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1 – 10 of over 1000
Article
Publication date: 3 June 2021

Mahmoud Lari Dashtbayaz, Mahdi Salehi and Mahdi Hedayatzadeh

This study aims to assess the relationship between internal control weakness and different types of auditor opinions in fraudulent and non-fraudulent firms. The study's…

Abstract

Purpose

This study aims to assess the relationship between internal control weakness and different types of auditor opinions in fraudulent and non-fraudulent firms. The study's main objective is to investigate fraud in business firms and analyze internal controls and types of proposed opinions by the auditor about his desired firm. The outbreak of fraud in firms is of utmost importance to a broad spectrum of society. Internal controls and the auditor's role in preventing and detecting frauds should not be taken for granted.

Design/methodology/approach

The present study's statistical population includes 179 listed firms on the Stock Exchange selected as the study sample using the systematic elimination method during 2012–2019. As the study's dependent variable (the type of auditor’s opinion), research hypotheses were analyzed using the Logit regression model.

Findings

The results show that the relationship between internal control weakness and opinion type is significantly different in fraudulent and non-fraudulent firms. Moreover, the relationship between internal control weakness and type of auditor opinion in fraudulent firms and the relationship between internal control weakness and type of auditor opinion in non-fraudulent firms are significant.

Originality/value

By assessing the related literature, the authors have found no study to directly assess the comparative relationship between internal control weakness and the type of auditor opinion, which can be named as the main objective of the study.

Details

Journal of Financial Crime, vol. 29 no. 1
Type: Research Article
ISSN: 1359-0790

Keywords

Article
Publication date: 22 March 2011

Gopal V. Krishnan and Wei Yu

For more than 25 years auditing research has examined whether knowledge spillovers or synergies exist from the joint provision of audit and non‐audit services as well as…

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Abstract

Purpose

For more than 25 years auditing research has examined whether knowledge spillovers or synergies exist from the joint provision of audit and non‐audit services as well as whether the audit client benefits from knowledge spillovers. However, empirical evidence on knowledge spillover remains mixed and elusive. This article seeks to contribute to this debate, using a large sample covering both the pre‐ and the post‐Sarbanes‐Oxley Act (SOX) era. A post‐SOX focus can be potentially informative because SOX has fundamentally changed the mix of audit and non‐audit services that can be offered to audit clients.

Design/methodology/approach

A two‐stage least squares regression model is used to control for simultaneous bias due to the joint determination of audit and non‐audit fees. A panel dataset is also used.

Findings

A strong and significant negative relationship is found between audit fees and non‐audit fees. The results suggest that knowledge spillover flows from non‐audit to the audit side, as well as from the audit side to the non‐audit side. For the overall sample, a 1 percent increase in non‐audit fees is associated with a 0.59 percent decrease in audit fees. Similarly, a 1 percent increase in audit fees is associated with a 0.49 percent decrease in non‐audit fees.

Research limitations/implications

Though a comprehensive set of determinants of audit and non‐audit fees is used, it is possible that the model may not include some other unknown determinants of fees paid to auditors.

Practical implications

The study contributes to the debate on whether regulators should ban all non‐audit services. It is found that when the same audit firm performs both audit and non‐audit services, there are synergies, i.e. insight learned from performing one function helps the other.

Social implications

At the economy level, the findings suggest that cost savings, due to knowledge spillover, are partly passed on to the clients, particularly by Big 4 auditors.

Originality/value

The findings on the existence of knowledge spillover in the post‐SOX era are potentially informative to regulators, auditors, audit clients, and audit committee members.

Details

Managerial Auditing Journal, vol. 26 no. 3
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 11 September 2009

Ismail Adelopo

The purpose of this paper is to examine modelling issues in the research of the relationship between audit and non‐audit fees by comparing the outcome of a single‐equation…

752

Abstract

Purpose

The purpose of this paper is to examine modelling issues in the research of the relationship between audit and non‐audit fees by comparing the outcome of a single‐equation model of fees to the results of simultaneous equation model (SEM) of these interactions for a sample of UK listed companies and also by exploring the benefits of using a panel data approach.

Design/methodology/approach

The paper is an empirical analysis of audit and non‐audit fees for a sample of 2,072 UK companies. Three types of models, single linear equation, SEM and panel data, are compared and the strengths and weaknesses of each discussed.

Findings

The results indicate possible mis‐specification in the single linear equation model and the potential for simultaneous equation basis in the SEM. The panel data analysis confirms the findings of prior literature that there is a relationship between audit and non‐audit fees but statistically insignificant.

Research limitations/implications

The implication of these findings is that previously published findings on audit fees, which used single equation, may have overstated the case for a relationship between audit and non‐audit fees due to problems in the econometric models.

Practical implications

The issues addressed in this paper are very pertinent to a better understanding of the role of the auditor in the corporate environment. In particular, the findings are relevant to the debate on auditor independence and corporate governance.

Originality/value

The study contributes to knowledge of the behaviour of audit fees and non‐audit fees, cross‐sectionally and through time and the most appropriate models for describing that behaviour.

Details

Journal of Applied Accounting Research, vol. 10 no. 2
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 4 January 2008

Deborah Bloomfield and Joshua Shackman

The objective of the study is to provide empirical evidence of the impact of non‐audit services (NAS) as well as other auditor characteristics on auditor independence by…

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Abstract

Purpose

The objective of the study is to provide empirical evidence of the impact of non‐audit services (NAS) as well as other auditor characteristics on auditor independence by testing the relationship of NAS fees to the occurrence of financial statement restatements.

Design/methodology/approach

The authors tested whether firms that restate their financial statements have higher levels of total service fees or higher levels of NAS fees than non‐restatement firms. The testing also includes an examination of the relationship between the audit firm size and the audit firm industry specialization to financial statement restatements.

Findings

The study found only limited evidence to support the concept that firms with higher NAS fees are more likely to restate earnings, thereby casting doubt on the public perception that NAS impairs auditor independence and the legislative approval of Section 201 of the Sarbanes‐Oxley Act prohibiting external auditors from providing certain NAS to audit clients as necessary to preserve auditor independence. The study did find stronger evidence that the level of total fees paid to the audit firm is significant in the predictability of a restatement. In addition, the study also found stronger and more conclusive evidence of a negative association to audit firm industry specialization and a strong positive association to Big 5 audit firms.

Practical implications

Results demonstrate the necessity of regulations concerning NAS and conflict of interest.

Originality/value

This paper is an original contribution that demonstrates the importance of auditor characteristics over audit fees in predicting earnings management.

Details

Managerial Auditing Journal, vol. 23 no. 2
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 1 February 2002

David Lont

This paper examines the effect that the introduction of the FRS 9, the general disclosure standard in New Zealand, has on the level of disclosure of certain unspecified…

Abstract

This paper examines the effect that the introduction of the FRS 9, the general disclosure standard in New Zealand, has on the level of disclosure of certain unspecified operating expenses. Generally, a low level of operating expense disclosure was found with no overall improvement recorded after the introduction of FRS 9. In many cases, companies did not disclose any unspecified operating expenses. Firm size and overseas listing/ownership appeared to be positively associated with the disclosure of unspecified operating expenses. Most companies did disclose the mandatory expenses monitored (depreciation, audit and directors' fees). Commentary is provided on the inadequacy of the discretionary aspects of accounting standards such as FRS 9, and the inadequacy of regulatory enforcement. Given the move to international harmonisation, and the level of disclosure seemingly at odds with international practice, the adoption and enforcement of International Accounting Standard 1 (IAS 1) would provide a simple solution.

Details

Pacific Accounting Review, vol. 14 no. 2
Type: Research Article
ISSN: 0114-0582

Article
Publication date: 8 February 2022

Saeed Rabea Baatwah

In response to the users of financial statements’ need for better communication value from audit reports, auditors are required to expand the format and content of their…

Abstract

Purpose

In response to the users of financial statements’ need for better communication value from audit reports, auditors are required to expand the format and content of their reports. This paper aims to investigate the heterogeneity of key audit matters (KAM) for big4 audit firms.

Design/methodology/approach

Using a pool of 273 year-observations from the Omani capital market for the period 2016–2019, a quantile regression approach is adopted to achieve this purpose because it can provide a broader picture of this heterogeneity.

Findings

The results indicate that all types of big4 audit firms are associated with lower numbers of KAM. However, each big4 audit firm reports these KAM differently. Also, the results indicate heterogeneity in the number of KAM among the partners of each firm. Specifically, partners in some big4 audit firms show a significant association with fewer KAM while others are insignificant. Some partners of Ernst and Young show a positive association with a higher number of KAM. Overall, the results confirm the heterogeneity among auditors in styling their KAM disclosure.

Originality/value

There are crucial implications for various policymakers. This paper is the first to analyse KAM aspects at the partner level and use quantile regression to detect the effect of audit firms on KAM.

Details

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

Keywords

Book part
Publication date: 9 July 2018

Amitava Roy

A persistent and increasing pattern in cash holdings was notable in the aggregate behaviour of Indian corporations around the period from 2007–2008 to 2012–2013. Extant…

Abstract

A persistent and increasing pattern in cash holdings was notable in the aggregate behaviour of Indian corporations around the period from 2007–2008 to 2012–2013. Extant literature suggests that agency conflicts and financing frictions are important determinants of cash holdings. In this chapter the author aims to shed light on the role of corporate governance (CG) in the determination of cash holdings and examined how ownership structure, board and audit-related attributes (used as proxies for the nature of CG) impact cash holdings in the context of an emerging economy, like India. The author employed four different measures of cash and liquidity and 24 structural indicators of CG. Using principal component analysis, the author offers an exploratory inquiry into the dimensions of CG. Thereafter, multiple regression was used to delve into the association between cash holdings (the dependent variable) and CG. Using a sample of 58 top-listed companies the results revealed that the quality of firm-level CG is important in deciding corporate cash holdings. The author reported that firms with stronger CG tend to reduce cash balances and have higher capital expenditures, while in firms with entrenched managers having high cash reserves invest more in current assets. Firms also hold cash for financial flexibility and to take advantage of strategic opportunities as they present themselves. Parallel to this point is the fact that larger balances help firms to avoid uncertainty and hedge themselves against the difficulty of accessing external funds.

Details

Governance and Regulations’ Contemporary Issues
Type: Book
ISBN: 978-1-78743-815-6

Keywords

Article
Publication date: 1 March 2015

Anne-Mie Reheul, Tom Van Caneghem and Sandra Verbruggen

From 2006 onwards very large Belgian nonprofit organizations (NPOs) are legally required to appoint an external auditor. In this context we investigate whether auditor…

Abstract

From 2006 onwards very large Belgian nonprofit organizations (NPOs) are legally required to appoint an external auditor. In this context we investigate whether auditor choice in favor of a sector expert, being a higher quality auditor, is associated with NPOs’ expectations regarding several auditor attributes. We find that NPOs are more likely to choose a sector expert if they attach higher importance to an auditor’s client focus and relationship with management. NPOs are less likely to choose a sector expert if they care more about the practical execution of the audit. We provide recommendations for increasing the appeal of sector expertise as valuable auditor attribute. The resulting quality increase of NPOs’ financial statements and audit reports could benefit various stakeholders.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 27 no. 2
Type: Research Article
ISSN: 1096-3367

Article
Publication date: 30 October 2009

Santanu Mitra

The purpose of this paper is to examine the association between pervasiveness, severity, and remediation of internal control material weakness (ICMW) reported by the SEC…

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Abstract

Purpose

The purpose of this paper is to examine the association between pervasiveness, severity, and remediation of internal control material weakness (ICMW) reported by the SEC registrants pursuant to SOX Section 404 and audit fees.

Design/methodology/approach

The paper employs multivariate regression models for a sample of 854 firms that disclosed ICMW for the first time in 2004, 2005, or 2006, to investigate the empirical relationship of pervasiveness and severity of ICMW and its subsequent remediation with audit fees.

Findings

The analyses demonstrate that audit fees are significantly positively related to the severity (and pervasiveness) of ICMW in the years of ICMW disclosures and are significantly negatively related to the remediation of internal control weaknesses in the years when ICMW remediation took place. The test results further demonstrate that the remediation of systematic control weaknesses has a greater effect on reduction of audit fees compared to the remediation of nonsystematic (transaction/account related) control weaknesses, though the remediation of both systematic and nonsystematic control weaknesses is accompanied by audit fee declines.

Research limitations/implications

The study produces evidence on pricing audit services by incumbent auditors in response to the severity of internal material control weaknesses and their remediation in subsequent fiscal periods. Its results shed light on certain new aspects of audit fee determinants in the post‐SOX period by virtue of their implications that the pervasiveness and severity of internal control problems induce auditors to make an upward fee adjustment while their remediation has a moderating effect on pricing audit services.

Originality/value

The study's finding is a useful addition to the existing fee literature and is relevant for the post‐SOX world which experienced a structural change in financial accounting and auditing environment.

Details

Review of Accounting and Finance, vol. 8 no. 4
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 1 December 1996

Rocco R. Vanasco

Examines the role of professional associations, governmental agencies, and international accounting and auditing bodies in promulgating standards to foster auditor…

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Abstract

Examines the role of professional associations, governmental agencies, and international accounting and auditing bodies in promulgating standards to foster auditor independence domestically and abroad. Focuses specifically on the role played by the American Institute of Certified Public Accountants, the Institute of Internal Auditors (IIA), the Securities and Exchange Commission and the US Government Accounting Office. Also looks at other professional associations in banking, industry, and manufacturing sectors dealing with sensitive issues of auditors′ involvement in such matters as management advisory services, operating responsibilities, outsourcing, opinion shopping, auditor rotation, and other conflicts of interest which may impair auditor independence.

Details

Managerial Auditing Journal, vol. 11 no. 9
Type: Research Article
ISSN: 0268-6902

Keywords

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