Search results

The purpose of this study is to explore the economic impact of financial restatements by major customers on the audit opinion of their suppliers, showing that non-financial information disclosure potentially helps auditors make better assessments.

Using a sample of China’s listed firms from 2007 to 2021, the authors aim to find the relationship between customers’ financial restatements and their suppliers’ audit opinions. Heckman selection model, placebo tests and other robustness checks are used as well.

The findings reveal that customers’ financial restatements have a significant effect on the likelihood of suppliers receiving modified audit opinions. This relationship is pronounced when suppliers face a higher level of financial constraints, exhibit poorer accounting conservatism or receive more negative media coverage. Additionally, this effect occurs through increased business risk and information risk, which heightens auditors’ perceived audit risk. Moreover, the study highlights the influence of switching costs, auditor expertise and restatement severity on this relationship.

Risks originating from customers can spread along the supply chain, emphasizing the necessity for auditors to give heightened attention to both the audited firms and their customer information. Moreover, regulators should carefully consider the important impact of customer information disclosures to maximize the protection of the interests of external information users.

This study not only confirms the crucial role of customer information disclosures in annual reports for stakeholders and auditors but also contributes to the existing literature on customer–supplier relationships.

The purpose of this study is to investigate the association between nonaudit services (NAS) and out-of-period adjustments (OOPAs). Over the years, the number of OOPAs has risen while the number of restatements has decreased. This could indicate an improvement in financial reporting quality. It could also indicate the use of a type of stealth restatement for opportunistic purposes. These less prominent restatements are more likely to go undetected and could perpetuate opportunistic disclosure and mitigate the likelihood of unfavorable market reactions.

The authors use a two-stage multivariate regression analysis to examine the relationship between NAS and the reporting of an OOPA. The authors use prior research on NAS to guide the model development. The authors perform several robustness checks including different types of NAS and different characteristics of OOPAs.

The results indicate that NAS has a significantly negative association with the existence of OOPAs. The core findings suggest that NAS does not impair auditor independence. Rather, greater amounts of NAS may contribute to knowledge spillover, which leads to higher financial reporting and audit quality. The results are robust to several additional tests.

The results raise interesting implications for regulators, executives, auditors, investors and future research. The authors provide insight into the relationship between NAS and auditor independence.

To the best of the authors’ knowledge, prior research has not considered the effect of NAS on OOPAs. The authors contribute to the literature by providing evidence that OOPAs, a form of stealth restatements, is an important consideration in audit quality research.

The main objective on this research is providing evidence of the contagion effect of decreasing audit's quality. Audit failure affects the quality of the financial analysis that has been carried out and has a big impact on the accuracy of decision making due to the material information bias. Findings of this research will urge the Public Accounting Firm (PAF) to design a quality control of the audit services. This action is taken with the consideration of maintaining the quality of audit services and the reputation of auditors.

Utilizing manufacturing data listed on Bursa Efek Indonesia (BEI), the researchers developed a model to explain the audit failure which is seen from restatement of financial statement in the subsequent period.

This research indicates that audit failure to detect the misstatement will decrease the audit's quality of other companies audited by the same auditor. There is also an insight that contagion effect of decreasing auditor quality was stronger for non-big four and non-industry specialist auditors.

Audit failure still has the potential to occur. There is the potential that a failure in an audit of a particular client entity has an impact on defects of other clients served. If this allegation is proven, there are big challenges faced by the public accounting profession and PAF to pay special attention in order to maintain the professional reputation.

Professional body and government need to develop a robust standard and operating procedures as well as quality control on audit engagement.

Due to the intention of fraud occurred in Indonesia, namely SNP Finance and Garuda Indonesia case. It is important to learn from that cases. This research gives fruitful insights to prevent the same case in the future.

The purpose of this study is to examine whether the gender of an audit engagement partner (EP) is associated with the quality of the EP’s audit output.

This paper defines a low-quality EP as an EP who leads the audit of at least one client firm that subsequently restates its financial statements, while a high-quality EP is an EP that is not associated with any restatement. Using a sample of 6,082 observations from 2016 to 2020, the study estimates a logistic regression of EP quality on EP gender and control variables.

The results show that female EPs are more likely to be high-quality EPs. With an odds ratio of 1.25, the results imply that female EPs are 1.25 times more likely to be associated with higher-quality audits compared to male EPs.

The results of this study imply that female EPs are more likely to perform high-quality audits, and it supports the assertion that EP gender plays a significant role in determining EP quality. Further studies may apply gender theory to investigate the behavior of female EPs.

The results show that female EPs are more likely to be high-quality EPs. With an odds ratio of 1.25, the results imply that female EPs are 1.25 times more likely to be associated with higher-quality audits compared to male EPs.

The results of this study should be of interest to stakeholders such as audit committees, regulators, investors and creditors, as they provide an indicator for assessing the quality of audits. Moreover, considering the EP’s important role in an audit, the current study extends the existing literature by providing evidence of a relationship between EP gender and EP quality.

This research aims to revisit Gul and Goodwin (2010), which focuses on exploring the relationship between debt maturity structure, credit ratings and audit fees. Furthermore, the authors investigate whether this association varies based on firm size, firm life cycle and financial reporting quality.

To investigate the research question, the authors use an extended sample period, 2004–2017, in comparison to the sample period, 2003–2006, used in Gul and Goodwin (2010). The authors use ordinary least squares regression as a baseline methodology along with two-stage least-squares regression and change analysis to control for endogeneity concerns.

According to Gul and Goodwin (2010), auditors charge lower audit fees for firms with higher short-maturity debt and better credit ratings, indicating a lower likelihood of financial misreporting. Further, Gul and Goodwin (2010) find that lower credit rated firms benefit more from short-term debt. Primarily, the findings are consistent with Gul and Goodwin (2010) and provide further evidence that the beneficial effects of short-maturity debt for firms with poor ratings are evident for small firms, firms in the growth stage of their life cycle and firms with poor earnings quality.

The findings imply that practitioners in the audit profession and investors should take a more nuanced and comprehensive approach to varied firm and financial factors, taking into consideration the intricate relationships between many elements impacting a firm’s financial health. As a result, audit professionals may give more accurate appraisals of a firm’s financial condition, and investors can make better investment decisions.

The authors reconfirm the findings of Gul and Goodwin (2010) using an extended sample. The findings are novel, which evidence that the lower audit fees for rated firms with short-maturity debt are moderated by firm size, life cycle and financial reporting quality.

This article aims to contribute to the accounting knowledge literature by presenting the framework of creative accounting factors and evaluating their identified factors through an argumentation-based total interpretive structural modeling (TISM) approach.

This study adopted mixed, inductive and deductive approaches to develop an integrated framework, validate its practicability and verify its effectiveness in selected manufacturing firms listed on the Tehran Stock Exchange (TSE), respectively. In developing the framework and implementation procedure, the study employed an exploratory data collection (qualitative) approach to review the phenomenon of creative accounting factors. Then, in this study’s second phase, TISM is used to develop the framework of creative accounting design. This study used two types of theoretical sampling in the qualitative part, including theoretical and snowball sampling. Also, the participants in the TISM process in this study were specialized analysts of the TSE.

Based on the mixed method of this study, the result in the qualitative part provides the creative accounting framework of the existence of three categories. There are 6 components and 35 themes during 12 interviews. In the quantitative section, it was determined that two factors, namely the type of ownership firms and intrinsic objectivity, are the most effective drivers for the formation of creative accounting in TSE firms.

So far, it is rare to find preceding studies that have proposed, validated and practically tested an integrated creative accounting framework within the context of financial markets. Thus, the authors understand that this is the very first research focused on the development of a framework for capital market companies to continuously be competitive and could help financial decision-makers, practitioners and academicians in their perception of knowing more about the financial functions of firms.

This study reviews and discusses the accounting literature that analyzes the role of auditors and enforcers in the context of fraud.

This literature review includes both qualitative and quantitative studies, based on the idea that the findings from different research paradigms can shed light on the complex interactions between different financial reporting controls. The authors use a mixed-methods research synthesis and select 64 accounting journal articles to analyze the main proxies for fraud, the stages of the fraud process under investigation and the roles played by auditors and enforcers.

The study highlights heterogeneity with respect to the terms and concepts used to capture the fraud phenomenon, a fragmentation in terms of the measures used in quantitative studies and a low level of detail in the fraud analysis. The review also shows a limited number of case studies and a lack of focus on the interaction and interplay between enforcers and auditors.

This study outlines directions for future accounting research on fraud.

The analysis underscores the need for the academic community, policymakers and practitioners to work together to prevent the destructive economic and social consequences of fraud in an increasingly complex and interconnected environment.

This study differs from previous literature reviews that focus on a single monitoring mechanism or deal with fraud in a broadly manner by discussing how the accounting literature addresses the roles and the complex interplay between enforcers and auditors in the context of accounting fraud.

To complete this case, students will need to access financial statements from the Securities and Exchange Commission’s webpage. The links are provided. Students will also need to review the conceptual framework that is typically covered in Intermediate 1 to respond to question 5.

This case is based on the three financial statement restatements that Weatherford International Ltd. made over an approximately 18-month period. The restatements were due to a fraud committed by manipulating the income tax accrual in the financial statements. The manipulation used was to overstate the amount of income used to calculate the dividend exclusion and then use a relatively high tax rate to calculate the resulting tax benefit. The tax rate used for the fraud was substantially more than Weatherford’s effective tax rate (ETR), which was a prominent part of the company’s strategic growth plan. The tax senior with the external auditors who reviewed the entry made for the dividend exclusion captured the inconsistency with the comment that “This [the entry] deserves a huh?” The case is intended for students in Intermediate 2, where financial statement restatements and their effect on the company’s financial statements are typically covered. During the years covered in this case, Weatherford was also under investigation for violations of the Foreign Corrupt Practices Act (FCPA). Weatherford’s FCPA violations included multiple instances of bribery, the inappropriate use of volume discounts, improper payments and kickbacks in the United Nation’s Oil for Food program. Weatherford received the eighth-largest fine in the history of FCPA violations (at that time) of $152m. Weatherford’s FCPA investigation expanded, and the company paid another $100m in fines for violations of sanctions law and export control law. This case focuses only on the fraudulent manipulation of the financial statements through the tax accrual and does not delve into the other investigations. However, the linkage between those investigations and the fraud in this case is Weatherford’s nonexistent internal controls.

This case was designed to be used in Intermediate 2 financial accounting classes to highlight financial statement restatements and review the conceptual framework and materiality. The students who used the case did not have difficulty with the tax aspect of the case. However, most of the students had taken one tax class previously or concurrently. If students have not had any exposure to tax, the instructor might want to walk students through the tax aspects of the case.

Motivated by rapidly increasing CEO age in the USA, the purpose of this study is to analyze the effect of CEO age on financial reporting quality and consider the moderating role of clawback provisions.

This study uses a data set of 18,492 US firm-year observations from 2003 to 2019. Financial reporting quality is proxied with accruals-based and real activities earnings management measures, and with financial statement irregularities, measured by applying Benford’s law to financial statement line items. A number of sensitivity tests are conducted including the use of an instrumental variable.

The results provide evidence that financial statement irregularities are more prevalent when CEOs are older, and they suggest a complex relation between CEO age and real activities earnings management. The results also suggest that the effect of CEO age on financial reporting quality is moderated by the presence of clawback provisions which became mandatory for US-listed firms in October 2022.

This study is the first, to the best of the authors’ knowledge, to consider the effect of CEO age on financial statement irregularities and earnings management. This study has important implications for stakeholders evaluating the determinants of financial reporting quality, for boards of directors considering CEO age limitations and for policymakers considering mandating clawback provisions, which recently occurred in the USA.

This paper aims to investigate the relationship between audit partner perfectionism traits and audit quality in Egypt, emphasizing the mediating role of professional skepticism.

A mixed-methods approach was used, combining a questionnaire and scenario-based questions for audit partners with secondary data from audited financial statements. The relationships between study variables were tested using structural equation modeling.

Results denote a significant indirect effect between partner perfectionism traits and audit quality through their professional skepticism. Perfectionism has a significant positive impact on partner professional skepticism, and skepticism influences audit quality.

This study offers opportunities to enhance financial reporting quality, allowing investors to confidently allocate financial market resources. Audit firms can consider the personality traits of auditors in the selection process, team formation and designing training programs. Regulators can use these findings to consider the role of personality traits and attitudes in audit quality when developing regulations and quality assurance systems in Egypt.

To the best of the authors’ knowledge, no studies have examined the effect of partners’ perfectionism traits on professional skepticism and audit quality, especially in Egypt. By examining audit partners, who shape the tone at the top and are accountable for reputation, this study adds a novel dimension to understanding the impact of their qualities on audit outcomes. Moreover, combining survey and secondary data allows us to link these qualities with audit quality, objectively testing our hypotheses.