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Article
Publication date: 25 February 2018

Reiner Quick and Florian Schmidt

As a consequence of the global financial and economic crisis, the European Commission recently reformed the audit market. One objective was to restore public trust in the…

Abstract

As a consequence of the global financial and economic crisis, the European Commission recently reformed the audit market. One objective was to restore public trust in the auditing profession and thus to enhance the audit function. This study investigates whether perceptions of auditor independence and audit quality are influenced by audit firm rotation, auditor retention and joint audits, because regulators argue that these instruments can improve auditor independence and audit quality. Therefore, we conduct an experiment with bank directors and institutional investors in Germany. The results indicate a negative main effect for joint audits on perceived auditor independence, and that a rotation cycle of 24 years marginally significantly impairs participant perceptions of audit quality, compared to a rotation cycle of only ten years. Besides the main effects, planned contrast tests suggest a negative interaction between rotation and joint audit on participant perceptions of auditor independence. Moreover, a negative interaction effect is revealed between rotation after 24 years and retention on perceptions of audit quality. It is particularly noteworthy that we failed to identify a positive impact of the regulatory measures taken or supported by the European Commission on perceptions of auditor independence and audit quality.

Details

Journal of Accounting Literature, vol. 41 no. 1
Type: Research Article
ISSN: 0737-4607

Keywords

Article
Publication date: 31 May 2022

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…

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.

Details

Journal of Applied Accounting Research, vol. 24 no. 1
Type: Research Article
ISSN: 0967-5426

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Article
Publication date: 22 January 2020

Hana Ajili and Hichem Khlif

The purpose of this paper is to examine the association between political connections and tax avoidance in Islamic banking industry and to test whether joint audit affects…

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Abstract

Purpose

The purpose of this paper is to examine the association between political connections and tax avoidance in Islamic banking industry and to test whether joint audit affects this relationship.

Design/methodology/approach

Tax avoidance is measured using effective tax rate while political connections represent an indicator variable that equals 1 if a bank has at least one politically connected director on the board of directors and zero otherwise.

Findings

This study documents that political connections are negatively associated with effective tax rate, while joint audit is positively related to the same variable. We also find that the negative association between political connections and effective tax rate becomes insignificant for joint-audited banks, while it remains negative and significant for banks audited by one auditors.

Originality/value

The findings of this study have policy implications for banking industry because joint audit reduces the adverse effect of political connections on tax avoidance.

Details

Journal of Financial Crime, vol. 27 no. 1
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 3 February 2014

Claus Holm and Frank Thinggaard

The authors aim to exploit a natural experiment in which voluntary replace mandatory joint audits for Danish listed companies and analyse audit fee implications of using…

1980

Abstract

Purpose

The authors aim to exploit a natural experiment in which voluntary replace mandatory joint audits for Danish listed companies and analyse audit fee implications of using one or two audit firms.

Design/methodology/approach

Regression analysis is used. The authors apply both a core audit fee determinants model and an audit fee change model and include interaction terms.

Findings

The authors find short-term fee reductions in companies switching to single audits, but only where the former joint audit contained a dominant auditor. The authors argue that in this situation bargaining power is more with the auditors than in an equally shared joint audit, and that the auditors' incentives to offer an initial fee discount are bigger.

Research limitations/implications

The number of observations is constrained by the small Danish capital market. Future research could take a more qualitative research approach, to examine whether the use of a single audit firm rather than two has an effect on audit quality. The area calls for further theory development covering audit fee and audit quality in joint audit settings.

Practical implications

Companies should consider their relationship with their auditors before deciding to switch to single auditors. Fee discounts do not seem to reflect long-lasting efficiency gains on the part of the audit firm.

Originality/value

Denmark is the first country to leave a mandatory joint audit system, so this is the first time that it is possible to study fee effects related to this.

Details

Managerial Auditing Journal, vol. 29 no. 2
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 25 February 2022

Lassaad Abdelmoula

Using a sample of 250 Tunisian companies, this paper aims to assess the joint audit mission quality in Tunisia.

Abstract

Purpose

Using a sample of 250 Tunisian companies, this paper aims to assess the joint audit mission quality in Tunisia.

Design/methodology/approach

The present work aimed at investigating the determining factors of the joint audit quality.

Findings

A total of nine essential determining factors were predictably identified: length of service, experience, size asymmetry between the joint auditors, complexity, governance, expertise, information and communications technology use, profitability and staff qualification. However, results show that specialization, satisfaction, the supply of services other than audit, work distribution, leverage as well as size have a positive but non-significant correlation with the joint audit quality, which may be due to the Tunisian context.

Originality/value

Many previous works have been conducted on joint audit in France (Haak et al., 2018), Denmark (Lesage et al., 2017), Germany (Velte and Azibi, 2015), Sweden (Zerni et al., 2012) and Italy (Bianchi et al., 2019). However, to the authors’ knowledge, the Tunisian context is still under-studied and, thus, the objective was to fill this gap in the literature b.y examining the determinants of the quality of joint audit in Tunisia.

Details

EuroMed Journal of Business, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1450-2194

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Article
Publication date: 9 January 2007

Charles Piot

The French law uses jointauditing as an audit quality device. This regulation also indirectly preserves market competition by reducing the domination of the large audit

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Abstract

Purpose

The French law uses jointauditing as an audit quality device. This regulation also indirectly preserves market competition by reducing the domination of the large audit firms. However, concerns emerge about the effects of recent auditor mergers on the effectiveness of jointauditing: the reduced number of audit suppliers may favour the development of too frequent jointauditing collaborations, causing routine cross‐reviews and interdependencies between co‐auditors. This study aims to address this issue.

Design/methodology/approach

The market shares, individual performance, and jointaudit interconnections (attraction‐repulsion indices) of the main audit networks in France are investigated for the year 1997 and again for the year 2003.

Findings

Despite the concentration of the audit market for listed companies globally, descriptive market analyses suggest that competition in the audit market has not decreased: the PricewaterhouseCoopers merger in 1998 did not produce any gain in market share to the newly‐formed network; the French member of Arthur Andersen suffered an effective erosion of its audit portfolio resulting from the infamous Enron case; and some national audit networks have maintained significant market positions. Contrary to expectations, the increased concentration did not result in abnormally frequent collaborations between the main audit firms.

Research limitations/implications

The jointauditing interconnections are based on the number of common audit clients, and this approach does not take into account the different sizes of the auditees.

Originality/value

This paper is an original approach of auditor concentration in a jointauditing environment. To regulators, the results of this study suggest that jointauditing can be utilised as a mechanism to preserve market competition and thus potentially maintaining audit quality.

Details

Managerial Auditing Journal, vol. 22 no. 2
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 18 March 2022

Yusun Jung and Moon-Kyung Cho

This paper aims to examine the extent to which two commonly recommended information sharing and communication interventions, direct reporting lines between the internal…

Abstract

Purpose

This paper aims to examine the extent to which two commonly recommended information sharing and communication interventions, direct reporting lines between the internal audit function (IAF) and the audit committee (AC) and their joint reviews of internal audit standards and procedures, improve the internal audit in the continuous audit control and monitoring efforts.

Design/methodology/approach

This study uses data from the Audit Intelligence Suite-Benchmarking (AIS) Report for the years 2007 to 2016 published by the Institute of Internal Auditors. The authors test the research hypotheses using the ordinary least squares regression method.

Findings

Functional reporting lines from the IAF to the AC positively impact the internal audit, but administrative lines have a negative impact. Reviews conducted jointly between the IAF and the AC positively influence the internal audit. The impacts of reporting lines and joint reviews are also associated with accounting complexity within a given industry, organizational control structure, organizational scope and the level of IAF’s responsibilities over internal control environment to comply with Sarbanes–Oxley (SOX) Act of 2002.

Research limitations/implications

Because the study uses AIS data, operationalization of variables is constrained to items in the given data set. Future studies, including field studies, may identify other variables and measures using diverse data sources. This study expands the knowledge of effective means of information sharing and communication to enhance interactions between the IAF and the AC.

Practical implications

The results suggest that the use of reporting lines should correspond to accounting complexity, organizational control structure, organizational scope, and reliance on the IAF in handling SOX responsibilities. They also highlight the importance of joint reviews between the IAF and AC in ensuring a high-quality internal audit.

Originality/value

The authors envisioned reporting lines and joint reviews as an excellent tool to balance the relationship between the IAF and the AC for continuous internal auditing beyond generating internal audit reports according to the US Committee of Sponsoring Organizations of the Treadway Commission framework Principle 14.

Details

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

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Article
Publication date: 1 June 1997

Tang Chi Cheung and Chen Qiang

Describes the internal audit function in a joint venture company. Auditing joint ventures is a fascinating topic, particularly when it involves the nuclear power industry…

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Abstract

Describes the internal audit function in a joint venture company. Auditing joint ventures is a fascinating topic, particularly when it involves the nuclear power industry and partnership between China and a foreign collaborator. The internal audit function was established right at the outset and has a high profile in the corporate governance structure. Its position is safeguarded in an audit charter, and a whole range of techniques and approaches guarantees a comprehensive service based on risk assessment. A combination of specific audits, special studies, internal control verifications, pre‐award audits and irregularities reports demonstrate that the internal audit arrangements are at the cutting edge of best practice.

Details

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

Keywords

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 dual‐audit/jointaudit process and the level of compliance with IFRS in listed Kuwaiti financial institutions.

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Abstract

Purpose

The purpose of this paper is to examine the use of a dual‐audit/jointaudit 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/jointaudit 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

Keywords

Article
Publication date: 12 September 2016

Mishari M. Alfraih

The purpose of this paper is to examine the effect of audit quality on the value relevance of earnings and book value. Because joint audit is mandated for all Kuwait Stock…

1892

Abstract

Purpose

The purpose of this paper is to examine the effect of audit quality on the value relevance of earnings and book value. Because joint audit is mandated for all Kuwait Stock Exchange-listed firms, it is hypothesized that the higher the quality of the audit team (as measured by the number of Big 4 audit firms in the joint audit team), the higher the value relevance of earnings and book values for equity valuation.

Design/methodology/approach

Consistent with prior research, the value relevance of earnings and book value is measured by the adjusted R2 derived from the Ohlson’s 1995 regression model. The number of Big 4 audit firms represented on the firm’s audit team is used as a proxy for audit quality. Three tiers of audit quality exist, namely, two non-Big 4 audit firms, one Big 4 and one non-Big 4 audit firms or two Big 4 audit firms. To address this paper’s objective, the association between audit quality and the value relevance of earnings and book value were examined using four approaches. The final sample consists of 1,836 firm-year observations and covers fiscal years from a 12-year period (2002-2013).

Findings

Taken together, the four approaches used collectively provide empirical evidence that audit quality positively and significantly affects the value relevance of accounting measures to market participants. Importantly, the results reveal significant variations in the value relevance of earnings and book value jointly across the three possible auditor combinations.

Research limitations/implications

Although using auditor size as a proxy for audit quality is well established in the auditing literature, a limitation of that proxy is that it measures audit quality dichotomously, which implicitly assumes a homogeneous level of audit quality within each group.

Practical implications

The findings show the importance of high-quality and rigorous external audits in improving the value relevance of accounting information.

Originality/value

This study contributes to the extent literature on audit quality by exploring the role of audit quality in a unique institutional setting that imposes mandatory joint audits. Although prior studies have investigated the effect of joint audit pair choice on earnings management and audit fee premium, this study is the first to investigate the effect of joint audit pair choice on the value relevance of accounting information.

Details

International Journal of Law and Management, vol. 58 no. 5
Type: Research Article
ISSN: 1754-243X

Keywords

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