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Article
Publication date: 4 February 2014

Chan-Jane Lin, Hsiao-Lun Lin and Ai-Ru Yen

This study aims to examine whether China's unique dual audit policy affects one specific aspect of audit quality: auditor conservatism. In China, listed companies issuing…

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Abstract

Purpose

This study aims to examine whether China's unique dual audit policy affects one specific aspect of audit quality: auditor conservatism. In China, listed companies issuing B/H-shares in addition to A-shares must release two financial reports – one based on Chinese accounting standards and the other based on international accounting standards (ISA). The China Securities Regulatory Commission (CSRC) further requires that the financial reports following Chinese accounting standards should be audited by a domestic CPA firm, and the financial reports following ISA should be audited by an approved overseas CPA firm. This study investigates whether the dual audit requirement induces more auditor conservatism.

Design/methodology/approach

Based on a sample of 7,046 firm-year observations that issue A-shares from 2001 to 2006, the authors empirically test whether the dual audit requirement induces more auditor conservatism, measured by the level of discretionary accruals.

Findings

The authors find the dual audit requirement significantly restricts the use of income-increasing discretionary accruals but not income-decreasing discretionary accruals. Moreover, financial reporting becomes most conservative when two auditors are from two un-affiliated audit firms. Nevertheless, the difference-in-difference analysis fails to show a significant decrease in auditor conservatism after the revocation of the dual audit rule for the treatment group with dual audit before but no dual audit after 2007 comparing to the control group that experience no change in 2007.

Originality/value

First, the previous studies examine issues regarding the effects of supervision pressure through experimental setting. The authors extend the literature by examining empirically the impact of perceived peer pressure on auditor conservatism. Second, the findings from China regarding the effect of the dual audit system on auditor conservatism serve as a reference for other emerging markets that have not yet established sound audit systems.

Details

Review of Accounting and Finance, vol. 13 no. 1
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 1 February 2012

Faisal S. Alanezi, Mishari M. Alfaraih, Eyad A. Alrashaid and Saad S. Albolushi

The purpose of this paper is to examine the use of a dualaudit/joint‐audit process and the level of compliance with IFRS in listed Kuwaiti financial institutions.

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1036

Abstract

Purpose

The purpose of this paper is to examine the use of a dualaudit/joint‐audit process and the level of compliance with IFRS in listed Kuwaiti financial institutions.

Design/methodology/approach

An OLS‐regression model was used to test the relationship among dualaudit/joint‐audit process and the level of compliance with IFRS‐disclosure. The sample was based on 33 firm observations in 2006.

Findings

The main results reveal that financial institutions audited by dual‐auditors were more compliant with IFRS‐required disclosure than financial institutions audited by joint‐auditors.

Research limitations/implications

The authors have assumed that the work done by both auditors is as per the Central Bank of Kuwait (CBK) circular which obligates both auditors to do their fieldwork independently and then consolidate their work before issuing the final audit report. In the authors’ opinion, it is less likely that both auditors will not comply with CBK regulation, especially because CBK has the right to ban a non‐compliant audit firm from auditing banks. The authors did not ask audit firms whether they are complying with this circular because it was believed that audit firms would not disclose a non‐compliance issue with regulators to outsiders.

Practical implications

This paper provides empirical evidence about the effectiveness of using dual‐auditors in promoting compliance with IFRS‐disclosure.

Originality/value

To the authors’ knowledge, this is the first study to explore the association between the levels of compliance with IFRS‐disclosure and the dual/joint audit process in the financial institutions listed on the Kuwait Stock Exchange.

Details

Journal of Economic and Administrative Sciences, vol. 28 no. 2
Type: Research Article
ISSN: 1026-4116

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Article
Publication date: 7 March 2018

Mohammad Jizi and Rabih Nehme

This paper aims to examine whether CEO/chair dual roles influence board monitoring-audit fees nexus. The impact of corporate governance on audit fees literature is lacking…

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1682

Abstract

Purpose

This paper aims to examine whether CEO/chair dual roles influence board monitoring-audit fees nexus. The impact of corporate governance on audit fees literature is lacking in the banking sector, which is subject to different regulations and reporting requirements to other sectors. The level and quality of external audit services are important not only to shareholders and customers but also for regulators’ reputations and public confidence.

Design/methodology/approach

Examining a sample of the US national commercial banks, this study fills the gap by empirically examining whether the attributes of internal corporate governance mechanisms, proxied by boards of directors and audit committee characteristics, are related to audit fees. We introduce two interaction variables to understand whether chief executive officer (CEO)/chair dual roles influence the relationships between board independence and audit fees on the one hand and between the audit committee and audit fees on the other hand.

Findings

We find that audit fees are positively associated with board independence, board size, CEO/chair dual role and audit committee financial experts. The results of the interaction variables indicate that boards with higher independence and more effective audit committees tend to demand higher audit quality, and consequently, pay higher audit fees to protect shareholders’ interests from potential power abuse by CEOs who also chair boards.

Originality/value

This study contributes to the literature by providing extensive understanding of the influence on audit fees of the independence of the board of directors and the effectiveness of the audit committees. The authors first examine the impact of each individual governance variable separately and then introduce two interaction variables. This study provides policymakers with insights into the existing relationships between audit fees and the banking sector governance structure.

Details

Managerial Auditing Journal, vol. 33 no. 2
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 1 February 2016

Li-Chun Kuo, Chan-Jane Lin and Hsiao-Lun Lin

From 2000 to 2007, 14 Chinese accounting firms had their audit licenses terminated or suspended for different reasons, forcing clients of these accounting firms to select…

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1439

Abstract

Purpose

From 2000 to 2007, 14 Chinese accounting firms had their audit licenses terminated or suspended for different reasons, forcing clients of these accounting firms to select new auditors within a short period of time. The purpose of this paper is to examine the auditor switching patterns and audit partner following decision of these clients and the effect of both client and (terminated or suspended) auditor characteristics on the auditor change decisions.

Design/methodology/approach

By using 245 (191) clients of terminated or suspended audit firms, the authors apply logistic regressions to investigate clients’ switching decision (following decision).

Findings

The empirical results indicate that state-owned enterprises tend not to switch to Big 4 audit firms; clients with dual shares tend to choose from the Big 4 for their succeeding audit firms. Moreover, companies whose preceding auditors received severe regulatory sanctions are less likely to switch to auditors of higher quality; companies who hired local auditors are more likely to follow their preceding audit partners as a result of forced auditor change.

Originality/value

This study enriches forced auditor change literature by discussing both clients’ and preceding auditor’s attributes on clients’ switching and following decisions.

Details

Asian Review of Accounting, vol. 24 no. 1
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 20 August 2020

Mohamed M. El-Dyasty and Ahmed A. Elamer

Although a number of studies suggest that big audit firms provide higher audit quality in strict legal environments, empirical evidence remains inconclusive. As little is…

Abstract

Purpose

Although a number of studies suggest that big audit firms provide higher audit quality in strict legal environments, empirical evidence remains inconclusive. As little is known about the effect of auditor type on audit quality in less strictly legal environments, this study aims to investigate the impact of auditor type on audit quality in the Egyptian market.

Design/methodology/approach

Data of Egyptian-listed companies during the period 2011–2018 are used. To examine the impact of auditor type on audit quality, ordinary least square regression and robust standard errors clustered at year and industry level are used. This study uses discretionary accruals as a proxy for audit quality. Several additional analyzes are conducted to assess the robustness of the main results, including alternative measures of audit quality and auditor type.

Findings

The results show that audit firms tend to provide higher audit quality when they are affiliated with a foreign audit firm. However, Big 4 auditors do not provide higher audit quality compare to their counterparts. Additionally, the governmental agency, accountability state authority, that monopolize audit function in state-owned companies do not appear to be associated with higher audit quality. Finally, local audit firms have a negative association with audit quality. This may be their strategy to secure future clients that seek low-quality audits.

Research limitations/implications

This study suggests that affiliation with foreign audit firms will help the Egyptian firms to develop their abilities by using advanced technology and techniques and transfer rare expertize to the Egyptian auditors. This study also shows that the strategy adopted by many Egyptian audit firms to affiliate with foreign auditors reflects the desire of these firms to be included in one tier alongside Big 4 audit firms to increase their market share under a claim of providing a higher audit quality.

Originality/value

This study adds to the rare but growing body of literature by investigating how auditor type affects audit quality in the context of less strictly legal environments. The results are important, as investors, standards-setters and regulators have growing concerns over audit quality since the Enron scandal. The findings suggest that audit quality depends on auditor type. These findings have important implications for investors, standards-setters and auditors interested in auditor oversight, audit quality and auditor choice.

Details

International Journal of Accounting & Information Management, vol. 29 no. 1
Type: Research Article
ISSN: 1834-7649

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Article
Publication date: 1 June 1997

Cai Chuanbing

Explains the importance of the socialist market economy to the prosperity of China. Hand‐in‐glove with this important development is the role of internal audit in…

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939

Abstract

Explains the importance of the socialist market economy to the prosperity of China. Hand‐in‐glove with this important development is the role of internal audit in facilitating and sustaining the changes that are necessary. Audit has the dual function of serving the entity and the wider needs of the state. This involves a more sophisticated internal audit approach. Describes the more complex techniques utilized as a consequence.

Details

Managerial Auditing Journal, vol. 12 no. 4/5
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 24 May 2019

Brandon Ater, Christine Gimbar, J. Gregory Jenkins, Gabriel Saucedo and Nicole S. Wright

This paper aims to examine the perceptions of auditor roles on the workpaper review process in current audit practice. Specifically, the paper investigates how an…

Abstract

Purpose

This paper aims to examine the perceptions of auditor roles on the workpaper review process in current audit practice. Specifically, the paper investigates how an auditor’s defined role leads to perceived differences in what initiates the workpaper review process, the preferred methods for performing reviews and the stylization or framing of communicated review comments.

Design/methodology/approach

A survey was administered in which practicing auditors were asked about workpaper review process prompts, methods and preferences. The survey was completed by 215 auditors from each of the Big 4 accounting firms and one additional international firm. The final data set consists of quantitative and qualitative responses from 25 audit partners, 33 senior managers, 30 managers, 75 in-charge auditors/seniors and 52 staff auditors.

Findings

Findings indicate reviewers and preparers differ in their perceptions of the review process based on their defined roles. First, reviewers and preparers differ in their perspectives on which factors initiate the review process. Second, the majority of reviewers and preparers prefer face-to-face communication when discussing review notes. Reviewers, however, are more likely to believe the face-to-face method is an effective way to discuss review notes and to facilitate learning, whereas preparers prefer the method primarily because it reduces back-and-forth communication. Finally, reviewers believe they predominantly provide conclusion-based review notes, whereas preparers perceive review notes as having both conclusion- and documentation-based messages.

Research limitations/implications

This paper advances the academic literature by providing a unique perspective on the review process. Instead of investigating a single staff level, it examines the workpaper review process on a broader scale. By obtaining views from professionals across all levels, this work intends to inspire future research directed at reconciling differences and filling gaps in the review process literature. The finding that reviewers and preparers engage in role conformity that leads to incongruent perceptions of the review process should encourage the consideration of mechanisms, with the potential to be tested experimentally, by which to reconcile the incongruities.

Practical implications

Results support recent regulator concerns that there are breakdowns in the workpaper review process, and the findings provide some insight into why these breakdowns are occurring. Incongruent perceptions of review process characteristics may be the drivers of these identified regulatory concerns.

Originality/value

This is the first study to examine current workpaper review processes at the largest accounting firms from the perspective of both preparers and reviewers. From this unique data set, one key interpretation of the findings is that workpaper preparers do not appear to recognize a primary goal of the review process: to ensure that subordinates receive appropriate coaching, learning and development. However, workpaper reviewers do, in fact, attempt to support preparers and work to create a supportive team environment.

Details

Managerial Auditing Journal, vol. 34 no. 4
Type: Research Article
ISSN: 0268-6902

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Book part
Publication date: 15 December 2011

Yu-Shan Chang, Wuchun Chi, Long-Jainn Hwang and Min-Jeng Shiue

Purpose – Audit quality is traditionally defined as the joint probability that an existing problem is discovered and reported by the auditor. This study examines whether…

Abstract

Purpose – Audit quality is traditionally defined as the joint probability that an existing problem is discovered and reported by the auditor. This study examines whether and how audit quality is associated with related-party transactions and CEO duality. The first part (i.e., the ability to discover) is related to professional judgment, and the second part (i.e., report truthfully) is related to independence.

Methodology/Approach – Regression methods was used on archival data.

Findings – Our results reveal that for publicly held companies in environments with stronger capital market discipline, which causes greater reputation concerns and litigation risks, a CEO who is also the board chair does not hinder auditor independence. For privately held companies, however, such a CEO hinders auditor independence due to a lack of capital market discipline. The findings on related-party financing, on the other hand, are reversed. That is, in terms of information for an auditor, since the conflicts of interests are more severe in publicly held companies than in privately held companies, the relevance of related-party financing to a decision whether to issue a going-concern opinion is greater in publicly held companies.

Social implications – The empirical results of publicly held companies are useful for countries with better corporate governance, while those of privately held companies are helpful for countries with relatively weak corporate governance.

Originality/Value of paper – Because auditors performing audit services face different litigation risks and reputation concerns, the differences in our results between the two types of clients can have implications about the suitability of these types of companies in emerging markets.

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Article
Publication date: 15 January 2020

Omar Al Farooque, Wonlop Buachoom and Lan Sun

This study aims to investigate the effects of corporate board and audit committee characteristics and ownership structures on market-based financial performance of listed…

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1727

Abstract

Purpose

This study aims to investigate the effects of corporate board and audit committee characteristics and ownership structures on market-based financial performance of listed firms in Thailand.

Design/methodology/approach

It applies system GMM (generalized method of moments) as the baseline estimator approach, and ordinary least squares and fixed effects for robustness checks on a sample of 452 firms listed on the Thai Stock Exchange for the period 2000-2016.

Findings

Relying mainly on the system GMM estimator, the empirical results indicate some emerging trends in the Thai economy. Contrary to expectations for an emerging market and prior research findings, ownership structures, particularly ownership concentration and family ownership, appear to have no significant influence on market-based firm performance, while managerial ownership exerts a positive effect on performance. Moreover, as expected, board structure variables such as board independence; size; meeting and dual role; and audit committee meeting show significant explanatory power on market-based firm performance in Thai firms.

Practical implications

These findings are important for policymakers in constructing an appropriate set of governance mechanisms in an emerging market context, and for corporate entities and investors in shaping their understanding of corporate governance in the Thai institutional context.

Originality/value

Unlike previous literature on the Thai market, this study is the first to use the more advanced econometric method known as system GMM estimator for addressing causality/endogeneity issues in governance–performance relationships. The findings indicate new trends in the explanatory power of ownership structure variables on market-based firm performance in Thai-listed firms.

Details

Pacific Accounting Review, vol. 32 no. 1
Type: Research Article
ISSN: 0114-0582

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Article
Publication date: 31 December 2010

Clive Tobutt and Raffaella Milani

The aim of this randomised intervention study was to test the use of two counselling styles in reducing alcohol consumption in offenders who were hazardous drinkers and…

Abstract

The aim of this randomised intervention study was to test the use of two counselling styles in reducing alcohol consumption in offenders who were hazardous drinkers and who had been charged with alcohol‐related offences. An additional aim was to evaluate the research process itself before embarking on a larger trial. Participants were recruited from a police custody suite in the south east of England and randomised to receive either a motivational interviewing brief intervention (MIBI) or a standard brief intervention (BI). The Alcohol Use Disorder Identification Test (AUDIT) was used to screen offenders for hazardous drinking. Participants were asked to complete a second AUDIT 12 weeks later. Two hundred offenders with alcohol‐related offences were screened over a 10‐month period. Of these, 182 were alcohol dependent and were therefore excluded from the study. Of the 18 who were eligible to enter the study, six refused to participate. Five were randomised to the MIBI group and seven into the BI group (BI). The mean age of the MIBI group was 25 (SD±3.86) years and the mean age of the BI group was 32.4 (SD±7.9). Audit scores were significantly lower at time 2 compared to time 1 for both intervention groups (t(11) = 17.60; p < 0.05). There was no significant difference between the different intervention groups.

Details

Advances in Dual Diagnosis, vol. 3 no. 4
Type: Research Article
ISSN: 1757-0972

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