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Article
Publication date: 5 October 2020

Hyoung Joo Lim and Dafydd Mali

Firm management has an incentive to improve credit ratings to enjoy the reputational and financial benefits associated with higher credit ratings. In this study, the…

Abstract

Purpose

Firm management has an incentive to improve credit ratings to enjoy the reputational and financial benefits associated with higher credit ratings. In this study, the authors question whether audit effort in hours can be considered incrementally increasing with credit ratings. Based on legitimacy theory, the authors conjecture that firms with higher credit ratings will demand higher levels of audit effort to signal audit and financial quality compared to firms with higher levels of credit risk.

Design/methodology/approach

The authors conduct empirical tests using a sample of Korean-listed firms using a sample period covering 2001–2015.

Findings

The results show that firms with higher credit ratings demand higher audit effort in hours compared to client firms with lower credit ratings. The authors interpret that firms with higher ratings (lower risk) demand higher levels of audit effort in hours to reduce information asymmetry and to demonstrate that financial reporting systems are robust based on audit effort signaling audit quality. The authors also interpret that firms with lower credit ratings do not have incentives to signal similar audit quality. The authors also capture the “Big4 auditor expertise” effect by demonstrating that client firms audited by nonBig4 auditors demand additional audit effort with increasing credit rating compared to Big4 clients.

Research limitations/implications

Audit effort is considered a signal of firm risk in the literature. This study’s results show evidence that audit effort is inversely related to firm risk.

Practical implications

The results show that audit hour information is informative and likely managed by firm stakeholders. Internationally, it is not possible to capture the audit demand of clients because listing audit hours on financial statements is not a rule. Given that audit hours can be considered informative, the authors believe that legislators could consider implementing a policy to mandate that audit hours be recorded on international annual reports to enhance transparency.

Originality/value

South Korea is one of few countries to list audit effort on annual reports. Therefore, the link between audit effort and credit ratings is unique in South Korea because it is one of few countries in which market participants likely monitor audit effort.

Details

Journal of Applied Accounting Research, vol. 22 no. 1
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 17 April 2009

Rani Hoitash and Udi Hoitash

Recent US reforms aimed at strengthening audit committees and their structure grant independent audit committees the responsibility to appoint, dismiss, and compensate…

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Abstract

Purpose

Recent US reforms aimed at strengthening audit committees and their structure grant independent audit committees the responsibility to appoint, dismiss, and compensate auditors. The purpose of this paper is to examine the association between audit committee characteristics and auditors' compensation and dismissals following the enactment of the Sarbanes Oxley Act (SOX).

Design/methodology/approach

A series of linear and logistic regression models were employed in a unique sample comprising of 2,393 observations.

Findings

It was observed that stronger audit committees demand a higher level of assurance and are less likely to dismiss their auditors. Further, an increase was found in auditor independence as measured by reduced board involvement and less dismissals following an unfavorable audit opinion. Overall results suggest that increased audit committee roles and independence after SOX contribute to auditor independence and audit quality.

Practical implications

This research has implications for regulators, auditors, boards and academics. The paper highlights that although all audit committees had to improve as a result of SOX, the remaining variation in audit committee characteristics continue to be important to the demand for auditor and audit quality.

Originality/value

This study is the first to consider the association between audit committee characteristics and its extended responsibilities after SOX.

Details

Managerial Auditing Journal, vol. 24 no. 4
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 30 September 2022

Mia Mahmudur Rahim, Sanjaya Chinthana Kuruppu and Md Tarikul Islam

This paper aims to examine the role of social auditing in legitimising the relationship between the buyer and supplier firms rather than strengthening corporate…

Abstract

Purpose

This paper aims to examine the role of social auditing in legitimising the relationship between the buyer and supplier firms rather than strengthening corporate accountability in the global supply chain.

Design/methodology/approach

Applying case study methodology and drawing on Suchman’s theory on societal legitimacy, it is argued that social audits are artefacts of legitimacy, and global firms dominate the buyer–supplier relationship across the supply chain. The analysis is based on data collected from different secondary sources, including Walmart’s corporate sustainability reports.

Findings

Using Walmart’s relationship with Tazreen Fashions Limited around the Tazreen factory fire incident as a case study, it explains that the practices which attempt to symbolically demonstrate accountability from social audits need to shift to a more continuous and sincere demonstration of accountability through the social audit process. For this to occur, the cognitive and pragmatic approaches that international buyers have previously used in auditing their supply firms’ social responsibility are no longer sufficient to achieve societal legitimacy. Instead, a moral turn needs to underpin the intentions and actions of these buyers to maintain legitimacy and demonstrate accountability across the supply industry in developing economies.

Originality/value

The findings of the study answer the questions raised in the extant literature about the expectation from social auditing and whether social auditing serves to ensure corporate accountability. The paper contributes to the policymaking discussion of how social auditing can be configured to include a legal provision to ensure that social auditing is not a parroting tool for corporations.

Details

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

Keywords

Article
Publication date: 21 November 2017

Hooi Ying Ng, Per Christen Tronnes and Leon Wong

Auditing is seasonal, with the majority of U.S. public companies having a December fiscal year-end. This results in an audit “busy season” and “off-season” with a…

Abstract

Auditing is seasonal, with the majority of U.S. public companies having a December fiscal year-end. This results in an audit “busy season” and “off-season” with a non-trivial seasonal impact on the pricing of audit services. We apply an economic framework that explains how audit seasonality affects both the magnitude and the price elasticity of audit demand and audit supply. We find that the audit busy season is associated with an audit fee premium of approximately 10% based on a meta-analysis of 97 analyses from 18 audit fee studies of U.S public companies. A meta-regression of the contextual differences in research design between studies reveals that examining only Big N attenuates the busy season effect size but does not eliminate it, and that the busy season effect size may be larger post-SOX.

Details

Journal of Accounting Literature, vol. 40 no. 1
Type: Research Article
ISSN: 0737-4607

Keywords

Article
Publication date: 8 March 2021

Radwan Hussien Alkebsee, Gao-Liang Tian, Muhammad Usman, Muhammad Abubakkar Siddique and Adeeb A. Alhebry

This study aims to investigate whether the presence of female directors on audit committees affects audit fees in Chinese listed companies. This study also investigates…

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Abstract

Purpose

This study aims to investigate whether the presence of female directors on audit committees affects audit fees in Chinese listed companies. This study also investigates whether the audit committee’s gender diversity moderates the relationship between the firm’s inherent situational factors (e.g. audit complexity and firm risk) and audit fees. Finally, this study investigates whether the effect of the audit committee’s gender diversity on audit fees varies with within-country institutional contingencies (e.g. state-owned enterprises [SOEs] vs non-SOEs and firms that are located in more developed regions vs firms that are located in less developed regions)

Design/methodology/approach

This study used the data of all A-share listed companies on the Shanghai and Shenzhen stock exchanges for the period from 2009 to 2015. The authors use ordinary least squares regression as a baseline methodology, along with firm fixed effect, Deference in Deference method, two-stage least squares regression, two-stage Heckman model and generalized method of moments models to control for the possible issue of endogeneity.

Findings

The study’s findings suggest that the presence of female directors on the audit committee improves internal monitoring and communication, which reduce the perceived audit risk and the need for assurances from external auditors. The results also suggest that female directors demand high-quality audits and further assurance from external auditors when the firm is more complex and riskier. In addition, the results suggest that within-country, institutional factors play significant role in shaping the governance role of gender-diverse audit committee.

Practical implications

The study contributes to the agency theory by providing evidence that the interaction between agency theory and corporate governance “board composition” generates an effective monitoring mechanism and contributing to the institutional theory by finding that role of female directors on audit committee varies from context to another. In addition, this study contributes to literature review of gender diversity in the boardroom by finding the economic benefit of having female directors on audit committee. Finally, this study has implications for policy-makers in promoting regulations to legalize women presence on the board, to external auditors in assessing control risk during planning the audit, to those who responsible for appointing audit committee members.

Originality/value

The authors extend earlier studies by providing novel evidence on the relationship between gender-diverse audit committees and audit fees in terms of both the supply- and demand-side perspectives; that female directors moderate the relationship between firm inherent situational factors (e.g. audit complexity and firm risk) and audit fees; and that the effect of audit committees’ gender diversity on audit fees varies with sub-national institutional contingencies.

Details

Managerial Auditing Journal, vol. 36 no. 1
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 29 January 2021

Yousuf Kamal

The purpose of this paper is to explore stakeholders' expectations in relation to corporate social responsibility (CSR)–related corporate governance practices. The paper…

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Abstract

Purpose

The purpose of this paper is to explore stakeholders' expectations in relation to corporate social responsibility (CSR)–related corporate governance practices. The paper aims to understand how stakeholders' expectations potentially translate into the disclosure of information about CSR-related corporate governance practices.

Design/methodology/approach

The evidence for this study was collected using semi-structured in-depth personal interviews with 18 stakeholders. These include representative of multinational buying companies who source garments from Bangladesh, international as well as local NGOs, news media personnel, senior government officials, trade union leaders and social audit firm.

Findings

This paper finds evidence of stakeholders' dissatisfaction with the disclosures of governance information which tended to be viewed as limited and symbolic in nature. It also finds an apparent disconnection between stakeholder expectations and corporate disclosures.

Originality/value

This paper finds an alternative media of disclosures, for communicating social responsibility related governance information to the stakeholders, which has so far, been neglected by the social accounting researchers.

Details

Asian Review of Accounting, vol. 29 no. 2
Type: Research Article
ISSN: 1321-7348

Keywords

Book part
Publication date: 15 September 2014

Stephanie D. Grimm and Sheneeta W. White

Section 404 of the Sarbanes–Oxley Act (SOX) altered the relationship between auditors and their clients by requiring an external audit of companies’ internal controls…

Abstract

Section 404 of the Sarbanes–Oxley Act (SOX) altered the relationship between auditors and their clients by requiring an external audit of companies’ internal controls. Regulatory guidance is interpreted and applied by external auditors to comply with SOX. The purpose of this paper is to apply service operations management theories and techniques to the internal control audit process to better understand the role regulatory guidance plays in audit services. We discuss service operations management theories that apply to the production of audit services and employ the operations management technique of simulation to examine the effects of a historical relationship between the client and the auditor, information sharing between the client and the auditor, and the auditor’s perceived risk of the client on the internal control audit process. The application of service operations management theories and the simulation results illustrate that risk and information sharing are key factors for the audit process. The results suggest the updated Public Company Accounting Oversight Board guidance from Auditing Standard 2 to Auditing Standard 5 appropriately increased audit effectiveness by encouraging risk-based judgments and information sharing. This paper merges accounting and service operations management research to examine the effects of regulatory guidance on the internal control audit process. The paper uses simulation to illustrate the importance of interpreting regulatory guidance and the specific effects of risk and information sharing on the internal control audit process.

Details

Research on Professional Responsibility and Ethics in Accounting
Type: Book
ISBN: 978-1-78441-163-3

Keywords

Article
Publication date: 20 September 2022

Mohammad Jasim Uddin, Fara Azmat, Yuka Fujimoto and Farhad Hossain

Despite considerable research and constant pressure from global media, exploitation has been a persistent problem in the Bangladeshi ready-made garment (RMG) supply chain…

Abstract

Purpose

Despite considerable research and constant pressure from global media, exploitation has been a persistent problem in the Bangladeshi ready-made garment (RMG) supply chain. Yet, the root causes of how and why exploitation still persists remain unexplored. This paper explores the reasons underlying the existence of exploitation in the RMG supply chain of Bangladesh using the theoretical lens of responsible capitalism.

Design/methodology/approach

Drawing on 98 interviews conducted at multiple levels of the RMG supply chain ecosystem, site visits, observation and archives, the authors unpack the underlying reasons for the existence of exploitation in Bangladeshi RMG supply chain.

Findings

Using the theoretical lens of responsible capitalism, the findings suggest the existence of exploitation as a multifaceted yet nuanced phenomenon that is a result of complex power dynamics, interdependency and interconnectedness of players at multiple levels of the supply chain. The authors extend responsible capitalism theory by adding local context as a key determinant for the RMG supply chain to be responsive, effective and sustainable. The authors further argue the need for a new business model in global supply chain that calls for a fundamental shift of businesses towards responsible capitalism via transformative actions at multiple levels for balancing power in relationships, generate profit with ethical integrity and take responsibility of the consequences of their actions.

Research limitations/implications

The authors use a contextualized case study of the RMG supply chain in Bangladesh using a critical realist approach. Although the use of contextualized case study has enabled better understanding of causal relationships between management practices and exploitation in the local context of Bangladesh, a quantitative approach to establish causality between different factors could be the focus of future research. The findings are specific to the context of Bangladeshi RMG supply chain and may have limited generalizability in other contexts. Further studies may build upon the findings to explore exploitation in RMG supply chain of other sectors and countries in the region and compare the findings to develop comprehensive understanding about the root causes of exploitation.

Practical implications

The findings call for a fundamental shift of business towards responsible capitalism via transformative actions of multiple players across different levels of the supply chains with managerial implications.

Originality/value

By drawing on empirical research, the authors provide a holistic perspective of responsible capitalism that is influenced by interactions and interconnectedness of players in multiple levels of the supply chain. The authors expand the responsible capitalism theory by adding local context as a key determinant that need to be considered for supply chains to be responsive, effective and sustainable.

Details

The International Journal of Logistics Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0957-4093

Keywords

Book part
Publication date: 17 April 2018

Yousuf Kamal

This chapter investigates the perceptions of social audit within the context of the garment companies of Bangladesh. The chapter highlights two recent incidents that…

Abstract

Purpose

This chapter investigates the perceptions of social audit within the context of the garment companies of Bangladesh. The chapter highlights two recent incidents that claimed the lives of about 1,300 garment workers in Bangladesh. Based on the fact that Western clothing brands use social audits before sourcing their products from Bangladesh, this chapter investigates if any real change happens as a result of the information provided in the social audit reports.

Methodology/approach

The insights were gathered through conducting personal interviews with managers of social audit firms, corporate managers and various stakeholders of the textile and garment companies of Bangladesh. This chapter used the accountability theory to understand the perceptions of social audit.

Findings

The chapter finds that different stakeholders have different perspectives regarding social audits. The high-profile catastrophes within the supply chain garment factories of Bangladesh provided evidence that social audits did not help prevent such catastrophes in a different socio-economic context. The results have revealed stakeholder dissatisfaction with the procedures and content of social audits. It also finds that there is an expectation gap between the preparers and users of social audit reports.

Practical implications

The insights provided in this chapter would benefit garment manufacturers of developing countries and relevant stakeholders to demonstrate more accountability while conducting a social audit.

Originality/value

This is the first known chapter investigating stakeholders’ perceptions of social audit within the context of a developing country. More importantly, it focuses on responsible corporate behaviour in a socially sensitive industry.

Article
Publication date: 13 April 2022

Michael Kend and Lan Anh Nguyen

The purpose of this exploratory study is to better understand the interactions between external auditors, their audit clients and audit regulators when considering the…

Abstract

Purpose

The purpose of this exploratory study is to better understand the interactions between external auditors, their audit clients and audit regulators when considering the supply of and demand for high-level audit technology. The authors examine the developed markets of Australia, New Zealand and the UK to better understand: how high-level audit technology has started to become embedded into existing audit spaces and any emerging issues this technology has created for the audit profession.

Design/methodology/approach

Through the theoretical lens of the socio-technical (ST) systems of innovation theory, the present study involved semi-structured interviews with 25 stakeholders in Australia and New Zealand from 2019 to 2020 and 21 stakeholders in the UK from 2016 to 2018.

Findings

Advancements are revitalizing the technologies of not only the external auditors and their firms but also of their audit clients. Although the audit model is changing, external auditors are reported to be reluctant to fully engage with new audit technologies. In this setting, the authors find audit rules are yet to become embedded in the objects or practices of ST systems and that keeping up with the pace of change for regulators and standard setters is a major challenge.

Practical implications

The findings of this study raise call for regulators to be more up to speed with these new technological changes, as audit standards need to be amended accordingly. Although the International Auditing and Assurance Standards Board deliberates, both clients and auditors need to lobby for specific audit data analytics regulations.

Originality/value

The present study provides perspectives about new audit practices that emerge due to high-level technological advancements and then embed themselves into existing audit spaces. The authors draw on several different stakeholder groups, not just the Big Four firms. The ST systems theoretical lens we adopt better helps us understand how audit firms at the organisational level are adapting to these new technological changes in existing audit spaces.

Details

Qualitative Research in Accounting & Management, vol. 19 no. 5
Type: Research Article
ISSN: 1176-6093

Keywords

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