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1 – 10 of over 1000David Castillo-Merino, Josep Garcia-Blandon and Gonzalo Rodríguez-Pérez
This paper aims to examine the effects of the 2014 European regulatory reform on auditors’ activity, the audit outcome and the audit market, with a focus on the Spanish market.
Abstract
Purpose
This paper aims to examine the effects of the 2014 European regulatory reform on auditors’ activity, the audit outcome and the audit market, with a focus on the Spanish market.
Design/methodology/approach
The research is based on in-depth, semistructured interviews with partners of the main audit firms operating in the Spanish market. This qualitative approach provides a precise identification of the cause-effect relationships of the new measures introduced by the European audit regulation.
Findings
The findings indicate that, based on auditors’ opinions, the costs of the main regulatory changes outweigh the benefits. The European Union (EU) Audit Regulation imposes more demanding provisions, such as an extended auditor’s report, mandatory audit firm rotation, more banned nonaudit services and stricter quality controls, resulting in substantial side effects on audit activity and the audit market. This could undermine the objective of enhancing the quality of audit services.
Originality/value
To the best of the authors’ knowledge, this is the first study to analyze the effect of the 2014 EU regulatory reform on audit activity, audit market and audit outcome based on auditors’ perceptions. The findings may be of interest to academics, professionals and regulators alike, as they offer valuable insights for assessing the effectiveness of the new audit provisions. Additionally, the qualitative methodology used facilitates a causal analysis of the key elements introduced by the regulations, potentially paving the way for future research avenues.
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Gaetano Matonti, Giuseppe Iuliano and Orestes Vlismas
This study aims to explore the effects of intellectual capital (IC) on the occurrence of a modified audit opinion decision. The authors expect that high IC intensive firms are…
Abstract
Purpose
This study aims to explore the effects of intellectual capital (IC) on the occurrence of a modified audit opinion decision. The authors expect that high IC intensive firms are positively associated with the occurrence of a modified audit opinion since they are associated with an increased business risk and are more likely to exhibit issues concerning their financial health and stability.
Design/methodology/approach
Using a data sample of 423 listed firms from Greece, Italy, Spain and Portugal over a 10-year period, the authors estimated a logistic regression model to examine the effects of IC on the probability that a modified audit opinion is issued. The authors used organizational capital as a measure of a firm’s intensity on IC.
Findings
Empirical findings indicate a significant and positive relationship between the IC and the likelihood of a firm receiving a modified audit opinion decision.
Originality/value
This study expands prior literature by exploring the predictive ability of IC on the likelihood of a firm receiving a modified audit opinion decision.
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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.
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Fredrik Hartwig, Emil Hansson, Linn Nielsen and Patrik Sörqvist
The purpose of this study is to examine the relationship between auditing/non-auditing and accounting timeliness among Swedish private firms.
Abstract
Purpose
The purpose of this study is to examine the relationship between auditing/non-auditing and accounting timeliness among Swedish private firms.
Design/methodology/approach
This paper uses regression analysis to test the relationship between auditing and two measurements of timeliness; lead time and late filing. The sample consists of Swedish private firms.
Findings
This paper finds that audited firms, when compared with unaudited firms, are significantly less timely. Moreover, greater profitability was associated with more timeliness but only for audited firms. The results of this paper also show that firms being audited by a big 4 auditor are significantly timelier than firms being audited by a non-big 4 auditor.
Practical implications
The findings in this paper suggests that one aspect of accounting quality, timeliness, does not seem to benefit from auditing in a Swedish context. There is a debate about whether the threshold levels in Sweden should be raised so that more firms voluntarily can opt out of audit. Those opposing a raised threshold level claim that auditing has positive effects on accounting quality and consequently that a raised level would have adverse effects. The findings in this paper do not support such a claim.
Originality/value
Little is known about timeliness in private firms compared to public firms and this paper fills that void. Contrary to prior research, findings show that unaudited firms in a Swedish regulatory setting actually are timelier than their audited counterparts. This questions one of the (presumed) benefits of auditing and should stimulate more research on this issue.
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Credit Default Swap (CDS) trading alters equilibrium interactive monitoring of external corporate monitors due to a possible change in private lenders' incentive to monitor client…
Abstract
Purpose
Credit Default Swap (CDS) trading alters equilibrium interactive monitoring of external corporate monitors due to a possible change in private lenders' incentive to monitor client firms. This study explores how audit fees change in response to CDS trade initiation on client firms and how this effect is moderated by investor protection.
Design/methodology/approach
With 6,052 cross-country firm observations, the author conducts estimations in the systems dynamic general methods of moments framework.
Findings
The author documents that audit fees rise on average after CDS trade initiations with and/or without investor protection. Meanwhile, change in auditors' risk perception result in increased audit costs when CDS trade initiation and investor protection interact. The effect of CDS trading on audit fees remain after controlling for firm, audit, and auditor features are robust to different proxies of audit cost.
Practical implications
The need for firms in high investor protection jurisdictions to initiate CDS trade to implement policies in order to maximize their gains from investor protection activities to lessen the overall impact of any increased audit cost that may arise. Furthermore, CDS regulation may be strategically targeted to lessen the effect of increased audit costs on firms after initiation. This would ensure that the resulting increase in audit cost may not materially impact the cash or profitability position of such firms.
Originality/value
This study is distinct from previous ones by focusing on variation in private lenders incentive to monitor after CDS trade initiation after controlling for possible monitoring by short-term creditors. Given that monitoring is not costless for private lenders and CDS trading on their borrowers causes a change in this cost structure, the author documents how auditors react to such changes in incentive to monitor.
研究目的
信用違約互換交易會改變外部監督機制的均衡互動監測,這是因為私人貸款者去監控客戶公司的激勵可能有所改變。本研究擬探究審計費用如何改變,以應對向客戶公司進行的信用違約互換交易啟動;研究亦探討投資者保障、如何緩和上述的影響。
研究設計/方法/理念
我們透過6,052個穿越全國的企業觀察,進行了對系統動力廣義矩估計體系的估測。
研究結果
無論投資者保障存在與否,信用違約互換交易啟動必帶來審計費用一般的平均升高,我們已把這關聯記錄下來。同時,當信用違約互換交易啟動和投資者保障兩者互相影響時,審計員的風險認知的改變,是會導致審計費用增加的。若拔除公司和審計的影響,信用違約互換交易對審計費用的影響會保持不變;而且,就各個不同的審計費用代理權而言,審計員特點是牢固的。
實務方面的啟示
本研究的結果,確定了若公司屬高投資者保護管轄權的類別,則有需要去啟動信用違約互換交易來實施政策,其目的為能從投資者保障的行動中取得最大的收益,從而減弱審計費用的增加所帶來的全面影響。再者,信用違約互換的管理或許可戰略性地訂立目標,俾能減弱於啟動後,審計費用的上昇對公司帶來的影響;這或會確保審計費用的增加、不會對有關公司的貨幣頭寸或盈利狀況產生重大的影響。
研究的原創性/價值
本研究有別於從前的研究,因它的焦點在於短期債權人可能的監督的影響給拔除的情況下,在信用違約互換交易啟動後,以監督為目的私人貸款者激勵的變化。鑒於對私人貸款者來說,監督不是不需要成本的;而且,為他們的借貸者的信用違約互換交易會為這個成本結構帶來變化,我們記錄了審計員如何對以監督為目的的激勵的有關改變作出回應。
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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…
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.
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Tatiana Mazza, Stefano Azzali and Andrey Simonov
This study aims to examine whether national industry expertise in Italy is more dominant than local expertise. Prior studies from Australia, USA and UK show that audit fees for…
Abstract
Purpose
This study aims to examine whether national industry expertise in Italy is more dominant than local expertise. Prior studies from Australia, USA and UK show that audit fees for industry experts are priced at a higher premium at the local level than the national level. These countries have voluntary audit firm rotation, while Italy has mandatory audit firm rotation (MAFR). The authors predict that Italy has a stronger national than local level of industry expertise, to better retain and transfer industry expertise.
Design/methodology/approach
The authors compare audit fee premiums of national industry experts to local levels, using quantitative (multivariate tests) and qualitative (interviews) methodology.
Findings
Using hand-collected audit fees, the authors find that the audit fee premium for industry expertise is greater at the national level than the local level. The authors find corroborating results with audit hours. To provide further support, the authors conduct analysis for a neighboring country that does not have audit firm rotation. Using hand-collected data from Germany, the authors find that audit fee premiums from national industry expertise are no different from local industry expertise.
Originality/value
The present study study has theoretical and practical implications, for European Union countries, which recently adopted MAFR and for countries considering adoption in the future.
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The purpose of this paper aims to investigate the relationship between the audit firm's ethical climate and workplace bullying perceived by trainee auditors in Chinese audit firms.
Abstract
Purpose
The purpose of this paper aims to investigate the relationship between the audit firm's ethical climate and workplace bullying perceived by trainee auditors in Chinese audit firms.
Design/methodology/approach
An Ethical Climate Questionnaire and a Negative Acts Questionnaire are adapted from the existing organization studies and business ethics literature to fit in the audit firm context and are administered in a survey on 205 trainee auditors with a four-month long work placement in audit firms. SPSS is used in statistical analyses and tests.
Findings
This study confirms that some but not all types of organizational ethical climate significantly affect the perceived workplace bullying in audit firms. The results of testing for the relations between workplace bullying and ethical climate after breaking down workplace bullying into the work-related and person-related bullying sub-categories provide some different conclusions. Besides the impacts of the ethical climate on workplace bullying, this paper also finds out that trainee auditor's gender, the leader–subordinate gender difference, firm size and audit engagement team size are more likely to affect the perception of one or more of the bullying categories in audit firms.
Practical implications
This study implies some guidance for the audit firms to establish healthy ethical climates that can help them to recruit, train and retain young skilled auditing professionals.
Social implications
The findings of this study imply that a healthy ethical climate can help develop the audit profession and markets by deterring workplace bullying in audit firms.
Originality/value
This paper extends the organizational studies on the impact of the audit firm's organizational ethical climate on workplace bullying in the auditing profession. It also extends the gender roles in organization studies by stratifying the levels of workplace harassment.
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Manh Dung Tran, Khairil Faizal Khairi and Nur Hidayah Laili
The purpose of this paper is to investigate the differences of audit quality of financial statements among auditors, including Big 4 and non-Big 4 auditors.
Abstract
Purpose
The purpose of this paper is to investigate the differences of audit quality of financial statements among auditors, including Big 4 and non-Big 4 auditors.
Design/methodology/approach
By employing cross-sectional analysis of compliance (a proxy of audit quality) of goodwill impairment testing of listed firms in the context of Hong Kong, the variation of audit quality of financial statements of auditees has been shown.
Findings
Audit quality of Big 4 auditors is viewed to be higher than that of non-Big 4 audit firms and the homogeneity of audit quality among Big 4 auditors is not long accepted, but variation.
Practical implications
Even though unqualified opinions have been given on the auditors’ reports, the quality of financial statements audit is a skeptical issue because of the high level of non-compliance of goodwill impairment testing under International Financial Reporting Standards.
Originality/value
This study does emphasize the higher audit quality of financial statements of Big 4 auditors than that of non-Big 4 auditors and stresses the variation of audit quality among Big 4 auditors.
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Kim Ittonen, Emma-Riikka Myllymäki and Per Christen Tronnes
This paper focuses on bank audit committees and examines whether audit committee members who are former auditors are associated with the acquisition of audit and non-audit…
Abstract
Purpose
This paper focuses on bank audit committees and examines whether audit committee members who are former auditors are associated with the acquisition of audit and non-audit services from their former employers.
Design/methodology/approach
The study empirically examines a sample of large banks that are included in the S&P Composite 1500.
Findings
The paper reports significantly lower audit fees and a higher proportion of non-audit fees to total fees when the audit committee chair is an alumnus of the incumbent audit firm. Moreover, additional analysis reveals that these findings are stronger for banks with more earnings management.
Research limitations/implications
Overall, the findings indicate that audit firms might consider banks using their alumni as audit committee chairs to be less risky or easier to audit, thus requiring relatively less effort from the auditors. The reduced effort required to audit clients with audit firm alumni on their audit committees then has the effect of reducing the audit fees charged. Alternatively, their auditing experience and cognitive proximity might influence the assessment of the need for auditing or the ability to negotiate lower audit fees on the part of audit firm alumni.
Originality/value
This paper provides empirical evidence of the association between audit firm alumni in influential positions on an audit committee and fees paid to those audit firms in the banking industry. The findings contribute to the literature by suggesting that banks with affiliated former auditors chairing their audit committees not only have significantly lower audit fees but also a higher proportion is spent on non-audit services.
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