical results show that the association between the industrial specialist audit partner and the measurement of KAM quality is significantly positively related. The findings support our hypothesis that specialist auditors’ KAM are more informative than those issued by non-specialist auditors, and provide new evidence supporting prior studies about the superior auditing ability and disclosure quality of auditor industry specialist. Keywords: Key Audit Matters, KAM, International Standards on Auditing 701, International Auditing and Assurance Standards Board.

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What Determines Incumbent Auditors Information Systems Design And Implementation Consulting Fees?

Review of Business Information Systems (RBIS) ◽

10.19030/rbis.v6i4.4552 ◽

2002 ◽

Vol 6 (4) ◽

pp. 63-74

Author(s):

Ho Young Lee

Keyword(s):

Information Systems ◽

Audit Committee ◽

Audit Quality ◽

Systems Design ◽

Auditor Independence ◽

Information Systems Design ◽

Industry Specialization ◽

Design And Implementation ◽

Consulting Services ◽

Auditor Tenure

This study examines determinants of demand for incumbent auditors information systems design and implementation consulting services. While there was no evidence on how the services may affect auditor independence, opponents of allowing the service argue that auditors who provide the financial information systems consulting services may lower audit quality, reducing investor confidence in markets. The results indicate that while R&D expenditures, auditors industry specialization, and auditor tenure are positively associated with demand for the information systems consulting, there is no evidence that accounting discretion and audit committee effectiveness are associated with demand for the information systems consulting.

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Auditor Tenure, Industry Specialization and Real Activity Management

SSRN Electronic Journal ◽

10.2139/ssrn.1534327 ◽

2010 ◽

Author(s):

Wenjun Zhang

Keyword(s):

Real Activity ◽

Industry Specialization ◽

Auditor Tenure ◽

Activity Management ◽

Real Activity Management

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The Effect of Auditor Characteristics on the Value of Diversification

Auditing A Journal of Practice & Theory ◽

10.2308/ajpt-51831 ◽

2017 ◽

Vol 37 (1) ◽

pp. 115-137 ◽

Cited By ~ 4

Author(s):

Shu-Miao Lai ◽

Chih-Liang Liu

Keyword(s):

Information Asymmetry ◽

Financial Reporting ◽

Agency Problems ◽

Market Value ◽

Disclosure Quality ◽

Diversification Discount ◽

Industry Specialization ◽

Diversified Firms ◽

Auditor Characteristics

SUMMARY This paper examines how auditor characteristics (size, tenure, and industry specialization) affect the valuation of diversification. As expected, we find that diversified firms have lower market value than single-segment firms, and the diversification discount is smaller when firms employ Big N auditors and auditors with longer tenure. We also find that the diversification discount is larger when companies hire auditors with industry specialization and speculate that an industry focus may limit auditors' ability to detect misreporting in diversified firms. Also, diversified firms have higher financial reporting and disclosure quality when they employ Big N auditors and auditors with longer tenure, but lower financial reporting and disclosure quality when they employ industry specialist auditors. Overall, our findings suggest that auditor characteristics matter to investors in diversified firms because they contribute to the quality of financial reporting and disclosure, which can mitigate agency problems and the information asymmetry associated with diversification.

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