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Article
Publication date: 1 July 2005

Peta Stevenson‐Clarke and Allan Hodgson

This paper estimates the value added by Big 8/6/5 auditors after controlling for the permanent and non‐permanent impact of earnings and cash flows using linear and…

Abstract

This paper estimates the value added by Big 8/6/5 auditors after controlling for the permanent and non‐permanent impact of earnings and cash flows using linear and nonlinear (arctan) regression models. The linear model shows significant value added for industrial firms that utilise Big 8/6/5 auditors; while an arctan model shows that large auditors value‐add by attesting to the permanence of earnings for large firms. We demonstrate that refinements to the audit research can be made by using response coefficients to filter out the different timing components inherent in earnings and cash flows.

Details

Accounting Research Journal, vol. 18 no. 1
Type: Research Article
ISSN: 1030-9616

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Article
Publication date: 17 May 2011

Li Dang, Kevin F. Brown and B.D. McCullough

The purpose of this paper is to examine the value relevance of accounting information in cases of apparent audit failures.

Abstract

Purpose

The purpose of this paper is to examine the value relevance of accounting information in cases of apparent audit failures.

Design/methodology/approach

The authors adopt the bootstrapping technique and compare the value relevance of key accounting information across samples of firms experiencing apparent audit failures with matched non‐audit failure firms.

Findings

Accounting information is found to be less value relevant for firms experiencing apparent audit failures, regardless of auditor reputation.

Research limitations/implications

This study has limitations due to the ex ante research approach adopted. Future research could address this issue by possibly incorporating an “intervening” factor into the model to indicate how the market can differentiate audit failure firms from other firms.

Originality/value

The paper gives support to the assertion that the market appears to rely less on accounting numbers when audit failures occur, even though formal allegations of audit failure may not appear until years after their occurrence. In addition to contributing to value‐relevance research by providing empirical evidence for the market phenomenon around the time of material misstatements, the paper demonstrates an innovative application of bootstrapping to test for differences in R2.

Details

Review of Accounting and Finance, vol. 10 no. 2
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 1 March 2006

Donald Samelson, Suzanne Lowensohn and Laurence E. Johnson

Prior research addresses relationships between audit attributes and perceptions of both audit quality and auditee satisfaction in the private sector. This study extends…

Abstract

Prior research addresses relationships between audit attributes and perceptions of both audit quality and auditee satisfaction in the private sector. This study extends such research to local government audits, where audit quality has been questioned. Additionally, this study investigates the effect of auditor size on perceived audit quality and satisfaction. 302 finance directors surveyed positively associated auditor expertise, responsiveness to client, professionalism, understanding of client systems, and study of internal controls with perceived audit quality. Furthermore, auditee satisfaction was positively related to auditor expertise, responsiveness to client, audit manager involvement, understanding of client systems and study of internal controls. Big 5 firms were not associated with higher levels of perceived audit quality or auditee satisfaction, despite charging significantly higher audit fees.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 18 no. 2
Type: Research Article
ISSN: 1096-3367

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Article
Publication date: 14 September 2012

Sharifah Nazatul Faiza Syed Mustapha Nazri, Malcolm Smith and Zubaidah Ismail

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

Abstract

Purpose

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

Design/methodology/approach

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.

Findings

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.

Research limitations/implications

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.

Originality/value

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

Details

Asian Review of Accounting, vol. 20 no. 3
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 1 December 2005

Andrew Ferguson

This paper provides a review of the extensive contributions made to the audit pricing literature by researchers utilizing Australian data. Recent United States [hereafter…

Abstract

This paper provides a review of the extensive contributions made to the audit pricing literature by researchers utilizing Australian data. Recent United States [hereafter US] regulatory requirements under the Sarbanes Oxley Act (Section 102) have mandated disclosure of audit fees. As such this is a useful occasion to review the existing Australian audit pricing research, since the audit fee disclosure advantage once enjoyed by Australian researchers has now effectively dissipated. Beginning with the origins and genesis of audit pricing research in Australia, this review then discusses the key contributions to the literature over time. It concludes with some brief discussion of potential research directions.

Details

Accounting Research Journal, vol. 18 no. 2
Type: Research Article
ISSN: 1030-9616

Keywords

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Abstract

Details

Economic Growth and Social Welfare: Operationalising Normative Social Choice Theory
Type: Book
ISBN: 978-0-44451-565-0

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Article
Publication date: 26 June 2009

Yu‐Shu Cheng, Yi‐Pei Liu and Chu‐Yang Chien

Following the high profile collapses of Enron and WorldCom, and the demise of Andersen, human capital (HC) has become a key driver of auditor quality. The purpose of this…

Abstract

Purpose

Following the high profile collapses of Enron and WorldCom, and the demise of Andersen, human capital (HC) has become a key driver of auditor quality. The purpose of this study is to investigate if there is a positive association between HC and auditor quality in public accounting firms and if the extent of association varies between accounting firms.

Design/methodology/approach

Multiple regression and logistic modeling are applied to examine the association between auditor quality and HC. The sample consists of 4,865 firm‐year observations over the period from 1989 to 2004.

Findings

The main findings indicate that higher investments in HC correspond to a higher level of auditor quality. Furthermore, the power of HC on auditor quality has a significant difference between public and non‐public audit market firms.

Research limitations/implications

A number of theoretical and measurement limitations are acknowledged that could further increase the statistical power of the tests.

Practical implications

The findings should be of interest to regulators, auditors, audit clients, and academics. The findings also suggest that HC has an impact on overall auditor quality. The audit firms need more well‐educated and well‐trained professionals with the experience to keep pace with the changing nature of the market and to perform audit tasks.

Originality/value

The findings fill a gap in the literature regarding auditor quality and HC from the perspective of public accounting firms.

Details

Managerial Auditing Journal, vol. 24 no. 6
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 17 April 2009

Khaled Hussainey

The purpose of this paper is to examine the impact of audit quality, measured by financial statements audited by the big four accounting firms, on the investors' ability…

Abstract

Purpose

The purpose of this paper is to examine the impact of audit quality, measured by financial statements audited by the big four accounting firms, on the investors' ability to predict future earnings for profitable and unprofitable firms.

Design/methodology/approach

The paper uses the returns‐earnings regression model and interacts all independent variables in this model with a dummy variable, AUDIT, which is set to equal one if financial statements audited by the big four accounting firms, zero otherwise. Future earnings response coefficient is the measure of earnings predictability.

Findings

The paper finds that investors are able to better anticipate future earnings when financial statements are audited by the big four accounting firms. However, the findings are not applicable for unprofitable firms.

Practical implications

The findings of the paper have implications for auditing related academic research and the users of financial statements. In particular, the study shows that the big four accounting firms have not lost their audit quality advantage and that financial statements audited by the big four accounting firms are arguably of higher quality than those audited by non‐big four accounting firms.

Originality/value

It is believed that there is no UK study to date examining the association of the quality of financial statements audited by the big four accounting firms and the returns‐earnings association. Consequently, this paper significantly contributes to the limited literature on the perceived value relevance of audit quality.

Details

Managerial Auditing Journal, vol. 24 no. 4
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 22 June 2012

Monika Causholli and W. Robert Knechel

The purpose of this paper is to examine the circumstances under which high quality audits reduce a firm's cost of debt. The paper extends previous research by Pittman and…

Abstract

Purpose

The purpose of this paper is to examine the circumstances under which high quality audits reduce a firm's cost of debt. The paper extends previous research by Pittman and Fortin by considering how auditor quality relates to the capital cycle and industry of the firm.

Design/methodology/approach

The paper uses a sample of US initial public offerings (IPOs) from 1986 to 1998 to analyze a firm's debt costs for the five years following the IPO. The paper uses a firm's private age as a proxy for its capital cycle and existing banking relationships to capture the likely extent of debt dependence prior to IPO. The authors separately analyze technology firms from other firms.

Findings

Consistent with prior literature, it is found that firms that are young at the time of an IPO pay higher interest rates and auditor quality plays a significant role in lowering the cost of debt financing. Consistent with the hypotheses made, the authors also observe that the effect of auditor quality is larger for firms in the high tech industry sector. Further, the relationship between auditor quality and age depends on industry, with the benefits of hiring a high quality auditor primarily accruing to younger tech firms and older non‐tech firms.

Originality/value

While the issue of auditor quality and cost of debt has been examined by previous researchers, the additional insight that the effect of auditor quality depends on both capital cycle (age) and industry of a firm, increases understanding of the circumstances under which the audit of financial statements is socially desirable and economically valuable to investors and other stakeholders.

Details

Managerial Auditing Journal, vol. 27 no. 6
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 22 February 2021

Pierluigi Santosuosso

Despite the potential of Big Data analytics, the analysis of Micro Data represents the main way of forecasting the expected values of recorded amounts and/or ratios for…

Abstract

Purpose

Despite the potential of Big Data analytics, the analysis of Micro Data represents the main way of forecasting the expected values of recorded amounts and/or ratios for small auditing firms and certified public accountants dealing with analytical procedures. This study aims to examine how effective Micro Data analytics are by testing the forecast accuracy of the ratio of the allowance for doubtful accounts to the trade accounts receivable and the natural logarithm of the net sales of goods and services, the first exposed to a greater uncertainty than the second.

Design/methodology/approach

Micro Data are low in volume, variety, velocity and variability, but high in veracity. Given the over-fitting problems affecting Micro Data analytics, the in-sample and out-of-sample forecasts were made for both tests. Multiple regression and neural network models were performed using a sample of 35 Italian industrial listed companies.

Findings

The accuracy level of the forecasting models was found in terms of mean absolute percentage error and other accuracy measures. The neural network model provided more accurate forecasts than multiple regression in both tests, showing a higher accuracy level for the amounts exposed to less uncertainty. Moreover, no generalized conclusions on predictors included in the models could be drawn.

Practical implications

The examination of forecast accuracy helps auditors to evaluate whether analytical procedures can be successfully applied to detect misstatements when Micro Data are used and which model gives the most accurate forecasts.

Originality/value

This is the first study to measure the forecast accuracy of the multiple regression and neural network models performed using a Micro Data set. Forecast accuracy is crucial for evaluating the effectiveness of analytical procedures.

Details

Meditari Accountancy Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2049-372X

Keywords

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