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Book part
Publication date: 16 August 2014

Wayne Tervo, L. Murphy Smith and Marshall Pitman

This study examines the influence of firm management’s ethical “tone at the top” (tone) and the working relationship of an auditor with his/her supervisor (senior) on the…

Abstract

This study examines the influence of firm management’s ethical “tone at the top” (tone) and the working relationship of an auditor with his/her supervisor (senior) on the auditor’s propensity to engage in an unethical, dysfunctional auditor behavior (DAB). Findings indicate that environmental factors influence the staff auditor’s decision of whether or not to follow a course of action suggested by the supervisor that is contrary to both the audit program and generally accepted auditing standards (GAAS). Specifically, auditors are influenced by the tone that the partner sets for the firm and by the working relationship that the staff auditor has with the supervising senior auditor. The results of this research have ramifications for the auditing profession, as they identify specific factors outside of auditing standards and beyond an auditor’s moral reasoning capabilities that can influence the acceptance of unethical, dysfunctional behavior.

Details

Research on Professional Responsibility and Ethics in Accounting
Type: Book
ISBN: 978-1-78190-845-7

Keywords

Article
Publication date: 17 August 2021

Qiliang Liu, Lei Zhao, Li Tian and Jian Xie

This paper aims to investigate whether close auditor-client relationships affect audit quality over the tenure of the audit partner and the potential role of partner rotation in…

Abstract

Purpose

This paper aims to investigate whether close auditor-client relationships affect audit quality over the tenure of the audit partner and the potential role of partner rotation in mitigating this effect.

Design/methodology/approach

Using the Chinese mandatory audit partner rotation setting, the authors identify the existence of a close auditor-client relationship if the audit partner tenure with a client is larger than the audit firm tenure with that client. The sample period (1998–2009) is divided into voluntary and mandatory rotation periods when examining the effects of audit partner tenure on audit quality for the normal and close auditor-client relationship subsamples, respectively. The authors also conduct a propensity score matching analysis to address a selection issue.

Findings

The paper finds that under the voluntary partner rotation regime, audit quality decreases with audit partner tenure for the subsample with close auditor-client relationships, whereas this effect is not shown in the normal relationship subsample. However, audit quality no longer declines with audit partner tenure under the mandatory partner rotation regime.

Originality/value

This is the first study that directly examines the effect of audit partner tenure on audit quality associated with close auditor-client relationships under the voluntary and mandatory partner rotation regimes.

Details

Managerial Auditing Journal, vol. 36 no. 6
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 1 March 1996

Alan Reinstein and Thomas R. Weirich

Establishing an audit committee presumably strengthens the external auditor’s independence. Several studies have examined how audit committees affect the selection of the…

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Abstract

Establishing an audit committee presumably strengthens the external auditor’s independence. Several studies have examined how audit committees affect the selection of the company’s external auditor, negotiate audit fees and enhance the auditor’s independence. But what of the independence of the audit committee members themselves? Do audit committee members exhibit biases when they select their company’s auditors? The relationship between the entity’s external auditor and the audit committee member’s affiliated company’s auditors has not been examined. For example, are audit committee members prone to select or remain with audit firms with which they have developed a formal relationship within their own company? This study of 247 New York Stock Exchange firms finds significant relationships (at the 0.05 level of significance) between CPA firms selected by audit committees and by the CPA firm which audits the audit committee member’s own organization. Results indicate that audit committee members exhibit conscious or unconscious biases in their selection or retention of their companies’ auditors.

Details

Managerial Auditing Journal, vol. 11 no. 2
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 1 January 2007

Michael J. Meyer, John T. Rigsby and Jeff Boone

To examine whether auditor‐client relationships have an effect on the decision by an auditor to remove an audit qualification.

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Abstract

Purpose

To examine whether auditor‐client relationships have an effect on the decision by an auditor to remove an audit qualification.

Design/methodology/approach

The paper tracks the event history of a sample of firms from the issuance of a first time audit qualification for going concern and non‐going concern contingencies (initial qualification issued between 1983 and 1987, all pre Statement of Auditing Standard (SAS) 58) to the issuance of a clean opinion (up through 1995 when SAS 79 was issued). Attachment theory provides a theoretical framework for the variables analyzed and discrete time survival analysis is used as the statistical method in the analysis so as to evaluate each company year from the initial unclean opinion to the year a clean opinion is issued.

Findings

It is found that interpersonal and interorganizational attachment has a significant impact on those opinion decisions that require more auditor judgment (i.e. going concern).

Originality/value

This study examines the linkage between auditor tenure and audit quality in a broader context than has been examined to date. Using attachment theory for the foundation, auditor tenure can be viewed as but one measure of the attachment between auditors and clients. In this study, a number of measures of both interpersonal and interorganizational attachment between auditors and clients are included. Further, auditor opinion judgments are examined as a determinant of auditor quality. Finally, discrete‐time survival analysis is employed which allows the tracking of the entire event history from initial qualification to removal of the qualification, something not possible with most standard statistical techniques.

Details

Managerial Auditing Journal, vol. 22 no. 1
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 1 September 2023

Awni Rawashdeh

The advent of technology has propelled audit firms to incorporate AI-based audit services, bringing the relationship between audit clients and firms into sharper focus…

Abstract

Purpose

The advent of technology has propelled audit firms to incorporate AI-based audit services, bringing the relationship between audit clients and firms into sharper focus. Nonetheless, the understanding of how AI-based audit services affect this relationship remains sparse. This study strives to probe how an audit client's satisfaction with AI-based audit services influences their trust in audit firms. Identifying the variables affecting this trust, the research aspires to gain a deeper comprehension of the implications of AI-based audit services on the auditor-client relationship, ultimately aiming to boost client satisfaction and cultivate trust.

Design/methodology/approach

A conceptual framework has been devised, grounded in the client-company relationship model, to delineate the relationship between perceived quality, perceived value, attitude and satisfaction with AI-based audit services and their subsequent impact on trust in audit firms. The research entailed an empirical investigation employing Facebook ads, gathering 288 valid responses for evaluation. The structural equation method, utilized in conjunction with SPSS and Amos statistical applications, verified the reliability and overarching structure of the scales employed to measure these elements. A hybrid multi-analytical technique of structural equation modeling and artificial neural networks (SEM-ANN) was deployed to empirically validate the collated data.

Findings

The research unveiled a significant and positive relationship between perceived value and client satisfaction, trust and attitude towards AI-based audit services, along with the link between perceived quality and client satisfaction. The findings suggest that a favorable attitude and perceived quality of AI-based audit services could enhance satisfaction, subsequently augmenting perceived value and client trust. By focusing on the delivery of superior-quality services that fulfill clients' value expectations, firms may amplify client satisfaction and trust.

Research limitations/implications

Further inquiries are required to appraise the influence of advanced technology adoption within audit firms on client trust-building mechanisms. Moreover, an understanding of why the impact of perceived quality on perceived value proves ineffectual in the context of audit client trust-building warrants further exploration. In interpreting the findings of this study, one should consider the inherent limitations of the empirical analysis, inclusive of the utilization of Facebook ads as a data-gathering tool.

Practical implications

The research yielded insightful theoretical and practical implications that can bolster audit clients' trust in audit firms amid technological advancements within the audit landscape. The results imply that audit firms should contemplate implementing trust-building mechanisms by creating value and influencing clients' stance towards AI-based audit services to establish trust, particularly when vying with competing firms. As technological evolutions impinge on trustworthiness, audit firms must prioritize clients' perceived value and satisfaction.

Originality/value

To the researcher's best knowledge, no previous study has scrutinized the impact of satisfaction with AI-based audit services on cultivating audit client trust in audit firms, in contrast to past research that has focused on the auditors' trust in the audit client. To bridge these gaps, this study employs a comprehensive and integrative theoretical model.

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 2018

Bahaaeddin Ahmed Alareeni

This study aims to investigate the associations between audit firm attributes (i.e. audit firm size, non-audit services, auditor industry specialization and auditor-client tenure…

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Abstract

Purpose

This study aims to investigate the associations between audit firm attributes (i.e. audit firm size, non-audit services, auditor industry specialization and auditor-client tenure) and specific indicators of audit quality. It also aims to test whether these relationships are moderated by a set of other factors like legal system and US versus non-US settings.

Design/methodology/approach

The method of Hunter et al. (1982) is used as a meta-analysis technique to test the study hypotheses and achieve the study aims. A total of 71 published papers from 1992 to 2017 are included.

Findings

There are significant positive relationships between all audit firm attributes and audit quality. Additionally, the associations between all audit firm attributes and audit quality are moderated by proxies for audit quality. Furthermore, these associations are moderated by other variables, such as US and non-US studies, pre-SOX and post-SOX periods, the legal system, the strength of auditing and reporting standards and country classification (developed or developing country).

Research limitations/implications

The number of studies is insufficient for some variables, and therefore, the results should be interpreted with caution. In addition, the analyzed studies include several proxies, and thus, the number of studies is inadequate for the incorporation of other factors in the meta-analysis (e.g. audit firm experience and audit firm reputation).

Originality/value

This study contributes to audit quality research by providing empirical evidence of the associations between a specific set of audit firm attributes and audit quality using the meta-analysis method. More importantly, the study provides evidence on factors that moderate these associations.

Details

Managerial Auditing Journal, vol. 34 no. 1
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 7 July 2020

Mahdi Salehi

The purpose of this study is to investigate whether the political connections of companies are correlated with auditor selection, audit fees and abnormal audit fees.

Abstract

Purpose

The purpose of this study is to investigate whether the political connections of companies are correlated with auditor selection, audit fees and abnormal audit fees.

Design/methodology/approach

The research data contains 756 observations of companies listed on the Tehran Stock Exchange during 2011-2019. In this study, the relationship between companies with political relationships and the selection of a qualified auditor, audit fees and abnormal audit fees are reviewed. The regression used for test the hypotheses.

Findings

The results of hypotheses testing indicate that there is a positive and significant correlation between the political relationships of companies and certified auditor selection, auditing fees and abnormal audit fees. In addition, the political relationships of companies have a significant and inverse effect on the relationship between institutional ownership and auditing fee and abnormal audit fees. It was also found that there is a positive and significant correlation between companies and political relationships and abnormal audit fees.

Originality/value

So far several studies conducted on audit fees, however, no study conducted on the relationship of political relationship of the companies with audit fees and the results of the current study may bridge the gap in the current field.

Details

Journal of Financial Crime, vol. 27 no. 4
Type: Research Article
ISSN: 1359-0790

Keywords

Article
Publication date: 8 February 2022

Niels van Nieuw Amerongen, Erdi Coskun, Joost van Buuren and Hans B. Duits

The purpose of this paper is gaining more insight into the impact of the strength of the auditor–client relationship on the client’s perceptions about added-value of the auditor…

Abstract

Purpose

The purpose of this paper is gaining more insight into the impact of the strength of the auditor–client relationship on the client’s perceptions about added-value of the auditor service including the role of auditor tenure.

Design/methodology/approach

This study is based on both archival data (auditor tenure) and interview data (strength of the auditor–client relationship and client’s perceptions on added-value). The data comprise 497 small- and medium-sized entity (SME) audit engagements in The Netherlands.

Findings

This study finds evidence of a positive relationship between the strength of the auditor–client relationship and client’s perceptions on added-value. The data do not suggest a main effect of auditor tenure on client’s perceptions on added-value. This study finds evidence that auditor tenure, combined with the strength of the auditor–client relationship, has a strong positive influence on the perceived added-value. Therefore, this study argues that a longer tenure turns out to positively influence the auditor’s client-specific knowledge. The findings are relevant to auditing research by extending the scope of application of social exchange theory (SET) to SME settings, and by suggesting that the auditor–client relationship may capture more an audit quality dimension than auditor tenure. Findings are also relevant for audit practitioners in showing the contribution of a strong auditor–client relationship to client satisfaction in terms of perceived added-value. Standard setters may consider the results of this study in proper designing a specific auditing standard for smaller, less complex entities.

Originality/value

This study fits into a development in auditing research where auditing is viewed as a service. Prior studies in this area were mainly build on marketing concepts (e.g. Grönroos 2007). This study uses a sociological lens, particularly building on SET. In particular, this study focuses on the impact of relationship quality on perceived added value. Using this perspective sheds light on the importance of interactions between auditors and their clients. Both the product (audit opinion) and the process of collecting sufficient appropriate audit evidence in interaction with the client are important. This relationship perspective may serve as an explanation to why long auditor tenure can turn out to improve audit quality. Future research may build on this sociological perspective and particularly examine what conditions need to be present to realize benefits of the relationship approach and when a more transactional approach is more suitable.

Details

Managerial Auditing Journal, vol. 37 no. 3
Type: Research Article
ISSN: 0268-6902

Keywords

Book part
Publication date: 28 December 2006

Joni J. Young

Auditor independence is a construct that has been, and continues to be, connected to the credibility of financial statements and the effective functioning of capital markets…

Abstract

Auditor independence is a construct that has been, and continues to be, connected to the credibility of financial statements and the effective functioning of capital markets. Given the important role assigned to independence by various regulators including the Securities and Exchange Commission (SEC), its appearance as a recurring issue of concern and debate is unsurprising. Concerns about auditor independence in the context of various accounting scandals, such as Enron and WorldCom, contributed to the enactment of changes in the institutional arrangements for regulating auditors and renewed efforts to enhance auditor independence. Rather than continuing with perhaps futile efforts to achieve independence, I argue that we need to re-evaluate the utility of this concept as a guide to regulating audit practices. Independence, with its connotations of an unachievable autonomy and linkage of professionalism to an unobservable mind-state, may hinder, rather than aid, the audit purpose for SEC registrants – the mitigation of aggressive financial reporting. Independence as autonomy is impossible within an environment in which management pays for the audit, hires and fires the auditor, and is the primary contact for auditors. Rather than searching for ways to make the auditor “more” independent, I discuss changing the focus of regulatory attention to an open examination of and emphasis upon the relationality of auditing practice. This change in perspective requires us to examine the various relationships in which auditors are embedded and to assess whether these are more or less likely to encourage the auditor/audit firm to fulfill the purpose of an audit. I specifically explore three categories of relationshipsrelationships with the auditee, relationships with the audit committee and relationships with the audit firm. I also examine how this focus on relationships may contribute to our thinking about policy decisions relevant within the current audit environment, including assessing the likely impacts of consulting and personal relationships with auditees, ways to put a “face” on the public and assessing the compensation and marketing practices of accounting firms.

Details

Independent Accounts
Type: Book
ISBN: 978-0-76231-382-2

Article
Publication date: 28 February 2023

Iman Shaat, Husam Aldamen, Kim Kercher and Keith Duncan

The paper examines the relationship between board effectiveness and audit fees for state-owned enterprises (SOEs). Furthermore, given the unique nature of SOEs, the paper assesses…

Abstract

Purpose

The paper examines the relationship between board effectiveness and audit fees for state-owned enterprises (SOEs). Furthermore, given the unique nature of SOEs, the paper assesses country-level influences, such as economic freedom, political democracy and protection of minority shareholders, which can impact board effectiveness and audit fees.

Design/methodology/approach

A combination of two-stage and ordinary least squares regression is used to examine the board characteristics-audit fee relationship for SOEs in a multinational setting during the period from 2016 to 2018.

Findings

The results indicate that board characteristics that represent a high level of effectiveness are associated with higher audit fees in SOEs. Furthermore, the findings suggest SOE's operating in countries evidencing medium levels of democracy and economic freedom and medium to high levels of protection of minority shareholders may be motivated to reduce agency conflicts by promoting accountability and transparency, thereby demanding increasing levels of corporate governance, monitoring and audit quality, thereby increasing audit fees.

Practical implications

The results provide further support for the OECD (2015) guidelines promoting the use of high-quality external audits in SOEs.

Originality/value

As a result of the scarceness of research in this area, the current study extends the literature by examining the role of corporate governance and audit fees in SOEs, while examining the influence of economic freedom, political democracy and protection of minority shareholders.

Details

Asian Review of Accounting, vol. 31 no. 3
Type: Research Article
ISSN: 1321-7348

Keywords

1 – 10 of over 41000