Search results

1 – 10 of over 1000
Article
Publication date: 15 February 2024

Amon Bagonza, Chen Yan and Frederik Rech

This paper aims to examine whether the audit committee moderates the relationship between audit quality and market reactions.

Abstract

Purpose

This paper aims to examine whether the audit committee moderates the relationship between audit quality and market reactions.

Design/methodology/approach

Using fixed effects and the GMM model for robustness, the study used 472 publicly listed firms on South Africa’s Johannesburg stock exchange spanning a period of six years from 2014 to 2019.

Findings

Results obtained show that audit quality impacts market reactions through share price and adjusted market returns. And, that the audit committee moderates the relationship between audit quality and market reactions in South Africa’s publicly listed firms. An effective audit committee is expected to play a crucial role in overseeing the audit process, ensuring the independence of auditors and promoting transparency and accountability which in turn impacts asset prices.

Research limitations/implications

The study implies that governments and regulatory bodies in other developing economies could strengthen regulations about companies’ Acts, how firms regulate themselves and more so audit committees. Firms can also strive to make sure that audit committees are staffed with experts to promote higher audit quality and investor attention to get access to the much-alluded capital.

Originality/value

To the best of the authors’ knowledge, the study adds value by being the first to explore the subject matter of the importance of audit committees in defining audit quality and market reactions in publicly listed firms. The research adds to the body of knowledge on corporate governance and audit quality. It provides a case study specific to the South African context, contributing to the global literature on these topics.

Details

Journal of Accounting & Organizational Change, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1832-5912

Keywords

Article
Publication date: 9 January 2024

Meltem Altin

The purpose of this study is to investigate the impact of audit committee characteristics on firm performance. In particular, the authors employ the random-effects variant of the…

Abstract

Purpose

The purpose of this study is to investigate the impact of audit committee characteristics on firm performance. In particular, the authors employ the random-effects variant of the Hunter–Schmidt meta-analyze procedure to analyze the effects of key audit committee attributes, namely audit committee independence, audit committee expertise, audit committee size, audit committee meeting along with big four impact on firm performance. The authors hope to gain a better understanding of the function of audit committees in enhancing firm performance and to uncover potential discrepancies in prior findings due to varying economic levels or performance metrics.

Design/methodology/approach

This study uses the Hunter–Schmidt method to conduct a meta-analysis of 39 previous studies published between 2012 and 2022 to investigate the relationship between audit committee characteristics and firm performance.

Findings

The results indicate that audit committee independence, expertise, size and affiliation with the big four have a significant and positive effect on firm performance, while audit committee meetings have a non-significant effect. Furthermore, findings suggest that companies should carefully consider the contextual factors that may impact the effectiveness of their corporate governance structures, such as economic level, when designing and implementing governance mechanisms.

Originality/value

This study is significant as it is the first to combine and analyze previous research on this topic and highlights the importance of certain audit committee characteristics in enhancing financial reporting quality and corporate governance.

Details

Management Decision, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0025-1747

Keywords

Article
Publication date: 6 February 2024

Mawih Kareem Al Ani, Faris ALshubiri and Habiba Al-Shaer

This study aims to examine whether firms that appear to exhibit high sustainable outputs are more likely to pay higher audit fees than firms without such outputs.

Abstract

Purpose

This study aims to examine whether firms that appear to exhibit high sustainable outputs are more likely to pay higher audit fees than firms without such outputs.

Design/methodology/approach

The sustainability outputs are measured using a sustainable product portfolio consisting of four products: clean energy products, eco-design products (EDP), environmental products (EP) and sustainable building projects (SBP). The audit fee variable is measured by the natural logarithm of the total amount of audit fees. The study tests two models of the association between these outputs and audit fees; Model 1 tests this association in the absence of the moderating variable (sustainability committee), and Model 2 tests the association in the presence of the moderating variable.

Findings

An analysis of data on 261 European firms from the Refinitiv Eikon database from 2010 to 2019 shows that high sustainability outputs are significantly and positively associated with audit fees. More importantly, this association is moderated by the presence of a board-level sustainability committee, suggesting that this type of committee reflects a factor considered by auditors in their audit risk assessment practices. The findings indicate that in Model 1, one (EP) out of four variables has a significant and positive association with audit fees, while in Model 2 and in the presence of sustainability committee, two variables (EP and EDP) have a significant and negative association with audit fees. However, the robust analysis shows that three variables (EP, EDP and SBP) have significant and negative associations with audit fees.

Practical implications

The study findings have important implications for policymakers, auditors and firms’ managers. For policymakers, the findings provide support for the argument that sustainable attitudes incentivise firms to manage sustainable product profiles more effectively. As such, policymakers should incentivise firms to establish a sustainability committee and regulate its role and responsibilities. Auditors should coordinate with the sustainability committee to facilitate audit efforts and reduce audit fees.

Social implications

Understanding the relationship between sustainable products and audit fees will allow firms to improve their portfolio of sustainable products. In addition, other social implications of this study relate to improving relationships with society by establishing a sustainability committee that is responsible to communicate with that society.

Originality/value

The results support the argument that firms should manage sustainable product portfolios more effectively. In addition, the results of the study highlight the importance of a new variable as a moderator, the sustainability committee, which has not been examined before.

Details

Sustainability Accounting, Management and Policy Journal, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2040-8021

Keywords

Open Access
Article
Publication date: 5 January 2024

Jesper Haga and Kim Ittonen

This paper examines the organizational resilience of audit firms during the early stages of COVID-19. The unexpected restrictions placed on travel and on-site working created…

Abstract

Purpose

This paper examines the organizational resilience of audit firms during the early stages of COVID-19. The unexpected restrictions placed on travel and on-site working created unanticipated barriers for auditors in Hong Kong. The authors expect that auditors with greater organizational resilience can respond to unexpected situations and restore expected performance levels relatively quickly.

Design/methodology/approach

The authors utilize a sample of 1,008 companies listed on Hong Kong Stock Exchange (HKEX) with a financial year-end of December 31. The authors identify five proxies contributing to organizational resilience: auditor size, industry specialization, diversity, geographic proximity to the client and auditing a new client. The authors use audit report timeliness as this study's main dependent variable.

Findings

This study's full-sample results suggest that larger auditors, industry specialists and auditors with closer relationships to clients issued more timely audit reports during the pandemic. The analysis of a subsample of companies that initially published unaudited financial statements reveals that industry expertise and longer auditor-client relationships significantly reduced the need for year-end audit adjustments. Finally, the authors find that larger auditors were more likely to offload clients, whereas industry specialists were more likely to retain clients.

Research limitations/implications

The results of the paper suggests that audit firm characteristics associated cognitive abilities, behavioral characteristics and contextual conditions are associated with audit firm organizational resilience and, consequently, helps auditors respond unexpected changes in the audit environment.

Practical implications

The findings of the paper are informative for those involved in audit firm management or auditor hiring and retention decisions.

Originality/value

This study is the first to link organizational resilience to the performance of audit firms in a time of unexpected events. The authors connect three auditor and two auditor-client dimensions to the organizational resilience of the audit firms.

Details

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

Keywords

Article
Publication date: 21 December 2023

Meena Subedi

The current study uses an advanced machine learning method and aims to investigate whether auditors perceive financial statements that are principles-based as less risky. More…

Abstract

Purpose

The current study uses an advanced machine learning method and aims to investigate whether auditors perceive financial statements that are principles-based as less risky. More specifically, this study aims to explore the association between principles-based accounting standards and audit pricing and between principles-based accounting standards and the likelihood of receiving a going concern opinion.

Design/methodology/approach

The study uses an advanced machine-learning method to understand the role of principles-based accounting standards in predicting audit fees and going concern opinion. The study also uses multiple regression models defining audit fees and the probability of receiving going concern opinion. The analyses are complemented by additional tests such as economic significance, firm fixed effects, propensity score matching, entropy balancing, change analysis, yearly regression results and controlling for managerial risk-taking incentives and governance variables.

Findings

The paper provides empirical evidence that auditors charge less audit fees to clients whose financial statements are more principles-based. The finding suggests that auditors perceive financial statements that are principles-based less risky. The study also provides evidence that the probability of receiving a going-concern opinion reduces as firms rely more on principles-based standards. The finding further suggests that auditors discount the financial numbers supplied by the managers using rules-based standards. The study also reveals that the degree of reliance by a US firm on principles-based accounting standards has a negative impact on accounting conservatism, the risk of financial statement misstatement, accruals and the difficulty in predicting future earnings. This suggests potential mechanisms through which principles-based accounting standards influence auditors’ risk assessments.

Research limitations/implications

The authors recognize the limitation of this study regarding the sample period. Prior studies compare rules vs principles-based standards by focusing on the differences between US generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS) or pre- and post-IFRS adoption, which raises questions about differences in cross-country settings and institutional environment and other confounding factors such as transition costs. This study addresses these issues by comparing rules vs principles-based standards within the US GAAP setting. However, this limits the sample period to the year 2006 because the measure of the relative extent to which a US firm is reliant upon principles-based standards is available until 2006.

Practical implications

The study has major public policy suggestions as it responds to the call by Jay Clayton and Mary Jo White, the former Chairs of the US Securities and Exchange Commission (SEC), to pursue high-quality, globally accepted accounting standards to ensure that investors continue to receive clear and reliable financial information globally. The study also recognizes the notable public policy implications, particularly in light of the current Chair of the International Accounting Standards Board (IASB) Andreas Barckow’s recent public statement, which emphasizes the importance of principles-based standards and their ability to address sustainability concerns, including emerging risks such as climate change.

Originality/value

The study has major public policy suggestions because it demonstrates the value of principles-based standards. The study responds to the call by Jay Clayton and Mary Jo White, the former Chairs of the US SEC, to pursue high-quality, globally accepted accounting standards to ensure that investors continue to receive clear and reliable financial information as business transactions and investor needs continue to evolve globally. The study also recognizes the notable public policy implications, particularly in light of the current Chair of the IASB Andreas Barckow’s recent public statement, which emphasizes the importance of principles-based standards and their ability to address sustainability concerns, including emerging risks like climate change. The study fills the gap in the literature that auditors perceive principles-based financial statements as less risky and further expands the literature by providing empirical evidence that the likelihood of receiving a going concern opinion is increasing in the degree of rules-based standards.

Open Access
Article
Publication date: 5 July 2023

Javad Rajabalizadeh

While existing research explores the impact of audit market competition on audit fees and audit quality, there is limited investigation into how competition in the audit market…

1484

Abstract

Purpose

While existing research explores the impact of audit market competition on audit fees and audit quality, there is limited investigation into how competition in the audit market influences auditors' writing style. This study examines the relationship between audit market competition and the readability of audit reports in Iran, where competition is particularly intense, especially among private audit firms.

Design/methodology/approach

The sample comprises 1,050 firm-year observations in Iran from 2012 to 2018. Readability measures, including the Fog index, Flesch-Reading-Ease (FRE) and Simple Measure of Gobbledygook (SMOG), are employed to assess the readability of auditors' reports. The Herfindahl–Hirschman Index (HHI) is utilized to measure audit market competition, with lower index values indicating higher auditor competition. The concentration measure is multiplied by −1 to obtain the competition measure (AudComp). Alternative readability measures, such as the Flesch–Kincaid (FK) and Automated Readability Index (ARI) are used in additional robustness tests. Data on textual features of audit reports, auditor characteristics and other control variables are manually collected from annual reports of firms listed on the Tehran Stock Exchange (TSE).

Findings

The regression analysis results indicate a significant and positive association between audit market competition and audit report readability. Furthermore, a stronger positive and significant association is observed among private audit firms, where competition is more intense compared to state audit firms. These findings remain robust when using alternative readability measures and other sensitivity checks. Additional analysis reveals that the positive effect of competition on audit report readability is more pronounced in situations where the auditor remains unchanged and the audit market size is small.

Originality/value

This paper expands the existing literature by examining the impact of audit market competition on audit report readability. It focuses on a unique audit market (Iran), where competition among audit firms is more intense than in developed countries due to the liberalization of the Iranian audit market in 2001 and the establishment of numerous private audit firms.

Details

Asian Review of Accounting, vol. 32 no. 1
Type: Research Article
ISSN: 1321-7348

Keywords

Article
Publication date: 31 May 2023

Md Jahidur Rahman, Hongtao Zhu and Xinyi Jiang

This study aims to investigate whether auditors compromise their independence for economically important clients in family business settings.

Abstract

Purpose

This study aims to investigate whether auditors compromise their independence for economically important clients in family business settings.

Design/methodology/approach

The authors empirically examine the research question based on China for the years 2011 to 2020. The dependent variable is the auditors’ propensity to issue modified audit opinions, which is a proxy for auditor independence. The authors use relative client audit fees as a proxy for client importance. To address endogeneity issues in the selection of family firms, the authors use the two-stage least squares regression model and, subsequently, the propensity score matching and Hausman firm fixed effect modeling.

Findings

This study reveals that the propensity to issue modified audit opinions is positively correlated with client importance. Big-N auditors are more likely to issue modified audit opinions for their economically important family firm clients, whereas such evidence is not found for non-Big-N auditors. Results are consistent and robust to endogeneity test and sensitivity analysis.

Originality/value

This study enriches the literature on auditor independence and the effect of family firms’ ownership structure factors on audit reporting behavior for their economically important clients. Findings may prove useful for managers and practitioners interested in family business.

Details

Meditari Accountancy Research, vol. 32 no. 2
Type: Research Article
ISSN: 2049-372X

Keywords

Article
Publication date: 21 June 2023

Sattar Khan and Yasir Kamal

This paper aims to examine whether family business groups’ (FBG) having the same network auditor among their affiliates mitigates earnings manipulation (EM).

Abstract

Purpose

This paper aims to examine whether family business groups’ (FBG) having the same network auditor among their affiliates mitigates earnings manipulation (EM).

Design/methodology/approach

This paper used unbalanced panel data from the years 2010–2019. The sample of the study is composed of 327 nonfinancial listed Pakistan Stock Exchange firms, consisting of 187 FBG-affiliated firms and 140 nonaffiliated firms. The ordinary least square and generalized least square regressions have been used to check the hypothesized relationship. Furthermore, the propensity score matching technique is used to ascertain comparable companies’ features and to control the potential endogeneity problem. Finally, the results are robust to various measures of EM and FBG’ proxies.

Findings

The findings of the study show that the same network auditor is reducing EM in FBG affiliates. In addition, the BIG4 same network auditors are also instrumental in constraining EM as compared to non-BIG4 audit firms. Overall, the results of this study depict that the same network auditor in FBG’s affiliated firms significantly influences EM. These results are robust with respect to generalized least squares and the endogeneity problem.

Research limitations/implications

This research study has two important implications for the interested parties. First, although the authors find in this research study that the same network auditor is negatively associated with EM in the FBG-affiliated firms, however, FBG-affiliated firms might use opportunistically the real activity manipulation. Second, regulators highlight the change in audit partner/firm rotation, though the study findings indicate that regulators and practitioners may consider the benefits associated with the same network auditors for FBG.

Originality/value

This research study adds a new investigation to previous literature by examining the role of the same network auditors in the EM of the FBG’ affiliates. To the best of the author’s knowledge, this is the first study to bring new knowledge by investigating the role played by the same network auditors along with the BIG4 same network audit firms in constraining EM in FBG.

Details

Corporate Governance: The International Journal of Business in Society, vol. 24 no. 1
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 23 January 2024

Md Jahidur Rahman, Hongtao Zhu, Yiling Zhang and Md Moazzem Hossain

This study aims to investigate whether gender diversity in audit committees affects the purchase of nonaudit services in China. Results from family and nonfamily firms are…

Abstract

Purpose

This study aims to investigate whether gender diversity in audit committees affects the purchase of nonaudit services in China. Results from family and nonfamily firms are compared and the critical mass participation of females are further examined.

Design/methodology/approach

The sample comprises 1,834 Chinese listed companies from 2012 to 2021, among which 910 are family firms. The Heckman (1979) two-stage model is used to mitigate the potential endogeneity issue in the selection of gender diversity. Propensity score matching is also used to further alleviate the endogeneity problem in relation to family firms.

Findings

Results show a significant and negative correlation between the gender diversity in audit committees and nonaudit service fees. This association is more apparent in nonfamily than in family firms. Findings are consistent and robust to endogeneity tests and sensitivity analyses. The analysis of critical mass and symbolic participation shows that three female directors can more significantly restrain nonaudit fees than one to two females on the board.

Practical implications

This study contributes to literature on resource dependence theory, which posits that audit committees help enterprises establish contact with auditors, improve the company legitimacy, assist in communication and provide relevant expertise. This study also relates to agency theory, which holds that differences in the severity of types I and II agency problems between family and nonfamily firms lead to differences in auditor selection and related costs.

Originality/value

Extending from previous research on the relation between the gender diversity in audit committees and nonaudit fees, the present study delves into this connection within the context of China, an emerging economy. As a result, this investigation offers novel insights and expands upon current knowledge. In addition, the correlation between the gender diversity of audit committees and nonaudit fees is explored for family and nonfamily firms.

Details

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

Keywords

Article
Publication date: 9 February 2024

Jorien Louise Pruijssers

In a rapidly changing career landscape where lifelong job security is no longer guaranteed, this study investigates how audit firms play an important role in shaping their…

Abstract

Purpose

In a rapidly changing career landscape where lifelong job security is no longer guaranteed, this study investigates how audit firms play an important role in shaping their employees’ career perceptions and the subsequent effects on auditor behavior. Specifically, it explores the link between audit firms’ career development initiatives and auditors’ perceptions of external employability – an important determinant of auditor behavior. Using the framework of social exchange theory, the study investigates how perceived external employability affects both relational and operational behaviors of auditors.

Design/methodology/approach

The study employs structural equation modeling on survey data from 359 auditors.

Findings

The results indicate that when audit firms actively support career development, it positively contributes to auditors’ perceived external employability. A higher perceived external employability, in turn, leads to positive behavioral outcomes among auditors, including stronger relational behaviors (such as professional commitment) and operational behaviors (including heightened professional skepticism and reduced behaviors that could compromise audit quality).

Originality/value

This study uncovers a paradox where perceived external employability, typically viewed as a risk, emerges as a potent driver of desirable auditor behavior. In today’s dynamic career landscape, emphasizing individual-centered and flexible careers, these results highlight the benefits of perceived external employability. Rather than undermining audit services, increased perceived external employability driven by firm investments in auditors’ careers acts as a catalyst for desirable auditor behavior. Organizational support in terms of career development practices creates an environment where auditors are more committed, professionally skeptical and uphold the quality of audit services.

Details

Journal of Accounting Literature, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0737-4607

Keywords

1 – 10 of over 1000