Determinants of Auditor Choice in Non-Financial Listed Firms on the Vietnamese Stock Market

Audit plays an important role in maintaining and issuing high-quality financial statements. This article investigates the factors that can affect auditor choice in developing countries. The authors utilize STATA to test Binary Logistic on a sample of Vietnamese listed firms data during the period between 2014 and 2017. These studies have examined the characteristics of the firm itself or the client's characteristics, prompting the process of selecting an auditor in the same regulatory environment. The results present that there is a positive relationship between firm size, firm growth, and auditor choice. While financial leverage has a negative relationship with the selection of audit firms.

Auditor Choice and the Informativeness of 10-K Reports

This study provides new evidence on the influential role of external auditors in enhancing the informativeness of form 10-K annual reports to shareholders. Specifically, we find that the client’s choice of a Big 4 auditor (PwC, EY, KPMG, and Deloitte) versus a non-Big 4 auditor contributes to cross-sectional variations in 10-K disclosure volume. We also document that the benefit of enhanced disclosures provided by Big 4 auditors is more pronounced for audit clients with poorer accrual quality and those with higher information asymmetry. Furthermore, we introduce the portion of 10-K length unexplained by operating complexity and observable client characteristics as a new proxy for audit firm effort. Specifically, we find that abnormally long disclosures are associated with higher audit fees and longer audit report lag, which implies that an incremental level of audit effort can be inferred from the discretionary component of 10-K disclosures. As audit effort is costly, a greater volume of 10-K disclosures can be expected to be associated with an improvement in the quality of financial reporting. Overall, our findings show that auditors play more than a simple attestation role in the financial reporting process, and that the quality of financial reporting in a company’s 10-K annual report is a joint product of the effort and decisions of both a company’s managers and its auditors.

The Value of Auditor Industry Specialization: Evidence from a Structural Model

This study investigates the value of auditor industry specialization. In the first step, we use a discrete choice model to derive the first-order demand for auditor industry specialization. Our results reveal that clients have a general preference for auditor industry specialization, relating to both audit firm and audit office specialization. Further, we observe that specializations at the audit firm and audit office level are substitutes. We also find that larger and more complex clients have a stronger demand for industry specialization at the audit office level. In the second step, we use the results from the discrete choice model to quantify the value of auditor industry specialist for clients. We find that the overall value of industry specialization aggregated across all clients is 5.2 million USD (0.36% of audit fees) and that industry specialization at the firm (office) level is decisive for auditor choice in 4% (6%) of all cases.

The Effect of Ownership Structure on Disclosure Quality and Credit Ratings in Family Firms: The Moderating Role of Auditor Choice

Despite the substantial degree of heterogeneity within family firms, little is known about how their heterogeneity affects firm behavior and the implication for the shareholder–debtholder agency problem. Our study contributes to the literature by examining whether family firms with a higher level of control-ownership divergence would disclose less information and whether Big 4 auditors play a moderating role in mitigating the negative impact of control-ownership divergence on disclosure quality resulting in improved credit ratings. Using data from the emerging economy of Taiwan, we provide support for our three hypotheses. Our contributions will interest family firm owners, researchers, auditors, and policymakers.

Risk Management Committee, Auditor Choice and Audit Fees

We find that risk management committees and BIG4 audit firms contribute to audit fees. We use observations of 895 companies registered in Indonesia for 2014–2018, and to answer our hypothesis we used ordinary least squares analysis. The results show that BIG4 weakens the relationship between RMC and audit fees. Our study proves that higher demand for audit coverage will occur if there is a risk management committee within the company. As a result, audit fees increase. RMC may demand high-quality external guarantees, but the presence of BIG4 as a moderating variable reduces the relationship between the two variables. We assume that this can happen because auditors can work more efficiently if the company has an RMC, auditor(s) could indirectly reduce the risk because it is partially results from the performance of the RMC. In addition, we also use the robustness test to handle the endogeneity problem with consistent results as OLS. These findings provide evidence for policy makers about the relationship between audit fees and risk management committees.

Auditor Choice Prediction Model Using Corporate Governance and Ownership Attributes: Machine Learning Approach

-External auditor is one of the governance mechanisms in mitigating corporate managerial misconduct and thereby enhance the credibility of accounting information. Thus, the main objective of this study is to develop machine learning prediction model on auditor choice of the firm which signal the quality of auditing and financial reporting processes.This paper presents the fundamental knowledge on the design and implementation of machine learning model based on four selected algorithms tested on the real dataset of 2,262 firm-year observations of companies listed on Malaysian stock exchange from 2000 to 2007. The performance of each machine learning algorithm on the auditor choice dataset has been observed based on three groups of features selection namely firm characteristics, governance and ownership. The findings indicated that the machine learning models present better accuracy performance with ownership features selection mainly with the Naïve Bayes algorithm. Keywords-Auditor Choice, Machine Learning, Prediction

Auditor Choice Prediction Model Using Corporate Governance and Ownership Attributes: Machine Learning Approach

t-External auditor is one of the governance mechanisms in mitigating corporate managerial misconduct and thereby enhance the credibility of accounting information. Thus, the main objective of this study is to develop machine learning prediction model on auditor choice of the firm which signal the quality of auditing and financial reporting processes.This paper presents the fundamental knowledge on the design and implementation of machine learning model based on four selected algorithms tested on the real dataset of 2,262 firm-year observations of companies listed on Malaysian stock exchange from 2000 to 2007. The performance of each machine learning algorithm on the auditor choice dataset has been observed based on three groups of features selection namely firm characteristics, governance and ownership. The findings indicated that the machine learning models present better accuracy performance with ownership features selection mainly with the Naïve Bayes algorithm. Keywords-Auditor Choice, Machine Learning, Prediction, Malaysia

Ownership structure, board independence and auditor choice: evidence from GCC countries

PurposeThis paper investigates the role of board independence in determining the relationship between firm ownership and auditor choice.Design/methodology/approachThe research uses a logistic regression to test the direct and indirect effects of ownership structure on the decision to hire a high-quality (Big 4) audit firm. The sample consists of 207 non-financial firms listed on the Gulf Cooperation Council (GCC) countries stock markets between 2009 and 2016.FindingsEmpirical findings show that family ownership is associated with a negative and significant coefficient suggesting that an increase in family ownership decreases the likelihood that the firm will employ a Big 4 auditor. This finding suggests that family owners are reluctant to impose external monitoring. Furthermore, we find a positive relationship between institutional ownership and auditor choice supporting the conjecture that institutional investors are more likely to choose a Big 4 auditor. The results also reveal that the effects of family and institutional ownership on auditor choice are partially mediated by independent directors.Practical implicationsThis study has important implications for GCC economies whose policymakers and regulators may need to address the conflict between controlling and non-controlling shareholders. It provides guidance for firms in the construction and implementation of their own corporate governance policies. Furthermore, the study findings may be useful to investors, assisting them in making better informed decisions and aids other interested parties in gaining a better understanding of the role played by ownership structure in the quality of auditors. Finally, the paper highlights the importance of the composition of the board of directors in increasing the likelihood of hiring a high-quality audit firm.Originality/valueThe main contribution of the present paper is to examine the board composition as a potential mediating variable between ownership structure and auditor choice. Moreover, it highlights the issue of improving governance mechanisms.