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Article
Publication date: 1 January 2014

Charl de Villiers, David Hay and Zhizi (Janice) Zhang

– This study aims to contribute to the understanding of audit pricing and the competitiveness of the audit fee market by examining audit fee stickiness.

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Abstract

Purpose

This study aims to contribute to the understanding of audit pricing and the competitiveness of the audit fee market by examining audit fee stickiness.

Design/methodology/approach

The authors explore the price behavior of audit fees in response to changes in the variables that are usually seen as their determinants, such as size, complexity, and risk in order to examine audit fee stickiness and the competitiveness of the market for audit services.

Findings

The authors find that audit fees are sticky, i.e. audit fees do not immediately or fully adjust to changes in their determinants. Audit fees also respond to changes leading to an increase more quickly than they respond to changes leading to a decrease. The difference between positive and negative fee adjustments declines over periods longer than one year and is no longer significant when four-year periods are considered.

Research limitations/implications

The study is limited to companies in the USA from 2000 to 2008. Future research should examine this issue in other settings and periods.

Practical implications

The results suggest that the audit market is competitive, at least in the medium term.

Originality/value

The study helps to explain why the audit fee model does not fully explain the level of audit fees; why audit fees are more likely to be too high than too low; and why auditor switches are commonly associated with larger changes in audit fees. The findings provide evidence that may be useful to managers and audit committees when managing their audit fees, auditors when considering the risks and opportunities associated with changes in the determinants of audit fees, and regulators concerned with the competitiveness of the audit market.

Details

Managerial Auditing Journal, vol. 29 no. 1
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 24 June 2019

Mahdi Salehi, Farzaneh Komeili and Ali Daemi Gah

There is a few studies about stickiness and changes in audit fees. In previous studies, researchers focused on fees behavior, which is expected to change in the short…

Abstract

Purpose

There is a few studies about stickiness and changes in audit fees. In previous studies, researchers focused on fees behavior, which is expected to change in the short term, regardless of mentioning stickiness of fees and its possible changes. In this study, the authors investigate stickiness of audit fees and the influential factors, specifically audit quality and financial crisis in an emerging economy.

Design/methodology/approach

Audit quality is examined under three main criteria, namely, auditor size, auditor industry specialization and auditor tenure. The Altman adjusted bankruptcy model is used to identify firms’ financial crisis. In this study, listed companies in Tehran stock exchange market is investigated during the period of 2009-2015. Multiple regression models are used to test research hypotheses. Furthermore, Chow and Hausman tests are selected to choose among hybrid, fixed and random effects models.

Findings

The findings show no significant relationship between audit quality and audit fees stickiness. The authors also find that financial crisis has no impact on the association between audit quality and audit fees stickiness.

Originality/value

The current study almost is the first study, which conducted in emerging market of Iran. So, the results may play a helpful role for developing nations.

Details

Journal of Financial Reporting and Accounting, vol. 17 no. 2
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 13 February 2017

Mahdi Salehi, Azadeh Jafarzadeh and Zeinab Nourbakhshhosseiny

The current study aims to investigate the amount of downward pressure on audit fees and its effect on audit quality.

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Abstract

Purpose

The current study aims to investigate the amount of downward pressure on audit fees and its effect on audit quality.

Design/methodology/approach

The research population includes 104 listed companies on the Tehran Stock Exchange. In this study, at first, the audit fees pressure was measured; then, by comparing it with actual audit fees, the pressure on audit costs was calculated. Finally, the hypotheses were tested using logistic regression.

Findings

The results of models and hypotheses show that, as expected, during the intensification of sanctions (i.e. during 2010), compared with other years, business entities have exerted more pressure to reduce audit fees; moreover, there is a positive significant relationship between fees pressure and the rate of misstatement (reverse audit quality criterion) at 10 per cent error level during 2010, whereas in years before and after 2010, there is no significant relationship between audit fees pressure and audit quality.

Originality/value

The conducted studies in Iran so far have investigated time pressures imposed on auditors. In this study, the audit fees pressure is investigated.

Details

International Journal of Law and Management, vol. 59 no. 1
Type: Research Article
ISSN: 1754-243X

Keywords

Article
Publication date: 5 January 2022

Maria I. Kyriakou

This paper aims to examine the impact of the recent financial crisis on audit quality by analysing discretionary accruals.

Abstract

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.

Details

International Journal of Accounting & Information Management, vol. 30 no. 1
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 18 May 2022

Zhuoan Feng, Lina Zixuan Li, Hau Yan Wong and Jilnaught Wong

This paper aims to examine how auditors respond through audit fees and audit quality following disciplinary actions imposed by audit regulators in an emerging market setting.

Abstract

Purpose

This paper aims to examine how auditors respond through audit fees and audit quality following disciplinary actions imposed by audit regulators in an emerging market setting.

Design/methodology/approach

This paper uses the disciplinary actions in 2017 against two major audit firms in China as an exogenous shock to examine the effect of tougher enforcement actions on auditor behavior as reflected in their emended audit fees and audit quality. This paper sampled from publicly listed firms in China with requisite data for the period 2015 through 2018. Using a difference-in-differences model, this paper examines whether the enforcement action (i.e. the suspension of audit firms) significantly impacted the audit fees and audit quality for clients of the disciplined audit firms (hereafter, suspended audit firms) in the two-year period postsuspension relative to audit firms that were not disciplined (hereafter, nonsuspended audit firms).

Findings

This paper finds evidence of increased audit fees and improved audit quality by the suspended audit firms relative to the nonsuspended audit firms in the two-year period postsuspension. These findings suggest that in contrast to symbolic disciplinary actions such as public censures documented in prior literature (Boone et al.,2015), tougher punitive disciplinary actions are followed by an increase in audit fees and an improvement in audit quality by the suspended audit firms. This paper also finds that the deterrent effect from the audit firm suspension is exclusive to the penalized audit firms and had no positive spillover effects on their peers.

Research limitations/implications

A limitation of this study is the focus on the effect of audit firm suspension against two large local audit firms in China. Given the unique characteristics of the Chinese audit market and the Chinese regulatory environment, our findings may not be generalizable to audit firms in other countries and jurisdictions, especially where the audit market is dominated by the international Big 4 auditors that possess greater brand name capital than second-tier local audit firms.

Originality/value

This paper provides novel evidence on the impact of strengthened enforcement on auditor behavior in an emerging market setting. This paper contributes to the existing literature examining the impact of regulatory interventions on financial reporting outcomes and audit quality. While there is evidence on how regulations affect financial statement preparers’ demand for high audit quality, there is limited research on how regulatory interventions affect auditor’s incentive to supply higher audit quality. This paper also contributes to the scant existing evidence on the effect of disciplinary actions against audit firms in emerging economies.

Details

Meditari Accountancy Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2049-372X

Keywords

Article
Publication date: 20 July 2022

Tajudeen John Ayoola

This study aims to examine the mediating role of audit seasonality on the association between audit fees and audit quality in Nigerian deposit money banks.

Abstract

Purpose

This study aims to examine the mediating role of audit seasonality on the association between audit fees and audit quality in Nigerian deposit money banks.

Design/methodology/approach

The sample comprises 14 banks with annual financial statements between 2008 and 2020. The modified Baron and Kenny’s (1986) causal mediation model by Iacobucci et al. (2007) through the use of bootstrapped partial least square structural equation modelling and Sobel’s (1986) z-test is adopted to achieve this study’s objective.

Findings

The results of the causal mediation analysis show evidence of a fully mediating role of audit seasonality in the association between audit fees and audit quality in the Nigerian banking industry.

Research limitations/implications

This study extends the body of knowledge by demonstrating how audit fees influence audit quality through audit seasonality as a mediator in line with the job demands-and resources and conservation of resources theories. Regulatory authorities should be wary of policies that will further increase the workload of already burdened personnel of audit firms as the uniform fiscal year-end of 31 December introduced in the Nigerian banking system has unintended consequences on audit fees and audit quality.

Originality/value

To the best of the author’s knowledge, this is one of the first studies to provide evidence on the indirect association between audit fees and audit quality.

Details

Journal of Financial Reporting and Accounting, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 19 November 2021

Songsheng Chen, Jun Guo, Yingying Tian and Lijuan Yan

Using unique trade credit insurance data from China, we examine whether trade insurance claims are associated with audit efforts and audit quality.

Abstract

Purpose

Using unique trade credit insurance data from China, we examine whether trade insurance claims are associated with audit efforts and audit quality.

Design/methodology/approach

The paper is based on a sample of Chinese firms to study insurance claims of trade credit insurance that affects abnormal audit fees.

Findings

In this study, we find that firms with high insurance claims pay higher abnormal audit fees. Further, our findings indicate that firms with high insurance claims have a short audit report lag and tend to select local audit firms.

Originality/value

To the best of our knowledge, this is the first study to investigate the association between trade credit insurance claims and audit efforts. In addition, we contribute to the literature on the agency cost of abnormal audit fees.

Details

Asian Review of Accounting, vol. 30 no. 1
Type: Research Article
ISSN: 1321-7348

Keywords

Article
Publication date: 5 October 2015

Partha Mohapatra, Dina F El-Mahdy and Li Xu

The purpose of this study is to develop a research agenda on internal controls for offshored accounting processes. It further develops a linkage between internal controls…

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Abstract

Purpose

The purpose of this study is to develop a research agenda on internal controls for offshored accounting processes. It further develops a linkage between internal controls of offshored accounting processes and auditing of the organization. Offshoring of accounting processes has become a common business practice, pursued by firms to reduce costs and focus on core competencies. However, our understanding about internal controls of these offshored processes is limited.

Design/methodology/approach

Grounded in theory that is supported by prior literature and interviews with practitioners, this paper attempts to develop a research agenda on internal controls for offshored accounting processes.

Findings

The main findings of our study suggest that while offshoring saves costs and allows the clients to focus on their core competencies, it also poses risks to the clients’ organizations. To mitigate these risks and comply with the regulatory requirements of the countries where the clients are located, clients and their offshore vendors need to effectively establish adequate internal controls for offshored business processes. Clients should seek those vendors who have appropriate processes in place and are willing to provide Service Organization Control (SOC) reports (or at least are capable of getting a SOC report in the near future). Moreover, clients should avoid offshoring the processes that would exist in defective internal control systems. Similarly, vendors should avoid undertaking those processes for which they are incapable of maintaining efficient internal controls.

Practical implications

Our study has implications for academicians as well as practitioners on understanding the determinants and consequences of internal control for offshored processes.

Originality/value

While internal controls for offshored accounting process and related regulatory changes have been increasingly important topics, little research has been devoted to explore their implications on accounting and auditing literature. We attempt to bridge this gap by synthesizing prior research on internal controls and auditing, and further developing a set of research questions for academic research. Our hope is to spur a new area of research that has not been explored before.

Details

International Journal of Accounting & Information Management, vol. 23 no. 4
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 25 April 2020

Mahdi Salehi, Ali Daemi Gah, Farzana Akbari and Nader Naghshbandi

The purpose of this study is to analyze the predictability of firm level data for determining macroeconomic indicators such as unemployment.

Abstract

Purpose

The purpose of this study is to analyze the predictability of firm level data for determining macroeconomic indicators such as unemployment.

Design/methodology/approach

This study uses quarterly GDP and unemployment data manually collected from the Statistical Center of Iran (SCI). Accounting numbers are also collected from the Tehran Stock Exchange library for the 2004-2015 period. Dispersion of earnings growth provides related data about labour reallocation, unemployment change and finally aggregate output. To summarize, this study attempts to examine the effect of these variables using classical and Bayesian approaches.

Findings

At a firm level, our results suggest that sectoral shift in previous years is likely to increase labour reallocation in subsequent years. At the macro level, the results reveal that dispersion of earnings growth and labour reallocation has a negative and positive impact on unemployment changes, respectively. However, the study suggests no significant relationship between stock return and unemployment changes. Consequently, we determine that the real estimates of macroeconomic indicators have predictive power because nominal estimates are not statistically associated with firm-level details. Finally, the results obtained from classical and Bayesian approaches suggest similar findings, thus confirming the robustness of our conclusions. Note that, based on Bayesian approach, the nominal reallocation has predictive power in unemployment rate.

Originality/value

The study is the first conducted in a developing country and the results provide important insight into current line of accounting literature.

Details

International Journal of Organizational Analysis, vol. 29 no. 1
Type: Research Article
ISSN: 1934-8835

Keywords

Article
Publication date: 13 November 2017

Sandra Cohen, Sotirios Karatzimas and Vassilios-Christos Naoum

The purpose of this paper is to explore the asymmetric cost behaviour in Greek local governments. More precisely, it investigates whether municipality costs show stickiness

Abstract

Purpose

The purpose of this paper is to explore the asymmetric cost behaviour in Greek local governments. More precisely, it investigates whether municipality costs show stickiness or anti-stickiness behaviour after increases or decreases in the stream of their revenues.

Design/methodology/approach

The Anderson et al.’s (2003) approach is adapted to the public sector environment by using types of expenses and revenues typical to the local government setting. The data sample consists of 1,852 observations of Greek municipalities for the period 2002-2008.

Findings

The empirical evidence suggests that local government managers adjust resources related to administrative services faster when revenues decrease than when they rise (anti-stickiness cost behaviour). On the contrary, they adjust costs of service provision which are associated with core activities asymmetrically; more quickly for upward than for downward activity changes (cost stickiness behaviour).

Research limitations/implications

While prior studies examine the sticky cost phenomenon in the private sector, this study explores this phenomenon in the public sector through a data sample of municipalities. Local governments constitute an appealing and unique setting for the examination of asymmetric cost behaviour due to the existence of a strong political influence, which appears to affect rational economic decision making, and their non-profit character, which prevents them from acting in a business-like manner.

Practical implications

Understanding how cost stickiness works inside local understanding how cost stickiness works inside local governments, could lead to an understanding of its implications in periods of cutback measures. Decreases in municipalities’ subsidies and grants as a result of cutbacks in central government expenditures should not be expected to automatically result in symmetric savings in expenditures as corresponding increases in expenditures when revenues used to grow. At the same time, it might be difficult to achieve balanced budgets in municipalities when there is a considerable decrease in revenues, without having to make considerable adjustments to the input values, the output and the mix of services offered by them.

Originality/value

This study contributes to the accounting literature by expanding the understanding of how deliberate decisions influence the asymmetric cost behaviour in local governments, to different cost categories (administrative expenses and cost of service provision) and different revenue categories (grants, tax revenues and revenues from sales of goods and services).

Details

Journal of Applied Accounting Research, vol. 18 no. 4
Type: Research Article
ISSN: 0967-5426

Keywords

1 – 10 of 68