Search results

This study aims to examine the effects of agency cost on auditor choice. This paper also deals with the moderating role of the board’s financial expertise (Bfe) and the status of the internal control (Intecon) system on the relationship between agency cost and auditor selection.

This study’s sample consists of 1,040 firm-year observations of Iranian nonfinancial companies listed on the Tehran Stock Exchange from 2012 to 2019. The information required for this research is mainly extracted from Comprehensive Database of All Listed Companies (in Iran Stock Exchange). Data from 130 companies were obtained during the research period. This study used logistic regression to test the hypotheses.

The findings indicate that companies with higher agency costs choose the auditor from lower classes. As the proportion of financial expert members on the board increases, the intensity of this relationship will be reduced. Companies with higher agency costs choose the auditor from the lower classes, but the higher the ratio of financial expert board members, the more these companies will choose high-quality auditors. However, findings showed that the status of the Intecon system has no moderating effect on the relationship between agency costs and auditor selection.

The results of this study can expand the existing literature on the relationship between auditor selection and agency costs and the factors affecting this relationship, especially the Bfe and Intecon. This research has significant suggestions for regulators, stakeholders, shareholders and analysts in emerging economies that may encounter similar contextual implications.

This study aims to examine the Taiwan setting, where audit partners’ names are presented in the audit report and where audit committee formation is voluntary in the initial stage of audit committee reform. This paper investigates the effects of the formation of voluntary audit committees on the selection of individual audit partners, and, in turn, the audit quality. This contrasts with previous studies investigating the relationship between audit committees and auditor selection at the audit firm level.

This paper samples all of Taiwan’s publicly listed firms for the period 2007–2012 and uses Heckman’s (1979) two-stage estimation model to achieve our objectives.

Using different characteristics of individual engagement partners as proxies for a higher quality auditor, the main empirical results show that voluntary audit committee formation is positively related to an industry specialist lead partner and a lead partner that has a larger number of clients. In addition, this paper also finds that voluntary audit committee formation has a positive impact on audit quality (proxied by discretionary accruals). The results suggest that the voluntary formation of an audit committee contributes positively to both auditor selection and audit quality. Furthermore, an additional test shows that the main empirical results are robust to a validity threat that firms that have good corporate governance prior to the formation of voluntary audit committees tend to select high-quality audit partners.

The paper contributes to the audit committee literature in the following ways: this paper takes advantage of Taiwan’s unique setting, where forming an audit committee is not compulsory in the initial stage of audit committee reform, to investigate the voluntary audit committee, auditor selection and audit quality; this paper expands on Abbott and Parker’s (2000) study of audit committee characteristics and auditor selection at the audit firm level by examining this relationship at the individual audit partner level; this paper responds to the call by Church et al. (2008) and DeFond and Francis (2005) who propose more studies on audit quality at the individual engagement partner level.

This paper aims to examine whether the cultural distance between an international audit firm and target audit clients in emerging countries is associated with auditor choice decisions.

Based on a sample of 104,699 firm-year observations from 20 countries over 2009–2020, logit regression analysis is used to investigate the research questions.

The authors find strong evidence that cultural distance affects the auditor selection decision. The results suggest Big N auditors are more likely to be chosen by target audit clients in emerging countries with less cultural distance. In other words, target audit clients in emerging countries prefer to choose international audit firms whose cultural characteristics are similar. Moreover, results from two-stage least squares regression further suggest that the observed effect of cultural distance on auditor choice is unlikely to be driven by potential endogeneity.

The auditor choice is limited to companies hiring Big N auditors; the authors exclude any switches to non-Big N auditors or switches between Big N auditors. The study also suffers from the concerns about methodological and conceptual criticism that most studies about national culture have to deal with. Finally, through this paper, the authors carry out the auditor selection process from the target audit clients’ side; the authors do not discuss the supply side of the process.

The authors contribute to the audit choice literature by providing evidence that the cultural distance between the countries of audit firms and target audit clients plays a role in the auditor choice decision. The study complements the prior auditor choice literature, focusing primarily on Western economies, by structuring the sample scope to emerging market economies.

This paper aims to examine various factors affecting the pricing of audit services and the selection of auditors in the Indian audit market. This paper also aims to investigate the impact of financial distress conditions on the audit pricing and auditor choice decisions of a firm, particularly in the context of a developing economy.

The sample comprises 22,644 firm-years for 1,366 Indian firms from 1990 to 2015. The authors adopt ordinary least squares regression technique to model audit fee, and logistic regression technique to model auditor choice as a function of various factors relating to firm attributes and auditor characteristics.

This paper finds that auditors tend to charge an audit fee premium when they are affiliated to a Big 4 auditor, have industry specialization or jointly provide auditing and non-auditing services. Additionally, firms with larger boards, higher proportion of independent board of directors and CEO–Chairman separation are more likely to choose a Big 4-affiliated auditor. The results also suggest that financially distressed firms tend to pay significantly lower audit fees and are more likely to choose non-Big 4 auditors.

This paper is among the few studies which investigate how financial distress impacts the audit pricing and auditor choice decisions of a firm in the context of emerging economies. The findings of this paper raises serious concerns about the credibility of the audited financial statements and corporate governance mechanisms of firms undergoing financial distress. The empirical results of this paper have strong implications for practitioners, regulators and investors.

Seeks to compare the three auditor attributes of brand name or reputation, concentration and structure to determine how they collectively influence the auditor selection process. The methodology for this study involves a comparison of the financial characteristics of the client base of Big Eight and non‐Big Eight firms. Overall, this study finds that comparison of client financial characteristics reveals significant differences in auditor brand name. In addition, the analysis indicates that differences also exist, based on audit structure and auditor reputation. Concludes that the auditor selection process, as proxied by a client′s systematic risk, is influenced by a joint combination of auditor attributes. Therefore the results of the study appear to support the theory that clients and auditors seek to match on desired traits.

The confidence in the qualifications and independence of the audit activities and professionals has been lost due to the financial scandals that have arisen over time. These scandals in the accounting and auditing fields caused both enterprises and investors to suffer from large amounts of losses and thus the need for reliable financial statements and corporate governance increased.

Both investors and decision-makers need independent assurance to achieve transparent, reliable, and impartial financial information. The fulfillment of this requirement is possible through independent auditing activity and independent audit firms. Business management shall carry out the selection of independent auditors based on various criteria (fee, reputation, audit team, relations, etc.). In addition, it may also be necessary to periodically change an independent audit firm due to rotation or other reasons (fee, disputes, relationships, etc.).

In this study, a ranking of the importance level of the evaluation criteria, for the selection and change of the independent audit firm in an enterprise in Borsa İstanbul (BIST) 100 in Turkey, was conducted. Analytical Hierarchy Process (AHP), which is one of the multicriteria decision-making techniques, was used for ranking. In the hierarchy established for the selection of the independent audit firm, the main criteria of the “audit fee” and the “reputation and qualifications of the audit firm” have been established. According to the findings obtained as a result of binary comparisons, the first four ranks among sub-criteria are “provision of international service,” “quality of technical expertise of audit firm,” “industry expertise of audit firm,” and “suitability of fee offered by audit firm.”

For the change of audit firm, four main criteria “audit fee,” “disputes arising during the audit process,” “relations with the audit firm,” and “rotation” are taken into consideration. For sub-criteria, first four criteria were “rotation of independent audit firm,” “rotation of independent auditor,” “audit firm’s inability to adequately practice proactive audit approaches,” and “inadequate communication.”

The purpose of this study is to examine the role of ethnic similarity in the audit partner–client manager relationship and its impact on auditor selection and retention decisions.

The authors use name matching analysis to infer ethnicity of audit partners and client managers in the US nonprofit reporting environment. The authors examine the degree of ethnic similarity (co-ethnicity) between the two parties and model auditor selection and retention decisions as a function of co-ethnicity. The authors also model reporting attributes as a function of co-ethnicity.

The authors find that the ethnic similarity between the client manager and their external audit partner is a significant determinant of auditor-client alignment. Specifically, the authors find that clients are more likely to select and retain an audit partner who is ethnically similar to the client manager. The authors find that co-ethnicity is associated with a lowered propensity to issue a going concern opinion to a financially distressed client and an increased occurrence of underreporting of fundraising and administrative expenses.

Taken together, the evidence suggests that ethnic diversity (the opposite of co-ethnicity) in the auditor-client relationship is associated with higher audit quality. These findings are relevant to client managers, audit committees and public accounting firms as they make auditor selection and reporting decisions.

Prior studies have found that co-ethnicity influences the formation and future success of various business partnerships. The auditor-client relationship is a unique setting within the business environment where the two parties must balance their desire to maintain a close relationship with their need to maintain independence. The study is the first to examine the role of ethnicity in the auditor-client relationship.

PurposeThe purpose of the paper is to help organizations more effectively select and evaluate internal auditors by introducing a multi‐criteria decision model, the analytic hierarchy process (AHP) that has been applied to many areas of managerial decision‐making.Design/methodology/approachThe paper structures the decision hierarchy in entering level internal auditor selection based on the competency framework for internal auditing (CFIA) and provides an illustrative application example as part of a decision support system.FindingsRecruiting and hiring qualified employees is one of the critical issues facing any organization. The selection of internal auditors is not an exception. Making the wrong choice can prove to be very costly as organizations try to uncover candidates' potential for success. Recently, there have been increasing numbers of research papers regarding the employee selection process.Originality/valueInvestigates an area that has not seen much progress in the auditing and auditor management field. Contributes to internal auditing research and practice.

The purpose of this paper is to investigate how companies’ reputation affects their selection of auditors.

This paper measures company reputation using the reputation scores from Fortune’s “America’s Most Admired Companies” list. Multivariate analysis is performed to examine the impact of company reputation on public companies’ auditor choice. Robustness checks include conducting Heckman procedures and instrumental-variable two-stage least square regressions to control for self-selection bias and using alternative measures to proxy for company reputation and auditor industry expertise.

This paper finds that companies with higher reputations are more likely to hire industry-specialist auditors than their counterparts. The results suggest that because of reputation concerns, high-reputation companies have strong incentives to maintain and signal their financial reporting quality, which in turn increase their demand for audit quality.

This paper suggests that company reputation constitutes an important determinant of auditor selection and, therefore, has both policy and practical implications for the demand of audit services. The paper provides policy-makers and practitioners with insights into critical factors influencing companies’ complex decision process of auditor selection.

The findings of this paper on the empirical link between company reputation and auditor choice contribute to the auditing literature by enhancing the understanding of the effects of different company-level characteristics in financial reporting and audit planning process. This paper also adds to the growing literature on the influence of company reputation on corporate behavior by documenting the important role that company reputation plays in the managerial decision-making process.

The purpose of this study is to investigate whether audit quality is associated with the speed with which managers revise earnings forecasts to arrive at the actual earnings through the lens of the auditor selection theory. This study examines this relationship in a unique institutional setting, Japan, where nearly all managers disclose earnings forecasts.

The authors pioneer an empirical proxy to capture the speed of management forecast revisions based on well-established principles from the finance and disclosure literatures. This proxy is tested alongside other disclosure proxies (namely, accuracy, frequency and timeliness) to assess the influence of audit quality on managerial forecasting behavior.

This empirical analysis shows that forecast revision speed is higher for firms that select higher-quality auditors. While firms that select higher-quality auditors revise forecasts in a more timely fashion, these firms revise less frequently. Moreover, the authors find that the influence of audit quality on forecast revisions is asymmetric. Specifically, the analysis of downward forecast revisions shows that higher-quality auditors are associated with firms that disclose bad news via forecasts revisions faster, more frequently and in a more timely fashion. However, the analysis of upward forecast revisions shows that higher-quality auditors have no effect on the speed with which firms disclose good news via forecast revisions, even though they are associated with less frequent but more timely forecast revisions. These findings have important implications for prior studies that consistently document an asymmetric response of the stock market to good news and bad news.

The authors provide evidence on the relationship between audit quality and management earnings forecasts using a novel and intuitive measure that captures forecast revision speed. This measure speaks to the growing interest in understanding the notion of speed and timing of voluntary disclosures. This study provides a more robust and comprehensive measure of the speed with which managers revise their earnings forecasts to arrive at the actual earnings. Furthermore, this study is among the first to document an asymmetric effect of audit quality on the type of news disclosed in forecast revisions.