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Article
Publication date: 1 November 2006

Breda Sweeney and Bernard Pierce

The aim of the research is to investigate, using a field survey, the concept of underreporting of time (URT), from both an individual and organisational perspective as a defence…

4325

Abstract

Purpose

The aim of the research is to investigate, using a field survey, the concept of underreporting of time (URT), from both an individual and organisational perspective as a defence mechanism for coping with time budget pressure.

Design/methodology/approach

Big Four audit partners and seniors are interviewed regarding the factors that motivate staff auditors to engage in manipulation of time records and the consequences of the behaviour for individual auditors and audit firms.

Findings

Findings indicate that time record manipulation is not a single type of activity as suggested previously, but includes a variety of behaviours, six of which are identified in the study. Each of these constitutes a very different type of defence mechanism, motivated by different influences and resulting in different outcomes for the individual and the organisation. The firms engage in a defence mechanism characterised by a series of mixed messages to avoid dealing with inherent cost/quality conflicts and elements of this mechanism become embedded in routine activities at different levels in the firms.

Research limitations/implications

The implications for audit firms vary with the type of time record manipulation and future research therefore needs to concentrate on a closer examination of the various practices that make up URT as identified in this study.

Originality/value

The insights provided by the research are used to explain apparently conflicting arguments in the literature and to set out implications for research and practice.

Details

Accounting, Auditing & Accountability Journal, vol. 19 no. 6
Type: Research Article
ISSN: 0951-3574

Keywords

Article
Publication date: 27 July 2020

Nancy Chun Feng

Using a sample of US nonprofit organizations, where the identity of the auditor in charge of the audit is revealed, I investigate whether individual auditor characteristics…

Abstract

Purpose

Using a sample of US nonprofit organizations, where the identity of the auditor in charge of the audit is revealed, I investigate whether individual auditor characteristics (gender, engagement size and tenure) are associated with audit quality.

Design/methodology/approach

To investigate how individual audit partner characteristics affect audit quality, I follow Petrovits et al. (2011) and Fitzgerald et al. (2018) who investigate client characteristics and partner tenure as determinants of ICDs in nonprofits. I add three characteristics of the auditor in charge – gender, engagement size and tenure – to their models. In additional analyses, I use subsamples partitioned by client risk and audit firm size, and find that individual auditor characteristics generally play a more significant role in the issuance of ICDs and QAOs for riskier clients than for less risky clients.

Findings

My results show that female auditors are more likely to report internal control deficiencies and issue qualified audit opinions (QAOs) to nonprofits. I also find that auditors with more Single Audit engagements within the same year are less likely to report ICDs. In addition, auditor tenure is negatively associated with the likelihood of issuing an ICD report, suggesting that auditors become complacent as the length of the auditor–client relationship lengthens or, alternatively, that they are better able to assist their clients in correcting ICDs and in maintaining stronger internal control environments as they gain client-specific knowledge over time. Additional analysis suggests tenure and engagement load results are sensitive to the sample specification employed.

Research limitations/implications

One caveat of this study is that self-selection bias may be present when a client chooses an audit firm, the audit firm selects a client, and the audit firm assigns a partner to the engagement. Future study with more advanced econometric models is needed to mitigate self-selection bias. Another limitation is that my sample consists of nonprofit organizations and may not be generalizable to for-profit firms. Another caveat of this study is that the tenure variable is truncated compared to prior literature (e.g. Fitzgerald et al., 2018). Also given the rarity of audit quality measures in the nonprofit setting, internal control deficiencies and qualified opinions are used as proxies for audit quality because they reflect both the quality of audit work and the quality of organizations' internal control and financial reporting. Future studies with data including additional audit quality measures could shed more light on the topic.

Originality/value

This study contributes to the literature in several ways. First, this study offers a more comprehensive examination on the impact that a broader set of individual auditor characteristics on audit quality in the nonprofit setting, compared to Fitzgerald et al.'s (2018) study. Second, the findings should be of interest to policymakers who recently mandated engagement partner disclosures from US audit firms (PCAOB, 2015b). Finally, another distinctive feature of this study is that I examine the impact of individual auditor characteristics on audit quality in a setting where Big 4 audit firms are not dominant.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 32 no. 4
Type: Research Article
ISSN: 1096-3367

Keywords

Article
Publication date: 19 October 2020

Kanyarat (Lek) Sanoran

This study aims to examine whether audit partner public-client specialization and busyness impact the cost of debt.

Abstract

Purpose

This study aims to examine whether audit partner public-client specialization and busyness impact the cost of debt.

Design/methodology/approach

This paper uses data from companies in Thailand for the 1998–2016 period. To measure the cost of debt, this study uses the realized interest cost, measured as the total interest expense for the one year ahead divided by the average value of total debt outstanding during that year.

Findings

The results show a positive association between the cost of debt and two measures of public-client specialization and busyness, which are the number of public clients audited by an individual audit partner in each year and the proportion of the number of public clients divided by the number of total clients in an individual audit partner’s portfolio.

Originality/value

In the literature, there is a lack of research on whether a higher number of public clients in an audit partner’s portfolio leads to better or worse perceived audit quality. This study extends prior literature by examining whether creditors’ perception of audit quality depends on the audit partner specialization or busyness and specifically, on the number of public clients of the auditor. The findings indicate that public-client busyness of a particular audit partner, rather than the audit partner public-client specialization, matters in the cost of debt.

Details

Managerial Auditing Journal, vol. 35 no. 9
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 28 February 2023

Noor Adwa Sulaiman

This study provides insights into the meanings given to audit quality (AQ) by audit partners responsible for delivering audit services. It explores the influence of contextual…

Abstract

Purpose

This study provides insights into the meanings given to audit quality (AQ) by audit partners responsible for delivering audit services. It explores the influence of contextual factors in the auditing setting on constructing such meanings and its representations.

Design/methodology/approach

Drawing on a symbolic-interactionist framework, this study takes an interpretive approach, employing semi-structured interviews with audit partners from the United Kingdom (UK).

Findings

Three primary meanings of AQ are identified. First, in contradiction to that offered by “mainstream” AQ research, audit partners in this study predominantly regarded the meaning of AQ as an economic concept in the context of the “business” of auditing, delivering the service quality (e.g. value-added auditing and value-for-money) that is expected by their audit clients. Second, the audit partners also espouse the meaning of AQ to be “fit for purpose” audit documentation and adherence to quality control that meets the standards of compliance demanded by independent audit inspections. Third, and similar to the classic convention of AQ, audit partners consider “inputs” to AQ, attributes related to individual auditors (e.g. qualifications, experience and training) as one of the key AQ meanings. A range of stimuli underlies AQ meaning construction, including the audit firm's commercial interests, legitimacy, image management and social identity resulting from audit partners' interactions with audit clients, regulators, and their own self-reflexivity. Interestingly, this study identifies a considerable potential conflict between the meanings assigned to AQ, which suggests that auditors are struggling to strike a balance between the competing demands of those meanings.

Research limitations/implications

This exploratory study addresses only the audit partners' perceptions concerning the meaning of AQ. Findings of this study are relevant to auditors and other parties, such as regulators, in addressing competing dimensions of AQ and potential choices involving conduct and content in any individual audit engagement.

Originality/value

The study complements existing research into AQ by exposing the rationales and potential behaviours that underlie commitments to quality by those involved in commissioning audit engagements. It also adds detailed evidence of how contextual factors in the auditing environment interact with auditors' notions of AQ.

Details

Accounting, Auditing & Accountability Journal, vol. 36 no. 5
Type: Research Article
ISSN: 0951-3574

Keywords

Article
Publication date: 3 February 2023

Frendy and Fumiko Takeda

Partners are responsible for allocating audit tasks and facilitating knowledge sharing among team members. This study considers changes in the composition of partners to proxy for…

Abstract

Purpose

Partners are responsible for allocating audit tasks and facilitating knowledge sharing among team members. This study considers changes in the composition of partners to proxy for the continuity of the audit team. This study examines the effect of audit team continuity on audit outcomes (audit quality and report lags), pricing and its determinant (lead partner experience), which have not been thoroughly examined in previous studies.

Design/methodology/approach

This study employs string similarity metrics to measure audit team continuity. The study employs multivariate panel data regression empirical models to estimate a sample of 26,007 firm-years of listed Japanese companies from 2008 to 2019.

Findings

The study reveals that audit team continuity is negatively associated with audit fees, regardless of the auditor’s size. This finding contributes to the existing literature by showing that audit team continuity represents one of the determinant factors of audit fee. For clients of large audit firms, companies with higher (lower) audit team continuity issue audit reports in less (more) time. The experience of lead partners is a strong predictor of audit team continuity, irrespective of audit firm size. Audit quality is not associated with audit team continuity for either large or small audit firms.

Originality/value

This study proposes and examines audit team continuity measures that employ string similarity metrics to quantify changes in the composition of partners in consecutive audit engagements. Audit team continuity expands upon the tenure of individual audit partners, which is commonly used in prior literature as a measure of client–partner relationships.

Details

Journal of Accounting Literature, vol. 45 no. 2
Type: Research Article
ISSN: 0737-4607

Keywords

Article
Publication date: 7 March 2022

Min-Jeng Shiue, Peng-Chia Chiu, Li-Chun Kuo and Shu-Ling Yeh

The purpose of this study is to examine the association between audit partners’ signing networks and accruals quality, using the sample of Taiwanese publicly traded companies.

Abstract

Purpose

The purpose of this study is to examine the association between audit partners’ signing networks and accruals quality, using the sample of Taiwanese publicly traded companies.

Design/methodology/approach

This study uses four centrality measures as proxies in this study for the strength of the audit partners’ relationship networks and the absolute value of discretionary accruals to measure accruals quality.

Findings

Using the sample of publicly traded firms audited by the Big 4 accounting firms in Taiwan during the 2011–2017 period, this study finds that the centrality of an audit partner’s signing network is negatively associated with the absolute value of discretionary accruals. The result is robust to various discretionary accruals measures and survives the alternative explanation related to the endogenous matching between audit partners and their clients.

Originality/value

This study contributes to the understanding of the effect of the relationship network within an accounting firm on accruals quality. This is one of the few studies to empirically examine the strength of the audit partners’ relationship network as a factor in firms’ financial reporting quality, especially by using the sample from an emerging market. This study shows that the strength of the audit partners’ signing networks contains incremental information when assessing firms’ earnings quality. High-quality audit work is important to ensure high-quality financial reporting and the results of this study highlight that audit partners’ network linkages affect the quality of their work.

Details

Managerial Auditing Journal, vol. 37 no. 4
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 8 February 2021

Chenyong Liu and Chunhao Xu

The purpose of this study is to examine the effect of audit engagement partner's professional experience on audit quality. The authors also investigate the relationship between…

1228

Abstract

Purpose

The purpose of this study is to examine the effect of audit engagement partner's professional experience on audit quality. The authors also investigate the relationship between the audit partner's experience and audit fees in both Big 4 and non-Big 4 accounting firms.

Design/methodology/approach

Since the Public Company Accounting Oversight Board (PCAOB) officially enacted Rule 3211 in 2017, US accounting firms are required to disclose detailed information of engagement partners in Form AP (PCAOB, 2015b). The authors obtained a sample of 2,283 audit partners from Form AP and hand collected their individual professional experience data through Certified Public Accountant (CPA) database, corporate disclosure and social media sites (e.g. Linkedin). Econometric models with fixed effects are used in this study to test our hypotheses. Two-stage least square (2SLS) model is used in the robustness test.

Findings

The authors find that the relationship between audit engagement partner's professional experience and audit quality is concave. It indicates that audit quality is increasing during the early stage of engagement partners' career and then decreases as the partners approaching the late-career phase. Further, the authors find that partner's professional experience is positively associated with audit fees in non-Big 4 accounting firms but not significantly associated with audit fees in Big 4 accounting firms.

Practical implications

The finding of how auditor experience impacts audit quality can be useful for accounting firms to better plan their staffing in auditing engagements. This study’s results are also helpful for small accounting firms to optimize their pricing strategy.

Originality/value

This study provides new empirical evidence about the relation between auditor professional experience and audit quality. Furthermore, the authors extend the literature of audit fee determinants by testing the joint effects of audit firm-level factors and auditor individual-level professional experience on audit fees.

Details

Asian Review of Accounting, vol. 29 no. 2
Type: Research Article
ISSN: 1321-7348

Keywords

Article
Publication date: 16 June 2021

Mao-Feng Kao, Min-Jeng Shiue and Chien-Hao Tseng

This study aims to examine the Taiwan setting, where audit partners’ names are presented in the audit report and where audit committee formation is voluntary in the initial stage…

Abstract

Purpose

This study aims to examine the Taiwan setting, where audit partners’ names are presented in the audit report and where audit committee formation is voluntary in the initial stage of audit committee reform. This paper investigates the effects of the formation of voluntary audit committees on the selection of individual audit partners, and, in turn, the audit quality. This contrasts with previous studies investigating the relationship between audit committees and auditor selection at the audit firm level.

Design/methodology/approach

This paper samples all of Taiwan’s publicly listed firms for the period 2007–2012 and uses Heckman’s (1979) two-stage estimation model to achieve our objectives.

Findings

Using different characteristics of individual engagement partners as proxies for a higher quality auditor, the main empirical results show that voluntary audit committee formation is positively related to an industry specialist lead partner and a lead partner that has a larger number of clients. In addition, this paper also finds that voluntary audit committee formation has a positive impact on audit quality (proxied by discretionary accruals). The results suggest that the voluntary formation of an audit committee contributes positively to both auditor selection and audit quality. Furthermore, an additional test shows that the main empirical results are robust to a validity threat that firms that have good corporate governance prior to the formation of voluntary audit committees tend to select high-quality audit partners.

Originality/value

The paper contributes to the audit committee literature in the following ways: this paper takes advantage of Taiwan’s unique setting, where forming an audit committee is not compulsory in the initial stage of audit committee reform, to investigate the voluntary audit committee, auditor selection and audit quality; this paper expands on Abbott and Parker’s (2000) study of audit committee characteristics and auditor selection at the audit firm level by examining this relationship at the individual audit partner level; this paper responds to the call by Church et al. (2008) and DeFond and Francis (2005) who propose more studies on audit quality at the individual engagement partner level.

Details

Managerial Auditing Journal, vol. 36 no. 4
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 13 June 2023

Yosra Mnif and Imen Cherif

This study aims to examine the relationship between the individual auditor’s industry specialization and the audit report lag (hereafter ARD). Further, it explores whether…

Abstract

Purpose

This study aims to examine the relationship between the individual auditor’s industry specialization and the audit report lag (hereafter ARD). Further, it explores whether changing in the audit reporting requirement (i.e. the adoption of ISA701) influences the auditor’s industry specialization effect on the ARD.

Design/methodology/approach

A large data set of companies listed on the NASDAQ OMX Stockholm over the period 2010–2019 has been analyzed. Least squares regressions have been estimated to provide empirical evidence for the researched hypotheses.

Findings

The research findings indicate that the ARD is shorter for client firms audited by an industry specialist audit partner. Testing for the moderating role of changing in the auditing reporting regulation on the relation between the audit partner’s industry specialization and the ARD, the authors reveal that all client firms (except client firms with industry specialist audit partners) experienced an increase in the ARD. Overall, the baseline regression findings are found to be robust to the endogenous auditor choice and multiple measures of both the ARD and the auditor’s industry specialization.

Originality/value

This paper provides novel evidence on the relationship between the audit reporting lag and industry specialization from the individual auditor perspective, an issue that has hitherto been unexplored. The regression results further contribute to the upsurge debate about the consequences of changing in the audit reporting model by providing consistent support for the importance of industry specialization of the audit partner in minimizing costs derived from the former requirement.

Details

Journal of Financial Reporting and Accounting, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 30 August 2021

Yun Cheng, Christine M. Haynes and Michael D. Yu

Auditing studies have shifted the research focus from the audit firm level to the individual audit partner level in recent years. Motivated by the call from Lennox and Wu (2018…

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Abstract

Purpose

Auditing studies have shifted the research focus from the audit firm level to the individual audit partner level in recent years. Motivated by the call from Lennox and Wu (2018) to explore the effect of audit partners’ characteristics on audit quality in the US, this study aims to develop a new measure of engagement partner workload (EPW), which includes both the size and number of clients audited to test the effect of EPW on audit quality. This study also examines the moderating effect of the partner firm size on audit quality.

Design/methodology/approach

To test the effect of the EPW on audit quality, this study runs multivariate regressions of EPW on each specific client’s discretionary accruals and audit report delays. This study also runs a logistic regression of EPW on clients’ probability of having small profit increases to meet performance benchmarks.

Findings

Results of the hypotheses show that partner workload is positively related to audit quality. The results indicate that partners with larger, but fewer, clients conduct higher quality audits. Further analysis indicates that the relationship between partner workload and audit quality only holds for partners from the non-Big 4 firms.

Originality/value

This study contributes to the literatures of both audit quality and audit partner characteristics, and the results complement initial research aimed at identifying US partner-related characteristics that influence audit quality.

Details

Managerial Auditing Journal, vol. 36 no. 8
Type: Research Article
ISSN: 0268-6902

Keywords

1 – 10 of over 14000