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1 – 10 of 716Morina D. Rennie, Lori S. Kopp and W. Morley Lemon
Independence is the cornerstone of the auditing profession. Even so, it is often assumed that acquiescing to the audit client when a disagreement occurs is more beneficial to the…
Abstract
Independence is the cornerstone of the auditing profession. Even so, it is often assumed that acquiescing to the audit client when a disagreement occurs is more beneficial to the auditor-client relationship than asserting one’s independence (e.g., see Wang & Tuttle, 2009). We look more closely at the issue in the context of auditor-client management disagreements as recalled by experienced auditors.
We find that for most disagreements in which the auditor did not make any concession at all, the auditor-client relationship was either unaffected or strengthened. We find that a client’s use of pressure tactics did not appear to influence whether or not the auditor made a concession, but that a client’s use of pressure tactics, was associated with damage to the auditor-client relationship. The importance of the issue causing a disagreement was positively associated with the likelihood of the auditor staying with his/her initial position.
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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.
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Daniela Maresch, Ewald Aschauer and Matthias Fink
The purpose of this paper is to investigate how competence trust (i.e. trust regarding the ability of the counterpart) and goodwill trust (i.e. trust regarding the benevolence and…
Abstract
Purpose
The purpose of this paper is to investigate how competence trust (i.e. trust regarding the ability of the counterpart) and goodwill trust (i.e. trust regarding the benevolence and integrity of the counterpart) affect the probability that the auditor or the client stand up to the respective negotiation partner’s position in situations of disagreement in the auditing relationship.
Design/methodology/approach
Two experiments were conducted, one with 149 auditors and one with 116 chief financial officers (CFOs). Both auditors and CFOs had to indicate the likelihood that they stand up to the other party’s preferred position in a disagreement on the materiality of unrecorded liabilities. The data derived from these experiments were analyzed using hierarchical OLS.
Findings
The results indicate that both auditors and CFOs who take their respective negotiation partner in the audit for highly competent are less likely to stand up to them in situations of disagreement. Interestingly, goodwill trust appears to be irrelevant for the negotiation outcome.
Practical implications
The findings are highly relevant for regulators, because they inform about the crucial importance of competence trust for the auditing negotiation outcome and thus put the so-called “trust-threat” into perspective.
Originality/value
The study adds to the literature on the role of the context for auditor-client negotiations by exploring the role of two distinct forms of trust on the outcome of these negotiations.
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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.
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.
Jan Svanberg, Peter Öhman and Presha E. Neidermeyer
The purpose of this paper is to investigate whether transformational leadership affects auditor objectivity.
Abstract
Purpose
The purpose of this paper is to investigate whether transformational leadership affects auditor objectivity.
Design/methodology/approach
The investigation is based on a field survey of 198 practicing auditors employed by audit firms operating in Sweden.
Findings
This study finds that transformational client leadership negatively affects auditor objectivity and that the effect is only partially mediated by client identification. Given these results, suggesting that auditors are susceptible to influence by their clients’ perceived exercise of transformational leadership, leadership theory appears relevant to the discussion of auditor objectivity in the accounting literature.
Originality/value
Previous accounting research has applied the social identity theory framework and found that client identification impairs auditor objectivity. However, the effect of transformational client leadership on auditor objectivity, which reflects an intense auditor-client relationship, has been neglected before this study.
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Michael Crockett and Muhammad Jahangir Ali
The purpose of this paper is to examine the efficacy of the current legislative provisions that protect auditor independence in Australia. The collapses of several high-profile…
Abstract
Purpose
The purpose of this paper is to examine the efficacy of the current legislative provisions that protect auditor independence in Australia. The collapses of several high-profile companies (Enron and WorldCom in the USA, HIH insurance and OneTel in Australia) in the early 2000s has raised questions about audit quality and independence. In response, regulators have introduced new regulations and guidance to improve audit quality. In Australia, the Corporations Act 2001 (2001) was amended via the Corporate Law Economic Reform Program Act 2004. This study poses the question: do non-audit service fees influence the level of accounting conservatism?
Design/methodology/approach
The sample used in this analysis consists of all available Australian listed companies from the years 2006 till 2010.
Findings
Using multiple measures of accounting conservatism and the auditor-client economic bond, our results suggest that the level of the economic bond between the auditor and the client does not significantly influence the level of accounting conservatism.
Originality/value
Our results demonstrate that the combination of intrinsic market mechanisms and regulation in Australia sufficiently protect auditor independence.
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David N. Herda, Michael J. Petersen and Richard Fontaine
– The purpose of this paper is to determine if self-serving bias affects audit client satisfaction level with their audit firm.
Abstract
Purpose
The purpose of this paper is to determine if self-serving bias affects audit client satisfaction level with their audit firm.
Design/methodology/approach
A 2×2 between-subjects design is used, where the authors experimentally manipulate the level of client involvement in the audit and the extent of value-added services the client received.
Findings
Using a sample of 115 financial managers (audit clients), the authors find no evidence that self-serving bias exists among clients in the experimental setting. Rather, they find that clients appear to be more satisfied with their auditor when they (clients) participate more in the service exchange.
Research limitations/implications
The research is limited to a specific context within the privately held company audit setting.
Practical implications
Audit firms may consider encouraging their privately held clients to participate more in the audit process by clearly communicating expectations and providing clients with audit preparedness materials, including templates and training where necessary.
Originality/value
Although the self-serving bias has been shown to exist in the marketing literature, the authors present a setting where the relationship between service provider (auditor) and customer (client) is such that the self-serving bias may not hold.
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Reiner Quick, Matthias Sattler and Daniela Wiemann
The aim of the present paper is to examine the impact of agency costs on the demand for non‐audit services (NAS) in Germany.
Abstract
Purpose
The aim of the present paper is to examine the impact of agency costs on the demand for non‐audit services (NAS) in Germany.
Design/methodology/approach
This study uses data from German listed companies to test whether audit clients vary their purchases of NAS according to agency costs over time. The paper used multiple regressions and included ownership composition, performance‐based management compensation, and leverage as proxies for agency conflicts.
Findings
Overall, the hypothesis that agency costs influence the demand for NAS was not confirmed. None of our proxies for agency conflicts were significantly associated with the purchase of NAS. These findings remain stable when alternative NAS fee measures were applied.
Research limitations/implications
Findings cannot be generalised for smaller, private companies. Particularities of the German setting might have caused the insignificance of agency costs, but this cannot be tested statistically. The contrast between these insignificant results and the significant impact of agency costs on the demand for non‐audit services revealed by many previous studies, in particular from the US and the UK, raises important questions for future research.
Practical implications
This paper concerns management's perceptions on how stakeholders perceive the effect of NAS provision on auditor independence. Thus, its findings should be of interest to German, European and international regulators when evaluating the impact of the provision of NAS on independence in appearance.
Originality/value
This study is the first to provide evidence on the relationship between agency conflicts and the demand for non‐audit services from Germany and thus from a continental European country. Moreover, it provides evidence for periods after the introduction of stricter standards on the provision of non‐audit services. In addition, it applies a new proxy for agency costs (i.e. performance‐based management compensation).
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Karin A. Venetis and Pervez N. Ghauri
The study extends the existing knowledge by taking a relationship perspective to study the effect of service quality on customer retention. We integrate business‐to‐business…
Abstract
The study extends the existing knowledge by taking a relationship perspective to study the effect of service quality on customer retention. We integrate business‐to‐business marketing literature with service quality literature to develop a model to capture relationship commitment and other influencing factors. The model is improved with help of semi‐structured interviews which is later tested through a survey of 241 companies in the advertising sector. Findings indicate that service quality indeed contributes to the long‐term relationships and customer retention.
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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.
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