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1 – 10 of over 6000Audit consortium of joint and dual audits is one of the most controversial mechanisms aimed at improving audit quality and resolving several related debatable issues. This study…
Abstract
Purpose
Audit consortium of joint and dual audits is one of the most controversial mechanisms aimed at improving audit quality and resolving several related debatable issues. This study aims to empirically investigate the impact of audit consortium on audit quality assessment in Egypt. It specifically examines whether audit opinion modification level is triggered by joint and dual audits existence and whether it is influenced by the relative importance of the auditor pair combination types.
Design/methodology/approach
A sample of companies listed on the Egyptian Stock Exchange constituting the EGX 30 index is examined over a period of five years, from 2016 to 2020. A quantitative research methodology is used, using content analysis of companies’ audit reports and carrying out longitudinal panel ordinary least squares multiple regression tests.
Findings
Results show that audit quality is significantly enhanced by conducting joint and dual audits of Egyptian companies’ financial statements. Findings indicate that both joint and dual audits significantly increase auditors’ propensity to modify audit opinions as compared to companies that engage in single audits. However, this increase in audit quality is not supported by the presence of Big 4 joint auditors or affiliated joint auditors, while the impact of Big 4 dual auditors cannot be confirmed. Nevertheless, such a potential increase in audit opinion modification is boosted by the presence of affiliated dual auditors, which appears to translate into higher quality.
Research limitations/implications
The study has important implications for researchers, corporates, those charged with governance, financial statement users, auditors, regulators and standard setters, who might be interested in whether an audit consortium and a particular auditor pair combination are associated with superior audit quality. It provides empirical evidence that might contribute to the continuous challenge of promoting the quality and effectiveness of the external audit.
Originality/value
This study adds to the relatively limited and challenging literature on the potential contribution of audit consortium, using audit opinion modification level as a direct assessment of audit quality. It extends the scope of prior research by examining the existence of joint and dual audits and the relative importance of joint and dual auditor pair combination types. The study provides key insights from a distinctive and complex emerging audit market.
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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…
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.
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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 dual‐audit/joint‐audit process and the level of compliance with IFRS in listed Kuwaiti financial institutions.
Abstract
Purpose
The purpose of this paper is to examine the use of a dual‐audit/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 dual‐audit/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.
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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…
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.
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Li Jen He and Faradillah Amalia Rivai
This paper aims to investigate the impact of gender diversity in the composition of engagement auditors on the disclosure of key audit matters (KAMs) in a dual-signature…
Abstract
Purpose
This paper aims to investigate the impact of gender diversity in the composition of engagement auditors on the disclosure of key audit matters (KAMs) in a dual-signature environment.
Design/methodology/approach
The authors used the unique institutional setup of Taiwan, where the law requires that audit reports be signed by two audit partners. The authors examined the effect of gender diversity composition among engagement auditors on KAM disclosure, considering behavioral differences between female and male auditors.
Findings
The empirical results indicate that gender diversity composition in the dual-signature environment is associated with the number of disclosed KAM items (KAMIT) and the length of the explanations for each KAMIT. Furthermore, the authors found that gender diversity composition, particularly when led by female audit partners, has a more pronounced impact on the explanation of each KAMIT rather than on the disclosure of KAMIT. The authors also noted that the moderating effect of audit firm specialization does not influence the gender diversity composition of audit partners in disclosing KAMs.
Originality/value
This study’s empirical findings demonstrate that the interaction between different gender compositions in a dual-signature environment influences KAM disclosure.
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Mohamed M. Eldyasty and Ahmed A. Elamer
This paper aims to examine the link between audit(or) type and restatements in Egypt, a complex and multifaceted auditing market. The usual big 4 versus non-big 4 comparison is…
Abstract
Purpose
This paper aims to examine the link between audit(or) type and restatements in Egypt, a complex and multifaceted auditing market. The usual big 4 versus non-big 4 comparison is insufficient as Egypt has a unique mix of private audit firms, one governmental agency (Accountability State Authority) and mandatory/nonmandatory audit services, including single, joint and dual audits.
Design/methodology/approach
The study uses a sample of listed companies in Egypt and analyzes the impact of auditor type and audit type on explicit, implicit and total restatements. The study uses logistic regression model to examine the underlying relationship.
Findings
Results show no relationship between auditor type and audit quality, positive association between non-big foreign CPA firms and total/implicit restatements and mixed results for the impact of dual audits on audit quality. The study found no link between auditor type and audit quality in Egypt. Egyptian audit firms linked to non-big 4 foreign Certified Public Accounting firms were positively linked to total and implicit restatements. Joint audits did not improve audit quality and were directly related to total and explicit restatements. Dual audits showed mixed results, positively associated with implicit restatements but inversely associated with explicit restatements.
Originality/value
The study provides valuable insights into the complexities of the auditing market in emerging markets and offers valuable insights for stakeholders in the financial statement users, audit firms and governmental agencies.
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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 new…
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.
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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 known…
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.
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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…
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.
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Mitchell Van der Zahn and Imen Tebourbi
Statistical analysis is based on annual data collected from 132 Boursa Kuwait listed firms from 2016 to 2019 (i.e. yielding 528 firm-year observations). During the observation…
Abstract
Purpose
Statistical analysis is based on annual data collected from 132 Boursa Kuwait listed firms from 2016 to 2019 (i.e. yielding 528 firm-year observations). During the observation window (i.e. 2016 to 2019) 116 firms switched from joint-to solo-audits. Level and change models test if audit quality (proxied by abnormal accruals) is impacted by joint-/solo-audit switching. Therefore this paper explores the audit quality following abolition of mandated joint-audits in Kuwait.
Design/methodology/approach
This paper investigates the impact on audit quality following abolition of mandated joint-audit requirements in 2016 in Kuwait. The study is differentiated from prior analysis by focusing on an emerging economy setting, and by considering a more expansive set of joint-audit pairings, solo-audit types and switching options.
Findings
Abolition of mandated joint-audit requirements prompted a majority of Boursa Kuwait listed firms to switch to solo-audits. Analysis indicates that switch does not significantly decrease audit quality. Also, audit quality changes are not dependent on the specific joint-audit pairing/solo-audit type switch.
Research limitations/implications
Analysis is based on a single national setting comprising a small set of firms. Nonetheless, results imply the impact of joint-/solo-audit switching following abolition of mandated requirements is more universal with generalizability to different economic settings.
Practical implications
Results indicate that following elimination of mandated joint-audit requirements, firms have a propensity to favor solo-audits. Irrespective of the joint-audit pairing and solo-audit type, findings show a joint-/solo-audit switch does not compromise audit quality.
Originality/value
Analysis is the first to investigate the impact of joint/solo-audit switches on audit quality in an emerging economy with tests considering more joint-audit pairings than assessed previously.
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