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Article
Publication date: 10 March 2022

Kam-Wah Lai

Regulators treat all non-audit services the same by using a broad-brush approach which is reflected in the study of total non-audit fees in the same analyses or different…

Abstract

Purpose

Regulators treat all non-audit services the same by using a broad-brush approach which is reflected in the study of total non-audit fees in the same analyses or different non-audit fees in isolation by prior studies. To know whether the non-audit services have different effects and hence, should be regulated separately, this paper compares their effects on audit report lag and examines whether they follow the implied hierarchy of the Securities and Exchange Commission.

Design/methodology/approach

The effects of audit-related non-audit fees, tax fees and other non-audit fees are compared in an audit report lag model to determine whether they are the same statistically. Supporting tests for audit quality use discretionary accruals and the reporting of a small profit or small positive change in profit.

Findings

This paper finds that different non-audit fees do not have the same effects on report lag and partial support for the implied hierarchy of the Commission. Specifically, for large accelerated filers, audit-related fees and tax fees have the same negative effects on report lag but other non-audit fees are unrelated to report lag. Tests of audit quality suggest that auditors do not compromise audit quality.

Research limitations/implications

Different non-audit services are unique in their spillover effects and deserve individual attention. Audit practitioners could be more comfortable in providing audit-related non-audit or tax services for audit clients since these services could facilitate audit work without compromising independence. On the other hand, they should be cautious about the provision of other non-audit services because the services do not enhance the efficiency of audit work and without such a benefit to audit clients, the provision may create issues of perceived independence.

Practical implications

Insight is limited by the types of disclosure of non-audit fees available and the lack of internal measures of audit efficiency.

Originality/value

The results provide deeper insight into the knowledge spillover theory and prior studies which implicitly assume all non-audit services having the same effect. The results suggest that the services should be regulated each on its own but not in a bundle. Last, this paper provides the first evidence that audit-related non-audit fees reduce report lag.

Details

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

Keywords

Article
Publication date: 29 March 2022

Yahn-Shir Chen, Enny Susilowati Mardjono and Yi-Fang Yang

To maintain auditor independence, Section 201 of the Sarbanes–Oxley Act of 2002 (SOX) imposes restrictions on audit firms in rendering management advisory services (MASs…

Abstract

Purpose

To maintain auditor independence, Section 201 of the Sarbanes–Oxley Act of 2002 (SOX) imposes restrictions on audit firms in rendering management advisory services (MASs) to audit clients. Responding to the requirement, audit firms establish a strategic alliance with consulting companies to expand their scope of services to alleviate the impairment of auditor independence. Taiwan follows the spirit of SOX in related laws and regulations. To investigate the effects of SOX on Taiwanese auditing industry, this study aims to examine the relationship between MASs and operating performance of audit firms.

Design/methodology/approach

This study obtains empirical data from the 1989–2017 Survey Report of Audit Firms in Taiwan, published by the Financial Supervisory Commission (FSC). FSC administers the survey across all registered audit firms annually to collect business information on the auditing industry for macro-economic analysis and industrial policy development. The authors group audit firms into three categories: national, regional and local firms. Based on the structure-conduct-performance (S-C-P) theoretical framework, this study establishes the following cross-sectional regression equation to test the authors’ hypotheses.

Findings

Main results indicate that national firms have better post-SOX firm and alliance performance. Both firm and alliance MASs contribute more to the performance of national firms after SOX.

Practical implications

This study claims that national firms establish alliance with consulting companies for resource sharing but regional and local firms for tax-saving.

Originality/value

Consistent with the economic theory of regulation and resource-based theory, SOX matters in Taiwan.

Details

Managerial Auditing Journal, vol. 37 no. 5
Type: Research Article
ISSN: 0268-6902

Keywords

Abstract

Details

Research on Professional Responsibility and Ethics in Accounting
Type: Book
ISBN: 978-0-76231-393-8

Article
Publication date: 25 October 2021

Emiliano Ruiz-Barbadillo and Jennifer Martínez-Ferrero

Sustainability assurance services are carried out in a competitive market where a wide range of assurance providers operate without the need for any specific professional…

Abstract

Purpose

Sustainability assurance services are carried out in a competitive market where a wide range of assurance providers operate without the need for any specific professional qualifications, competencies or skills. Assurance providers have heterogeneous professional backgrounds and experiences that lead to substantial diversity in sustainability assurance quality levels. This paper aims to provide an understanding of sustainability assurance quality. From a legitimacy perspective, the authors focus on the choice of assurance providers by exploring why a company voluntarily chooses an incumbent financial auditor to jointly provide audit and sustainability assurance services. The authors argue that to avoid the legitimacy threats undermining stakeholders’ confidence in the sustainability information disclosed, companies should only choose their incumbent financial auditors to provide sustainability assurance services when these auditors possess the professional attributes associated with sustainability assurance quality.

Design/methodology/approach

This study develops regression models for an international sample for 2007–2016, where the authors analyze why a company voluntarily chooses an incumbent auditor to jointly provide audit and sustainability assurance services from a legitimacy theory perspective.

Findings

Evidence confirms that the choice of incumbent auditors as assurance providers is more likely when these providers are more specialized in the industry. The authors also find that independence does not play a significant role in this decision. Therefore, an assurance provider’s industry specialization can be understood as an attribute that is associated with sustainability assurance quality and one which limits the legitimacy threats caused by a lack of sufficient sustainability knowledge.

Practical implications

Given that companies have complete freedom when choosing their assurance providers, the selection of a high-quality incumbent auditor is an indirect measure of social commitment and a mechanism to improve public trust. The results confirm that it is fundamental for firms to understand the situations when choosing an incumbent financial auditor to provide sustainability assurance services is the best way to ensure firm legitimacy while obtaining higher sustainability assurance quality due to the spillover effect. This paper provides useful evidence for firms and managers who can become aware that the legitimacy threat associated with the auditing profession’s questionable competence to conduct efficient sustainability assurance engagements can be reduced if they hire an incumbent financial auditor with greater industry specialization. For assurance providers, the results are especially useful, as they should know that companies will be more likely to choose their incumbent financial auditor when that auditor possesses certain professional attributes, like industry specialization. The ability to assimilate and exploit the knowledge gained through auditing activities can be improved even more by specialization, which enhances sustainability assurance quality.

Social implications

From a social perspective, stakeholders perceive industry specialization as an indicator of the professional skills necessary to increase both the real and perceived quality of sustainability assurance services, thereby limiting the legitimacy threat arising from a lack of sustainability knowledge. The evidence also provides valuable results for regulatory bodies, as it shows that firms are not able to address the legitimacy gap caused by stakeholders’ perceptions that incumbent financial auditors can easily be controlled by companies. Thus, doubts arise as to whether this joint provision undermines auditor independence. Precisely, these doubts about assurance provider independence can erode public confidence in assurance and devalue the quality of the service. The results of this paper highlight the need to strengthen regulation on sustainability reporting and assurance. The advances and relevance of sustainable development in recent years and in future agendas require a firm commitment to sustainability reporting and assurance of quality, reliability, integrity and confidence.

Originality/value

First, this study contributes to recent empirical studies that focus on the role of sustainability assurance services in the legitimation process of corporate sustainability reporting. However, while that research analyzes how the legitimacy theory explains the voluntary adoption of sustainability assurance, this paper adds to the literature by presenting evidence about why certain incumbent auditors are appointed to carry out sustainability assurance services. Second, this paper contributes to the sustainability assurance quality literature. Third, unlike previous studies that have regressed various client-specific and institutional factors that influence firms’ decisions to choose assurance providers, this study contributes to the research by providing knowledge about a set of professional features that may explain the decision model of assurance providers selection from a legitimacy perspective.

Details

Sustainability Accounting, Management and Policy Journal, vol. 13 no. 2
Type: Research Article
ISSN: 2040-8021

Keywords

Article
Publication date: 25 August 2021

Athuman Kalokola Mahyoro and Pendo Shukrani Kasoga

The purpose of this study is to examine how the level of attributes of the internal audit function relates to the effectiveness of internal audit services in local…

Abstract

Purpose

The purpose of this study is to examine how the level of attributes of the internal audit function relates to the effectiveness of internal audit services in local government authorities (LGAs) in Tanzania.

Design/methodology/approach

Data have been collected through a survey whereby 510 respondents from LGAs in Tanzania through their Heads of Internal Audit Functions, Internal Auditors and Chairpersons of Audit Committees respond to the questionnaire. The data were subjected to principal component analysis and exploratory factor analysis to reduce the set of items and to provide continuous scores for use in multiple regression analyses.

Findings

The findings reveal that audit quality; organization setting and auditee attributes have a significant positive influence on the effectiveness of internal audit services in LGAs in Tanzania.

Research limitations/implications

The study covered only LGAs in Tanzania. Future research in this field should address the gaps identified in the study.

Practical implications

This paper highlights areas that need management attention on the improvement of the effectiveness of internal audit units.

Originality/value

This paper contributes to the literature of both internal auditing and management studies by linking the level of attributes of internal audit function which are audit quality, organization setting, auditee attributes and effectiveness of internal audit services in Tanzania.

Details

Managerial Auditing Journal, vol. 36 no. 7
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 30 September 2008

Kym Boon, Jill McKinnon and Philip Ross

The paper aims to analyse audit service quality attributes that were perceived to be important in compulsory audit tendering (CAT) in local councils in New South Wales…

4116

Abstract

Purpose

The paper aims to analyse audit service quality attributes that were perceived to be important in compulsory audit tendering (CAT) in local councils in New South Wales (NSW). It focuses principally on whether CAT leads to an impairment of auditor independence and audit quality.

Design/methodology/approach

A questionnaire survey was conducted of 235 NSW local council finance professionals and 35 local council internal auditors in May 2006.

Findings

The most important attributes in evaluating audit service quality were industry expertise, audit firm experience with a council, technical competence, independence, ethical standards and due care. The least important attributes were scepticism, freshness of perspective, audit firm size, and non‐audit services. There is considerable consistency in the findings with those in non‐CAT contexts.

Research limitations/implications

The paper is subject to the general limitations of the survey questionnaire method. A further limitation is that audit quality was assessed using perceptions of audit service quality by preparers of local council financial statements, rather than by users of those statements.

Practical implications

Audit firms will be better able to understand the audit service quality attributes valued by local council clients, to differentiate their promotional and service‐provision strategies, improve their audit quality, and better satisfy local council clients. Concerns that CAT may impair audit independence and audit quality do not appear to be founded.

Originality/value

Because the results are generally consistent with findings in non‐CAT contexts, there can be more confidence in CAT as a regulatory form of audit procurement.

Details

Accounting Research Journal, vol. 21 no. 2
Type: Research Article
ISSN: 1030-9616

Keywords

Article
Publication date: 3 May 2016

Naruanard Sarapaivanich and Paul G. Patterson

This study aims to examine the extent to which switching costs moderates the impact of trust, value and attractiveness of alternatives on client repatronage intentions.

Abstract

Purpose

This study aims to examine the extent to which switching costs moderates the impact of trust, value and attractiveness of alternatives on client repatronage intentions.

Design/methodology/approach

The study combines qualitative and quantitative methodologies to create a cross-sectional survey covering four geographic regions in Thailand. Adopting a contingency perspective, the authors examine the moderating impact of two switching costs (economic and security) on the association among trust, value, attractiveness of alternatives and repatronage intentions.

Findings

A study of 519 small- and medium-sized enterprise (SME) clients of audit firms confirms the main effects of trust, value and alternative attractiveness on client retention; some but not all linkages are moderated by the costs of switching.

Researchlimitations/implications

This article focuses on one specific segment (SMEs) and one category of professional services. It would be worthwhile to extend the findings to larger firms and other professional services.

Originality/value

The study contributes to the understanding of relationship continuance among professional services clients by shifting the focus to when and in which contingency conditions trust, value and attractiveness of alternatives have greater or lesser impacts on repatronage intentions.

Details

Accounting Research Journal, vol. 29 no. 1
Type: Research Article
ISSN: 1030-9616

Keywords

Article
Publication date: 30 September 2014

David N. Herda, Michael J. Petersen and Richard Fontaine

– The purpose of this paper is to determine if self-serving bias affects audit client satisfaction level with their audit firm.

1141

Abstract

Purpose

The purpose of this paper is to determine if self-serving bias affects audit client satisfaction level with their audit firm.

Design/methodology/approach

A 2×2 between-subjects design is used, where the authors experimentally manipulate the level of client involvement in the audit and the extent of value-added services the client received.

Findings

Using a sample of 115 financial managers (audit clients), the authors find no evidence that self-serving bias exists among clients in the experimental setting. Rather, they find that clients appear to be more satisfied with their auditor when they (clients) participate more in the service exchange.

Research limitations/implications

The research is limited to a specific context within the privately held company audit setting.

Practical implications

Audit firms may consider encouraging their privately held clients to participate more in the audit process by clearly communicating expectations and providing clients with audit preparedness materials, including templates and training where necessary.

Originality/value

Although the self-serving bias has been shown to exist in the marketing literature, the authors present a setting where the relationship between service provider (auditor) and customer (client) is such that the self-serving bias may not hold.

Details

Managerial Auditing Journal, vol. 29 no. 9
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 27 September 2018

Asmerom Atewebrhan Ghebremichael

This study uses conceptualizations and models of service quality and behavioural intentions from the service marketing and audit quality literature to investigate the…

Abstract

Purpose

This study uses conceptualizations and models of service quality and behavioural intentions from the service marketing and audit quality literature to investigate the influence of supervisory board members’ perceptions about various dimensions of audit quality on their behavioural intentions. These dimensions pertain to auditor’s technical competence, functional (service) quality and auditor independence.

Design/methodology/approach

A survey of supervisory board members of large and medium companies in The Netherlands is made to identify audit quality dimensions. The multivariate analysis is used to identify the quality dimensions influencing supervisory board members’ behavioural intentions.

Findings

Overall, the author’s results indicate that the quality dimensions identified in this study have significant influence mainly in the supervisory board members’ intention to refer their auditors to an acquaintance. In this regard, the salient determinants are the functional quality dimensions and auditor independence. The technical quality dimensions are not found to be crucial. In contrast, most of the quality dimensions are not significant determinants of supervisory board members’ intention to retain or recommend the purchase of non-audit services from the auditor albeit having a minor influence. The results have some implications for regulators and audit firms.

Research limitations/implications

The author’s results are limited by the low response rate that did not allow us to conduct factor analysis on all the functional and technical variables at the same time.

Originality/value

This paper is the first to integrate service quality and behavioural intentions concepts from the marketing literature and auditing literature and apply it in a corporate governance setting.

Details

International Journal of Quality and Service Sciences, vol. 11 no. 1
Type: Research Article
ISSN: 1756-669X

Keywords

Open Access
Article
Publication date: 29 February 2016

Md Jahidur Rahman, Mo Lai Lan Phllis and Lam Mo

The purpose of this paper is to study the impact of the prohibition of certain non-audit services by the Securities and Exchange Commission (SEC) of Bangladesh on the…

Abstract

The purpose of this paper is to study the impact of the prohibition of certain non-audit services by the Securities and Exchange Commission (SEC) of Bangladesh on the profitability of the audit firms which are affiliated with Big-4 international audit firms. This paper is based on personal in-depth interviews with the Big-4-affiliated audit firms. A qualitative approach, in a way which is descriptive and illustrative, is adopted in this research. This research provides evidence for the fact that audit services are the most significant and stable source of income for an audit firm. Although respondents generally admit that non-audit services might be more profitable, they all agree that audit services are indeed the core operations of an audit firm. Findings in this paper reveal a contemporary picture of the auditing profession in Bangladesh and elucidate the impact that the implementation of Corporate Governance Order 2006 has on an audit firm's profitability. This research is the first in-depth study of the impact of the prohibition of non-audit services on the profitability of the Big-4-affiliated audit firms in Bangladesh. Financial reporting regulatory authorities in Bangladesh or other developing countries may find the findings in this paper useful.

Details

Asian Journal of Accounting Research, vol. 1 no. 1
Type: Research Article
ISSN: 2459-9700

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