Search results

The purpose of this study is to construct and test a new measure of auditor orientation using two audit quality-related tasks.

The sample consists of 66 Dutch and US graduate auditing students. Participants complete two tasks: one involving a lease classification and another, supplemental experiment involving a contingent liability judgment. The purpose is to construct a new measure for rules-based/ principles-based orientation. Rigorous, psychometric testing confirms that parts of tolerance for ambiguity (TOA) and need for cognition (NFC), together, form a new construct the authors identify as auditor orientation. The authors next conduct a main and supplemental experiment with novice auditor participants from both the USA and the Netherlands.

The authors begin with rigorous, psychometric testing using participants from the USA and the Netherlands. The resulting 10-item scale combines parts of TOA and NFC to reflect auditor orientation. The common themes across scale items are high (low) adaptability to complexity and a substance-over-form (form-over-substance) preference for principles-oriented (PO) (rules-oriented [RO]) auditors. Conducting two experiments, results from two distinct tasks confirm our research question; novice auditors classified as RO (PO) are more (less) likely to recommend a more aggressive/client-favorable disclosure judgment.

Auditor orientation (i.e. rules or principles) has a significant impact on the application of rules-based or principles-based standards. How the standards are applied, therefore, influences auditor decision-making and thus audit quality. However, there is a paucity of auditor orientation research to date, including a validated measure. The study contributes a new measure for future research in the related accounting standards and audit quality literatures, while also identifying a potentially important construct in auditor training.

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.

Exploiting a unique measure of hostile takeover exposure principally based on the staggered adoption of state legislations, the authors investigate how external audit quality is influenced by the discipline of the takeover market. External auditors and the takeover market both function as important instruments of external corporate governance.

The authors execute a standard regression analysis and run a variety of robustness checks to minimize endogeneity, namely, propensity score matching (PSM), entropy balancing, an instrumental-variable analysis, Generalized method of moment (GMM) dynamic panel data analysis and Lewbel's (2012) heteroscedastic identification.

The authors’ immense sample spans half a century, encompassing nearly 180,000 observations and 17 takeover-related state legislations, one of the largest samples in the literature in this area. The authors’ results suggest that firms with more takeover exposure are significantly less likely to use Big N auditors. Therefore, a more active takeover market results in poorer external audit quality, corroborating the substitution hypothesis. The discipline of the takeover market substitutes for the necessity for a high-quality external auditor. Specifically, a rise in takeover susceptibility by one standard deviation lowers the probability of using a Big N auditor by 4.29%.

The authors’ study is the first to examine the effect of the takeover over market on audit quality using a novel measure of hostile takeover susceptibility mainly based on the staggered implementation of state legislation. Because the enactment of state legislation is beyond the control of any firm individually, it is plausibly exogenous. The authors’ results therefore probably reflect a causal influence rather than merely a correlation.

The purpose of this study is to investigate the association between nonaudit services (NAS) and out-of-period adjustments (OOPAs). Over the years, the number of OOPAs has risen while the number of restatements has decreased. This could indicate an improvement in financial reporting quality. It could also indicate the use of a type of stealth restatement for opportunistic purposes. These less prominent restatements are more likely to go undetected and could perpetuate opportunistic disclosure and mitigate the likelihood of unfavorable market reactions.

The authors use a two-stage multivariate regression analysis to examine the relationship between NAS and the reporting of an OOPA. The authors use prior research on NAS to guide the model development. The authors perform several robustness checks including different types of NAS and different characteristics of OOPAs.

The results indicate that NAS has a significantly negative association with the existence of OOPAs. The core findings suggest that NAS does not impair auditor independence. Rather, greater amounts of NAS may contribute to knowledge spillover, which leads to higher financial reporting and audit quality. The results are robust to several additional tests.

The results raise interesting implications for regulators, executives, auditors, investors and future research. The authors provide insight into the relationship between NAS and auditor independence.

To the best of the authors’ knowledge, prior research has not considered the effect of NAS on OOPAs. The authors contribute to the literature by providing evidence that OOPAs, a form of stealth restatements, is an important consideration in audit quality research.

The purpose of this study is to examine the impact of industry specialization of audit partners and audit committee members on the level of tax avoidance in Australian banks.

This study uses a multivariate regression analysis based on hand-collected data consisting of 180 observations from Australian domestic banks between 2010 and 2018.

The primary results of the empirical analysis indicate that audit partner industry specialization is negatively associated with the level of tax avoidance in Australian banks. Regarding the audit committee, the proportion of industry specialists among audit committee members reduces the magnitude of tax avoidance. These results are robust, as they hold the same for alternative measures of tax avoidance and industry specialization of audit partner and audit committee members. Results from supplementary analysis reveal that the interactive effect of both audit firm and audit partner industry specialization strengthens the auditors’ effectiveness in reducing the level of tax avoidance.

As this study highlights the importance of the industry specialization in decreasing tax avoidance, it can be beneficial for policymakers to assess the impact of good governance on the level of tax avoidance in the banking industry.

Even though the existing studies examine the link between the governance actors’ industry specialization and tax avoidance in nonfinancial firms, this paper explores the banking industry that differs from nonfinancial firms in among others; accounting and fiscal regulations. This study further provides unique evidence indicating that industry specialization of the audit partner constitutes a significant determinant of minimizing the bank’s level of tax avoidance.

This study aims to examine whether firms that appear to exhibit high sustainable outputs are more likely to pay higher audit fees than firms without such outputs.

The sustainability outputs are measured using a sustainable product portfolio consisting of four products: clean energy products, eco-design products (EDP), environmental products (EP) and sustainable building projects (SBP). The audit fee variable is measured by the natural logarithm of the total amount of audit fees. The study tests two models of the association between these outputs and audit fees; Model 1 tests this association in the absence of the moderating variable (sustainability committee), and Model 2 tests the association in the presence of the moderating variable.

An analysis of data on 261 European firms from the Refinitiv Eikon database from 2010 to 2019 shows that high sustainability outputs are significantly and positively associated with audit fees. More importantly, this association is moderated by the presence of a board-level sustainability committee, suggesting that this type of committee reflects a factor considered by auditors in their audit risk assessment practices. The findings indicate that in Model 1, one (EP) out of four variables has a significant and positive association with audit fees, while in Model 2 and in the presence of sustainability committee, two variables (EP and EDP) have a significant and negative association with audit fees. However, the robust analysis shows that three variables (EP, EDP and SBP) have significant and negative associations with audit fees.

The study findings have important implications for policymakers, auditors and firms’ managers. For policymakers, the findings provide support for the argument that sustainable attitudes incentivise firms to manage sustainable product profiles more effectively. As such, policymakers should incentivise firms to establish a sustainability committee and regulate its role and responsibilities. Auditors should coordinate with the sustainability committee to facilitate audit efforts and reduce audit fees.

Understanding the relationship between sustainable products and audit fees will allow firms to improve their portfolio of sustainable products. In addition, other social implications of this study relate to improving relationships with society by establishing a sustainability committee that is responsible to communicate with that society.

The results support the argument that firms should manage sustainable product portfolios more effectively. In addition, the results of the study highlight the importance of a new variable as a moderator, the sustainability committee, which has not been examined before.

This study aims to examine the effect of professional commitment, commitment to ethics, internal locus of control and emotional intelligence on the ability to detect fraud through reduced audit quality behaviors.

The analysis unit is the internal auditor in internal control unit at state Islamic religious higher education in Indonesia. Data processing used covariance-based structural equation modeling using Lisrel Software and the Sobel test to verify the direct and indirect effects.

This study found empirical evidence that professional commitment and emotional intelligence positively impact the ability to detect fraud. Commitment to ethics and emotional intelligence has a negative effect on reduced audit quality behaviors. Furthermore, this study also provides that commitment to ethics and emotional intelligence indirectly impacts on the ability to detect fraud through reduced audit quality behaviors.

The organization periodically monitors auditors’ behaviors, especially reduced audit quality behaviors, during the audit process and encourages regulators to formulate policies related to increasing the ability to detect fraud.

This study provides knowledge regarding the driving force of internal auditors to mitigate reduced audit quality behaviors and increase the ability to detect fraud.

This study aims to identify the intellectual structure of expanded audit reporting (EAR), offers a quantitative summation of prominent themes, contributors and knowledge gaps and provides suggestions for further research.

This research uses various bibliometric techniques, including co-word and co-citation analysis for EAR science mapping, based on 123 papers from Scopus Database between 1991 and 2022.

The results show EAR research is focused on Audit Quality; Auditor Liability and Litigation; Communicative Value and Readability; Audit Fees; and Disclosure. Regarding EAR research, Brasel et al. (2016), article is the most cited paper, Bédard J. is the most cited author, Laval University is the most influential university, The Accounting Review is the most cited journal and USA is the leading country. Furthermore, the results show that in common law countries, in which shareholder rights and litigation risk is high, topics such as disclosure quality and audit litigation have been addressed more; and in civil legal system countries, which usually favor stakeholders’ rights, topics of gender diversity or corporate governance have been more studied.

This research has practical implications for standard setters and regulators, who can identify important, overlooked and emerging issues and consider them in future policies and standards.

This paper contributes to the literature by providing a more objective and comprehensive status of the accounting research on EAR, identifying the gaps in the literature and proposing a direction for future research to continue the discussion on the value-relevance of EAR to achieve more transparency and less audit expectation gap.

This study aims to examine how woman leadership (i.e., woman board chairperson, woman chief executive officer (CEO) and board gender diversity) affects audit fee and also ascertained the interactive effect of woman leadership and gender diversity on audit committee on audit fee.

The study applied ordinary least square and fixed-effect estimators on the data of 21 universal banks in Ghana for the period 2010–2021 to estimate the empirical results.

It is revealed that under the leadership of women (woman CEO and board gender diversity), higher external audit quality is ensured as higher audit fee is paid. Interestingly, it was found that with the presence of women on the audit committee, the integrity of internal controls and internal audit procedures are enhanced, which leads to quality financial reporting, calls for lower audit effort, hence lower audit fee.

The result indicates that firms can rely on the leadership of women in ensuring quality external audit and quality financial reporting, which ultimately helps to minimize the information risk to all stakeholders.

The paper contributes to extant literature by establishing that, under the leadership of women in banking entities from a developing country context, external audit quality and financial reporting are achieved.

This study aims to examine the relationship between audit committee (AC) effectiveness and firm performance (FP) with the moderation of knowledge intensity while observing the varying effect of each AC characteristic’s influence on its effectiveness.

This study examines 133 companies covering five years from 2016 to 2020 using the partial least squares-structural equation model and weighing AC effectiveness-related characteristics through multiple regression between AC characteristics and the AC effectiveness construct.

The results indicate that the knowledge intensity of the firms negatively influences the relationship between their AC effectiveness and FP, implying that the ACs are not sophisticated enough to monitor the knowledge component of the firm’s assets. Among AC characteristics, six attributes have a significant positive impact, two have a negative impact and three have no significant influence on AC effectiveness while influencing FP.

Apart from guiding the regulators, managers and other stakeholders to choose an appropriate mix of AC characteristics for enhancing FP, the study contributes to the existing literature by providing evidence that ACs are ineffective in monitoring the knowledge assets of the company compared to physical assets.

This study is pioneering in investigating the moderation role of knowledge intensity on the relationship between AC effectiveness and FP. While providing a comprehensive and holistic view of AC effectiveness by considering 11 AC characteristics’ individual as well as aggregate effects on FP, it removes the obsolescence of earlier research in the Indian context owing to the latest regulatory reforms.