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This study examines the effects of institutional and government ownership on audit quality in Kuwait. Kuwait provides an interesting regulatory context as listed firms are legally required to appoint two external auditors from different auditing firms. This offers a unique opportunity to examine differentiation in demand for audit quality when there are three potential combinations of auditors: two non-Big 4, one Big 4 and one non-Big 4 and two Big 4.

The sample consists of all firms listed on the Kuwait Stock Exchange in 2013. Multinomial logistic regression examines the influence of ownership structure on audit quality. Analyses are controlled for the effect of company characteristics. Control variables are: firm size, complexity, growth, leverage, profitability and industry category.

The results show that institutional ownership is positively related to the number of Big 4 auditing firms that audit a company’s financial statements. This reflects the powerful and influential role institutional investors play in discouraging management from choosing lower-quality providers. In contrast, government ownership has a negative impact on audit quality. These findings are consistent with the hypothesis that audit quality is a function of, among other factors, the structure of equity ownership.

Given the importance of audits, knowledge of the determinants of audit quality is of particular interest to regulators, enforcement agencies and investors. The findings imply that different ownership structures have different effects on the demand for audit quality; some structures strengthen it, while others weaken it. The negative relation between government ownership and audit quality raises serious questions about the effectiveness of government in monitoring its investments.

This paper extends the literature by investigating the determinants of the choice of auditors in an emerging market where there is a joint audit requirement. It highlights the important role played by ownership structure in shaping demand for audit quality. A distinguishing feature in previous research is the classification of the audit quality proxy into two choices (Big 4 vs non-Big 4 auditors). However, the regulatory context in Kuwait means that there are three choices. Thus, unusually, a multinomial logistic regression is used for the analysis.

This study aims to explore the use, effectiveness, motives and obstacles of analytical procedures (APs) used by auditors in Palestine, a context characterised by a pool of small and medium enterprises (SMEs), a limited skill set, poor quality of data, political uncertainty and a community-based business culture.

The study considers the audit market in Palestine using a sequential mixed-methods approach combining a questionnaire survey and a series of in-depth interviews. A total of 129 Big-4 and non-Big-4 auditors were surveyed.

The use of APs is driven by the auditor size (Big-4 vs non-Big-4) and the client size (large vs SMEs). Even though the use of APs has increased over the past decade, audit objectives, know-how, and personal, family and social connections among auditors and clients influence the quality of the audit process.

Small firms take advantage of the lack of audit governance in Palestine. Our findings suggest that the regulators should help bridge the knowledge-sharing programmes between the small and large audit firms to help improve audit quality.

Studies on audit quality, particularly using APs, in the context of politically unstable cases such as Palestine are limited. The study has implications for the use of APs in the case of SMEs to prepare for the technological revolution that will modernise audit procedures and quality soon.

The purpose of this paper is to examine the effect of audit quality on firms’ compliance with IFRS for goodwill impairment testing and disclosure. Differences in the compliance among the clients of Big-4 auditors and between the clients of Big-4 and non-Big-4 auditors are examined. This study also examines the effect of audit committee (AC) members’ accounting and finance backgrounds on firms’ compliance with IFRS for goodwill impairment testing and disclosure.

Different univariate tests, multivariate regressions and fixed effect panel regressions have been used to examine the hypotheses. The sample includes 911 firm-year observations for the period of 2006-2009.

A statistically significant difference in compliance levels has been found between the clients of Big-4 and non-Big-4 auditors. The compliance levels of the clients of Big-4 auditors have also been found to be significantly different. The findings also suggest that AC members’ accounting and finance backgrounds are positively associated with firms’ compliance with IFRS for goodwill impairment testing and disclosure.

The single country context and the single standard context limit the generalizability of the findings.

The findings of this study have important implications for researches in accounting, finance and corporate governance that usually consider Big-4 auditors vs non-Big-4 auditors as a proxy for audit quality. The results also reinforce the importance of developing institutional mechanisms such as high-quality auditing or corporate governance (AC members’ expertise) to encourage firms’ compliance with IFRS.

Firms’ compliance with IFRS for goodwill impairment testing is not essentially the same for the clients of all Big-4 auditors in Australia, suggesting that the quality of services provided by Big-4 auditors significantly differ from one another in enforcing their clients to compliance with IFRS. The lax enforcement on the part of auditors and the regulatory inaction in this regard may point to teething difficulties and systematic deficiencies in the move towards the impairment regime and fair value accounting. The findings also bear an important message for the move towards the harmonization of accounting practices.

The purpose of this paper is to examine the impact of ethnicity on auditor choice for Malaysian listed companies.

This study evaluates the effects of various independent variables on auditor choice behaviour, particularly ethnicity of auditor and ethnicity of management, using a logistic regression analysis approach for 300 companies listed on the Bursa Malaysia (formerly known as Kuala Lumpur Stock Exchange‐KLSE) over an 18 year period.

Auditor choice is shown to be significantly influenced by client firm's characteristics, notably changes in management, complexity, and financial risk, lending support to the findings of previous survey studies. Ethnicity was found to be a significant factor influencing auditor choice only for auditor switches between non‐Big 4 and Big 4 firms.

A number of important variables such as corporate governance characteristics, audit fees, client size, and growth that might enhance an understanding of auditor choice behaviour in Malaysia were not incorporated in the regression models, and might be considered in future studies.

The results presented in the paper have important implications for both the auditing profession and regulators in Malaysia.

This study aims to investigate whether auditors compromise their independence for economically important clients in family business settings.

The authors empirically examine the research question based on China for the years 2011 to 2020. The dependent variable is the auditors’ propensity to issue modified audit opinions, which is a proxy for auditor independence. The authors use relative client audit fees as a proxy for client importance. To address endogeneity issues in the selection of family firms, the authors use the two-stage least squares regression model and, subsequently, the propensity score matching and Hausman firm fixed effect modeling.

This study reveals that the propensity to issue modified audit opinions is positively correlated with client importance. Big-N auditors are more likely to issue modified audit opinions for their economically important family firm clients, whereas such evidence is not found for non-Big-N auditors. Results are consistent and robust to endogeneity test and sensitivity analysis.

This study enriches the literature on auditor independence and the effect of family firms’ ownership structure factors on audit reporting behavior for their economically important clients. Findings may prove useful for managers and practitioners interested in family business.

The purpose of this paper is to investigate the role of auditors in financial statement readability. Using a simple proxy for financial statement obfuscation (number of footnotes), the authors examine the relationship between auditor quality, financial statement readability and earnings persistence.

The authors use regression analysis to test two hypotheses. In the first hypothesis, the authors investigate whether firms audited by Big 4 auditors have a lower number of footnotes than firms audited by non-Big 4 auditors. In the second hypothesis, the authors show that the firms with more footnotes have less earning persistence in comparison to the firms with less footnotes.

The authors find that firms audited by Big 4 auditors have fewer footnotes than firms audited by non-Big 4 auditors, and a larger number of footnotes reduces earnings persistence one-year and two-years ahead of the financial statement, although a larger number of footnotes does not reduce earning persistence when firms use Big 4 auditors. Overall, firms that use non-Big 4 auditors tend to obfuscate annual reports by using more footnotes and, in turn, reduce earnings persistence.

This is the first paper that has used number of footnotes in 10Ks as a proxy for financial statement readability. This paper shows how auditors’ reputation plays a key role in the readability of the financial statement. Prior studies related to readability have ignored the importance of auditors’ quality with respect to the readability of financial statements.

The purpose of this paper is to examine the effects of simultaneous and partial auditor switching toward the abnormal return of manufacturing companies listed in Indonesia Stock Exchange between 2009 and 2012.

Auditor switching is divided into some types: lateral Big 4 to Big 4 (B4B4), lateral non Big 4 to non Big 4 (NB4NB4), cross-up (CU) and cross-down. The abnormal return is measured with a market-adjusted model. In this study, company size is used as the control variable and is measured using the natural logarithm of the total assets (LnTA) and return on equity. Multiple linear regression is used for analysis with significant value a= 5 percent. The hypotheses were tested using f-test and t-test.

The result shows that simultaneous auditor switchings affect the abnormal return. In partial auditor switching, only CU switch has effects on the abnormal return.

This study provides additional literature on the effect of auditor switching, especially on an abnormal return.

This study aims to examine the International Standards on Auditing (ISA) number 520 relating to analytical procedures (APs) and adapt relevant aspects of prior studies on APs to the Egyptian audit context. The study investigates the extent of use of APs in Egypt during the three main stages of an audit by size of firms and level of staff. It examines auditors' perceptions of the frequency and effectiveness of different types of APs in achieving a selected set of audit objectives. The study also identifies the types of assurance provided by APs and their influence on detailed testing as well as analyzing the role of auditing standards in the context of the use of APs.

The design and research method are empirical using a questionnaire survey to collect information on actual uses of APs from 14 audit firms in Egypt which audit the 100 actively traded companies on the Egyptian Stock Exchange (EGX) as measured by the EGX 100 index. The survey was carried out between 2008 and 2009.

The results of the study showed relatively low use of APs by Egyptian auditors with wide variations in its use by Big 4 and other auditing firms. Auditors from Big 4 firms are found to use APs to a greater extent than auditors from non‐Big 4 firms. Also, the reliance on APs tends to differ by auditors rank and position. The majority of auditors consider APs useful in achieving audit objectives. Audit firms of all size continue to emphasize judgment‐based compared to quantitatively based procedures. The results also indicated a lack of confidence in the use of APs as substantive procedures. Finally, the study confirmed prior research findings in that auditing standards are regarded as most effective in codifying existing large firms practice. It was found that ISA 520 has been least effective in stimulating change in the Egyptian audit practice.

The different economic, political, educational, and culture environment in Egypt may restrict the generalisability of this study results.

In order to increase the use of APs by Egyptian auditors in the various stages of the audit engagement, auditors need to understand the requirements of the Egyptian Auditing Standards regarding their use. Auditors also need to be aware of the application of various APs techniques, especially those associated with statistics and mathematical models. Educational institutions and the Egyptian Association of Accountants and Auditors must play significant role in educating auditors about APs techniques and their use in planning, testing and final review of the financial statements.

This paper contributes to an understanding of the nature and uses of APs within the Egyptian culture and economic context. The study will stimulate further research in understanding the importance of the use of APs in audit engagements in different perspectives.

This paper aims to investigate the effect of auditor switching and lowballing on conditional conservatism, particularly how different types of auditor switching, namely, upward, downward and lateral switching to/from Big 4 and industry specialists, affect earnings quality in the following selected Asian countries: Indonesia, Malaysia, the Philippines, South Korea and Thailand.

Using conditional conservatism as a proxy for earnings quality, this study hypothesises that upward switching from non-Big 4 to Big 4 auditors, or from non-specialist to specialist auditors, would result in high conditional conservatism, while downward switching would lead to low conditional conservatism. The study further tests whether lowballing provides a viable explanation for reduced earnings conservatism in firms that switch from Big 4 to non-Big 4 auditors, or from specialist to non-specialist auditors.

The analysis, on a sample of 28,073 firm-year observations from 2007 to 2016, shows that the decision to downgrade auditors leads to lower conditional conservatism in the year of switching, compared with other firms and the pre-switching year. The evidence further shows that, when firms downgrade their auditors, lowballing contributes to a decrease in conditional conservatism in the first year of audit switching. Further, this research finds that switching to specialist auditors will result in increased conditional conservatism, while switching from specialist auditors to non-specialist auditors will result in reduced conditional conservatism.

The findings of this study are useful to investors who are looking to diversify their investment portfolio in developing markets, as evidence about auditor switching and quality of financial reporting may be an important factor in their investment decisions. Downward auditor switches and lowballing could act as red flags to investors in the sense that these events could signal a decrease in conditional conservatism and, hence, quality of earnings.

This research offers new evidence to support the view that management decisions to switch to lower-quality auditors will force newly appointed auditors to acquiesce to clients’ demands for reporting low-quality earnings.

This study aims to examine the impact of intellectual capital (IC) and its three components (human, structural and relational capital) on corporation performance in the Chinese transportation industry. In addition, this study also investigates auditor characteristics (both Big-N and non-Big-N auditors) as a moderating role to examine the relationship between IC and corporate performance.

The data include 398 firm-year observations of transportation companies listed on the Shanghai and Shenzhen Stock Exchange from 2011 to 2020. Value-added intellectual coefficient (VAIC) model and its modified version (MVAIC) are applied to measure IC efficiency. Finally, the fixed effects regression analysis is used to mitigate the endogeneity issue. To investigate the moderating effect of auditor characteristics, the authors divide the samples based on the clients audited by Big-4 and non-Big-4 firms.

This study reveals that IC can enhance firm performance in China’s transportation sector. Overall, findings indicate that on the whole, IC has a positive and significant impact on corporation profitability and productivity. Human capital and physical and financial assets (capital employed) play highly important roles, but structural capital has no significant impact. The authors also found that auditor characteristics play an important moderating role in the connection between IC and corporate performance. For example, the positive association between IC and corporate performance is more pronounced when Big-4 auditors audit client firms. At the same time, the authors found a negative relationship between IC and firm performance when non-Big-4 auditors audit client firms.

Managers must understand that several components of IC have a total effect on corporate financial performance. Therefore, managers can dedicate more resources to such components based on the performance outcomes to emphasize their business strategies.

This study is the first empirical analysis of the impact of IC and its components on corporation performance in the transportation sector in China, an emerging market. Previous studies mainly focus on developed countries’ high technology and financial industries sectors but the impact of IC in transportation industry largely remains unknown. Thus, the present findings contribute to IC literature by revealing several underlying mechanisms by which the components of IC help achieve good firm performance.