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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…

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…

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1853

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: 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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3055

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: 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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1459

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

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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 dual‐audit/jointaudit 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 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

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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…

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1705

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

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Article
Publication date: 1 March 2012

Xiaoli (Charlie) Yuan, Dennis M. López and Dana A. Forgione

The purpose of this paper is to analyze the market for audit services for publicly traded companies operating in the US for-profit (FP) healthcare sector. Complex national…

Abstract

The purpose of this paper is to analyze the market for audit services for publicly traded companies operating in the US for-profit (FP) healthcare sector. Complex national and local healthcare laws and regulations suggest the importance of assessing fee effects of joint nationallevel and city-specific expertise among auditors. Using cross-sectional OLS regression analysis, we find that joint expertise significantly affects audit pricing in the healthcare sector. We find a fee premium of 33.6 percent on engagements where auditors are both national and city-specific specialists. We also find that Big-4 auditor reputation is significantly priced over and above the effects of joint auditor expertise, and a significant positive association exists between audit and non-audit service fees-indicating the presence of knowledge spillover effects among healthcare company auditors.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 24 no. 4
Type: Research Article
ISSN: 1096-3367

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Article
Publication date: 18 October 2021

Deepa Mangala and Neha Singla

This study aims to investigate the role of corporate governance practices in restraining earnings management in Indian commercial banks.

Abstract

Purpose

This study aims to investigate the role of corporate governance practices in restraining earnings management in Indian commercial banks.

Design/methodology/approach

Estimation of earnings management is based on discretionary loan loss provision and discretionary realised security gains and losses using Beatty et al. (2002) model. The effect of corporate governance on earnings management is examined by performing two-way least square dummy variable regression. Data for a period of five years (2016–2020) is collected from the Centre for Monitoring Indian Economy ProwessIQ database, Reserve Bank of India website, annual report of banks, National Stock Exchange and bank’s website.

Findings

Regression results exhibit that number of board committees, size and independence of audit committee and joint audit are significantly effective in curbing earnings management. Other board-related variables (size, independence, meetings and diligence) and audit committee variables (meetings and diligence) are not effective in restraining earnings management in Indian banks.

Practical implications

The findings may prove to be helpful to regulators, board of directors and investors. It shows the weak area of corporate governance in India that is lack of autonomy to independent directors, which needs regulators attention and it also suggests that the number of independent auditors should be adequate for audit purposes. The board of directors must ensure the formulation of an adequate number of committees, which perform their own super specialised functions. This study brings an alarm to investors not to rely on reported earnings alone as they may be manipulated.

Originality/value

This paper substantiates the scant literature on the role of corporate governance practices in restraining earnings management in banks of emerging markets and to the best of the authors’ knowledge impact of joint audits on earnings management is previously unexplored in Indian banks, which are examined in this study.

Details

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

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Article
Publication date: 10 April 2017

Mondher Fakhfakh

The purpose of this paper is to examine the level of harmonization of auditors’ reports issued by independent auditors of Islamic banks.

Abstract

Purpose

The purpose of this paper is to examine the level of harmonization of auditors’ reports issued by independent auditors of Islamic banks.

Design/methodology/approach

The homogenization of the auditors’ reports of Islamic banks has been statistically measured. Supranational auditing standards on auditors’ reports (ISA 700 and AAOIFI standard) are used as the control.

Findings

The results show lack of harmonization in several elements related to the form of the auditor’s report and in all elements related to the content of the auditor’s report among the Islamic banks.

Originality/value

This paper provides new empirical evidence about the measurement of harmonization in the form and content of the auditors’ reports of Islamic banks. It discusses the level of compliance with the elements enumerated by the standards issued by the International Federation of Accountants and the Accounting and Auditing Organization for Islamic Financial Institutions.

Details

Journal of Islamic Accounting and Business Research, vol. 8 no. 2
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 1 October 2019

Arnab Bhattacharya and Pradip Banerjee

This paper aims to examine various factors affecting the pricing of audit services and the selection of auditors in the Indian audit market. This paper also aims to…

Abstract

Purpose

This paper aims to examine various factors affecting the pricing of audit services and the selection of auditors in the Indian audit market. This paper also aims to investigate the impact of financial distress conditions on the audit pricing and auditor choice decisions of a firm, particularly in the context of a developing economy.

Design/methodology/approach

The sample comprises 22,644 firm-years for 1,366 Indian firms from 1990 to 2015. The authors adopt ordinary least squares regression technique to model audit fee, and logistic regression technique to model auditor choice as a function of various factors relating to firm attributes and auditor characteristics.

Findings

This paper finds that auditors tend to charge an audit fee premium when they are affiliated to a Big 4 auditor, have industry specialization or jointly provide auditing and non-auditing services. Additionally, firms with larger boards, higher proportion of independent board of directors and CEO–Chairman separation are more likely to choose a Big 4-affiliated auditor. The results also suggest that financially distressed firms tend to pay significantly lower audit fees and are more likely to choose non-Big 4 auditors.

Originality/value

This paper is among the few studies which investigate how financial distress impacts the audit pricing and auditor choice decisions of a firm in the context of emerging economies. The findings of this paper raises serious concerns about the credibility of the audited financial statements and corporate governance mechanisms of firms undergoing financial distress. The empirical results of this paper have strong implications for practitioners, regulators and investors.

Details

Managerial Auditing Journal, vol. 35 no. 1
Type: Research Article
ISSN: 0268-6902

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