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Audit Firms (audit + firm)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	96%

Distribution within Business, Economics, Finance and Accounting

General & Introductory Accounting	38%
Financial Accounting	30%

Selected Abstracts

The Difficult Client-Acceptance Decision in Canadian Audit Firms: A Field Investigation,

CONTEMPORARY ACCOUNTING RESEARCH, Issue 2 2001
Yves Gendron
Abstract Auditing is often depicted in scientific and professional literature as being subject to conflicting forces, such as mechanization versus flexibility, and professionalism versus commercialism. This paper examines how auditors actually make the client-acceptance decision in the midst of these forces. The investigation was conducted via a field study at three Big 6 firms located in Canada. The results show that in all firms the client-acceptance decision process in action is largely flexible, being characterized by a high degree of informal communication and the adaptation of the client-acceptance written policies and decision aids to circumstances. Furthermore, while commercialism in one firm (A) has a significant influence on the decision process, in the two other firms (B and C) the decision process is mostly consistent with professionalism. This result conflicts with the concerns that North American regulators have recently expressed about auditors' professionalism. [source]

Evidence from the United States on the Effect of Auditor Involvement in Assessing Internal Control over Financial Reporting

INTERNATIONAL JOURNAL OF AUDITING, Issue 2 2009
Jean C. Bedard
Securities regulators around the world are considering the costs and benefits of alternative policies for providing information to financial markets on corporate internal control. These policy options differ on the level of auditor involvement, among other dimensions. We examine the association of relative auditor involvement and auditor characteristics with Section 302 internal control disclosures made by US ,non-accelerated filers' from 2003 to 2005. We find more material weaknesses disclosed in the fourth quarter, when there is relatively more auditor involvement, relative to the first three quarters. Clients of larger audit firms have higher disclosure rates (although they are probably less risky due to more stringent client acceptance standards), but this difference is due to fourth quarter disclosures. Audit firms with Section 404 experience also have greater material weakness disclosure, implying process improvement associated with knowledge sharing across engagements. Collectively, our results shed light on ways to increase the effectiveness of internal control regulation. [source]

Innate and discretionary accruals quality and corporate governance

ACCOUNTING & FINANCE, Issue 1 2010
Pamela Kent
M40; M41 Abstract This paper extends previous research on the association between corporate governance mechanisms and accruals quality. We derive measures of the discretionary and innate components of accruals quality and regress them against corporate governance characteristics. For discretionary accruals, we find use of a Big 4 audit firm and a larger audit committee as the primary governance mechanisms associated with higher accruals quality. For innate accruals quality, we find that higher quality is associated with an independent board of directors, a larger, more independent and more active audit committee, and use of a Big 4 audit firm. Our findings suggest a stronger relation between sound governance mechanisms and innate accruals quality than discretionary accruals quality. [source]

Audit committee composition and the use of an industry specialist audit firm

ACCOUNTING & FINANCE, Issue 2 2005
Yi Meng Chen
M41 Abstract Independent, competent boards of directors and audit committees are said to be important mechanisms of corporate governance. The purpose of the present study is to empirically examine the association between audit committee composition and audit quality. Specifically, the link between the proportion of non-executive directors on an audit committee, financial qualifications of directors and the number of audit committee meetings held in a year are investigated and expected to have a positive association with the quality of the audit firm used. Audit quality is proxied by industry specialization. The results support the link between a higher proportion of non-executive directors on an audit committee and use of an industry specialist audit firm. Other measures of audit committee quality (those with a higher proportion of directors with financial qualifications and those that meet more frequently) are not significantly associated with the use of an industry specialist audit firm. Sensitivity analysis shows that the presence of an audit committee is linked to use of an industry specialist audit firm. [source]

Smith & Jones LLP: Charting a Path to the Future,

ACCOUNTING PERSPECTIVES, Issue 2 2009
Norman T. Sheehan
ABSTRACT This case requires accounting students to shift their focus from learning about the practice of auditing to learning about the business of auditing. It describes the strategy, vision, and mission of a medium-sized, Canadian audit firm and the external and internal challenges the firm faces as it looks to improve its profitability. Students should reflect on which behaviors Smith & Jones would like to encourage and what the partners can do to encourage its employees to exhibit these behaviors. [source]

Empirical Analysis of Delays in the Signing of Audit Reports in Spain

INTERNATIONAL JOURNAL OF AUDITING, Issue 2 2008
Enrique Bonsón-Ponte
This study sets out to analyse the factors that determine delays in the signing of audit reports. The delays are measured as a function of the number of days that elapse from the closure of the accounting period until the date when the audit report is signed. The study has been conducted in Spain, on 105 companies of the Spanish continuous market, from 2002 to 2005. The results obtained utilizing panel data methodology demonstrate that the two factors characterizing the companies that present less audit delay are: classification to sectors that are subject to regulatory pressure, such as the financial and energy sectors; and the size of company relative to its sector. Variables such as audit firm, qualifications or regulatory change show no significant relationship with audit delay in the Spanish context. [source]

IPO Underpricing and Audit Quality Differentiation within Non-Big 5 Firms

INTERNATIONAL JOURNAL OF AUDITING, Issue 2 2007
Susan M. Albring
The choice of a non-Big 5 audit firm is optimal for some IPO companies. The choice of audit firm is important because auditor reputation may influence the pricing of the offering. This paper investigates the relationship between IPO underpricing and auditor compensation and proxies for non-Big 5 audit quality. We develop a continuous measure of auditor reputation based on factor analysis. This measure of auditor reputation is associated with lower IPO underpricing and higher auditor compensation, suggesting that auditor quality is an important determinant for firms hiring non-Big 5 auditors. We also examine the underlying constructs for auditor quality to determine their separate effects on IPO underpricing and auditor quality. Non-Big 5 national firms are associated with lower underpricing and higher auditor compensation, suggesting that these firms are perceived to be quality differentiated from non-national firms. SEC experience for non-national firms is associated with higher audit fees, suggesting this experience is perceived to be valuable. [source]

Auditor,client Interaction and Client Usefulness , A Swedish Case Study

INTERNATIONAL JOURNAL OF AUDITING, Issue 2 2006
Niclas Hellman
This paper investigates the usefulness of the external audit to a listed client company. The research questions focus on what the auditors discovered, the subsequent auditor,client interaction, and the ways in which this was useful to the client company. The study proceeds from the management letters produced by the auditors in the period 1999,2001. On the basis of these reports, interviews were conducted with financial managers at different organisational levels. The data collection and analysis of the data follows a grounded theory approach. The results suggest that the usefulness of the audit to the client company was primarily linked to the way the management letters, and the auditor,client interaction related to the management letters, supported the client's management control system. Improved management control was achieved as a result of co-operation between the audit firm and the client company's central accounting and finance department, that put pressure on the subordinate units. The reported benefits for the client company must be weighed against potential threats to auditor independence, and the paper also includes empirical results that indicate risks of auditor dependency on the client's accounting and finance department. [source]

Audit Programs and Audit Risk: A Study of Japanese Practice

INTERNATIONAL JOURNAL OF AUDITING, Issue 1 2006
Hironori Fukukawa
The current paradigm in audit practice for evidential planning is the Audit Risk Model. However, the notion of relevant risks has broadened with the adoption in recent years of holistic audit approaches encompassing business and process risks and an increased focus on fraud risks. This study examines whether audit planning is ,risk adjusted' using archival data from 235 clients from a well-established audit firm in Japan. We address all four aspects of audit planning (nature, extent, timing and staffing) and examine a wider variety of client risks than prior archival studies in order to reflect the current holistic audit approaches of global auditing firms. The main results indicate that although audit planning is based on the level of and change in assessments of many audit risk variables, the associations between client risks and audit plans are rather modest. In this respect, our findings are consistent with those from prior research. We also find that client risks that comprise business risk and fraud risk affect audit planning to some extent. Finally, we report exploratory results suggesting a substitution effect between audit planning judgments in response to higher client risks such as increasing the extent of validity tests while decreasing the extent of confirmations. [source]

Effects of Multiple Clients on the Reliability of Audit Reports

JOURNAL OF ACCOUNTING RESEARCH, Issue 1 2006
ANNE BEYER
ABSTRACT This paper demonstrates the existence of two different kinds of externalities induced by an auditor servicing multiple clients at the same time. First, we show that the capital market price for a client can increase in the number of qualified reports that his auditor issues to his other clients, thus producing a stock price externality. Second, when the audit firm has limited wealth, an additional client can actually decrease the audit quality and increase the average likelihood of audit failure relative to a single-client setting because of reporting externalities. Our analysis also demonstrates how requiring a more effective audit oversight mechanism can actually produce unintended consequences such as an increased likelihood of audit failures. [source]

Do Expert Informational Intermediaries Add Value?

JOURNAL OF ACCOUNTING RESEARCH, Issue 4 2003
Evidence from Auditors in Microcap Initial Public Offerings
Do expert informational intermediaries add value? We address this question by examining the informativeness of the audit report contained in the prospectus associated with a firm's initial public offering (IPO). At the time of the IPO, there is a relative lack of information to facilitate the establishment of equity values, suggesting that the information provided by outside "experts" (e.g., auditors, underwriters) is particularly important. In this article we study small, non-venture-backed IPOs, a segment of the market with the poorest long-run performance and where the prestigious audit firm is often the sole (if any) expert present. We find that the pre-IPO opinions of larger auditors are more predictive of post-IPO negative stock delistings. Of particular note, the opinions of the national-tiered firms are comparably predictive to those of the Big 6, though this finding emerges only after we consider the selectivity-based differences in the clients that hire these national firms. Our findings also indicate that, for larger auditors the presence of a pre-IPO going-concern opinion is more strongly associated with first-year stock returns and that larger auditors are more likely to give such opinions to their distressed clients. Overall, we address a deficiency in the literature relating to "the paucity of evidence on the value of auditor opinions to investors" (Healy and Palepu [ 2001 p. 415]). [source]

The Association between External Monitoring and Earnings Management in the Property-Casualty Insurance Industry

JOURNAL OF ACCOUNTING RESEARCH, Issue 2 2001
Jennifer J. Gaver
This paper examines the association between external monitoring and earnings management by property-casualty insurers. We extend previous work by Petroni and Beasley (1996) by expanding the set of external monitors to include both auditors and actuaries. We investigate whether certain auditor-actuary pairs are associated with less understatement of the loss reserve account by financially struggling insurers. Our data consist of loss adjustments reported by 465 property-casualty insurers for reserves established in 1993. The results indicate that under-reserving by weak insurers is essentially eliminated when the firm uses auditors and actuaries that are both from Big Six accounting firms. In contrast, non-Big Six actuaries have less impact on under-reserving by weak insurers. Our results suggest that the quality usually associated with Big Six auditors falls when the audit firm relies on third party actuaries to evaluate the loss reserve estimates of struggling insurance clients. We conjecture that Big Six actuaries insist on more conservative loss reserve levels because, compared to actuarial consulting firms, they are more attuned to the liability exposure of the auditor. [source]

Auditor's Engagement Risk and Audit Fees: The Role of Audit Firm Alumni

JOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 9-10 2007
Ilias G. Basioudis
Abstract:, This study explores the effect of the association of audit firm alumni with their alma mater on audit prices. The tests indicate that there is a moderate reduction of up to 21% in the level of audit fee when alumni (i.e., former employees) of the incumbent audit firm sit on the client board of directors which is consistent with the engagement risk theory. This suggests that there is an ,alumni effect' in the market for audit services. The findings hold only in the large company segment of the market. The results are robust to different model specifications and alternative samples. The sample comprises all executive and non-executive directors who run the UK quoted companies and are simultaneously ICAEW qualified chartered accountants. The study's implications for the accounting profession and the regulators are also discussed. [source]

Board Characteristics and Audit Fees,

CONTEMPORARY ACCOUNTING RESEARCH, Issue 3 2002
Joseph V. Carcello
Abstract This paper examines the relations between three board characteristics (independence, diligence, and expertise) and Big 6 audit fees for Fortune 1000 companies. To protect its reputation capital, avoid legal liability, and promote shareholder interests, a more independent, diligent, and expert board may demand differentially higher audit quality (greater assurance, which requires more audit work) than the Big 6 audit firms normally provide. The audit fee increases as the auditor's additional costs are passed on to the client, such that we expect positive relations between audit fees and the board characteristics examined. We find significant positive relations between audit fees and board independence, diligence, and expertise. The results persist when similar measures of audit committee "quality" are included in the model. The results add to the growing body of literature documenting relations between corporate governance mechanisms and various facets of the financial reporting and audit processes, as well as to our understanding of the determinants of audit fees. [source]

Competition and Big 6 Brand Name Reputation: Evidence from the Ontario Municipal Audit Market,

CONTEMPORARY ACCOUNTING RESEARCH, Issue 1 2001
SATI P. BANDYOPADHYAY
Abstract The 1991 amendment to the auditor appointment requirement of section 86 of the Ontario Municipal Act removes certain barriers to entry into the Ontario municipal audit market. The purpose of this study is to provide evidence that the amendment has enhanced competition in this market. The results indicate that there is a general reduction in the real municipal audit fees compared with the pre-amendment levels, and that the market has become more contestable following the amendment. Notwithstanding the heightened competition, the Big 6 audit firms continue to command audit fee premiums over the non-Big 6 audit firms. This suggests that Big 6 audit fee premiums possibly reflect brand name reputation rather than monopoly/oligopoly rents. [source]

Audit quality, auditor compensation and initial public offering underpricing

ACCOUNTING & FINANCE, Issue 3 2008
Xin Chang
G32; D82; M42 Abstract We jointly study the impact of audit quality on auditor compensation and initial public offering (IPO) underpricing using a sample of Australian firms going public over the period 1996,2003. We find that quality (Big Four) audit firms earn significantly higher fees than non-Big Four auditors, and audit quality is positively associated with IPO underpricing. The positive relation between audit quality and underpricing is more pronounced for small issues, IPOs underwritten by non-prestigious underwriters, and those that are not backed by venture capitalists. Taken together, our results suggest that quality auditors serve as a signalling device that enhances post-issue market value of equity. [source]

Note on audit fee premiums to client size and industry specialization

ACCOUNTING & FINANCE, Issue 3 2007
Elizabeth Carson
M42 Abstract This research note examines the impact of client size on the estimation of audit fee premiums in the Australian market for audit services. Previous research suggests that higher audit fees are expected for both larger clients and for industry specialization. We find that in the Australian market for audit services, the fee premium attributed to industry specialist audit firms is concentrated in the audit fees paid by the largest clients in each industry. One reason for higher fees paid by larger clients is the demand for additional audit services. We find higher fees for companies cross-listed on US exchanges. We also find that fee premiums to auditors that are city-industry leaders are strongly related to client size. [source]

The effect of the PricewaterhouseCoopers merger on auditor concentration in Australia: A note

ACCOUNTING & FINANCE, Issue 2 2002
Sumithira Thavapalan
Concerns have been raised about the impact of the PricewaterhouseCoopers (PwC) merger on the structure of and competition in the audit and assurance services market in Australia. The market share of publicly listed companies for audit firms for each industry category pre, and post,merger is examined in this paper to ascertain levels of auditor concentration. Using the approach outlined by the Australian Competition and Consumer Commission a decrease in the level of competition is identified. However, when using another generally accepted concentration measure, the Herfindahl Index, the merger is found to not necessarily decrease competition. In fact, for a number of industry sectors a more equitable spread of clients between the main audit firms was achieved. [source]

Evidence from the United States on the Effect of Auditor Involvement in Assessing Internal Control over Financial Reporting

Auditors' Perceptions of Time Budget Pressure, Premature Sign Offs and Under-Reporting of Chargeable Time: Evidence from a Developing Country

INTERNATIONAL JOURNAL OF AUDITING, Issue 3 2006
Teerooven Soobaroyen
This study examines the existence and effects of auditors' time budget pressure, premature sign-offs (PSO) and under-reporting of chargeable time (URT) in the context of a developing country, namely Mauritius. Several antecedent variables of budget pressure were also considered. Based on a mailed questionnaire survey, the perceived extent of time budget pressure (as measured by budget tightness) was found to be significantly lower than in other developed countries (United Kingdom, Ireland, New Zealand and United States). Significant cross-national differences were also observed for the levels of PSO and URT. Although budget tightness was significantly related to PSO, this was not the case for URT. This has led to the suggestion that URT may be less dependent on levels of budget tightness and may have become an ,institutionalised' practice within audit firms. Finally, none of the hypothesised antecedent variables were significantly related to budget tightness. [source]

Auditors' Perceived Business Risk and Audit Fees: Analysis and Evidence

JOURNAL OF ACCOUNTING RESEARCH, Issue 1 2001
Timothy B. Bell
This study analyzes the relation between auditors' perceived business risk and audit fees to determine whether audit firms or their clients bear the expected legal costs of business risk. We predict that hourly audit fees and the number of audit hours are increasing in business risk. Using confidential survey data collected by a large international accounting firm for 422 audits, we find that high business risk increases the number of audit hours, but not the fee per hour. This implies that firms perceive firm-level differences in business risk and obtain compensation through billing additional hours, not by raising the hourly charge. [source]

Contractual Limitations on the Auditor's Liability: An Uneasy Combination of Law and Accounting

THE MODERN LAW REVIEW, Issue 4 2009
Article first published online: 1 JUL 200, P. E. Morris
Operative as from 6 April 2008, sections 532,538 of the Companies Act 2006 create a new liability limitation regime in contractual relationships between audit firms and companies in relation to the statutory audit function which overturns an almost eighty years old fundamental principle of company law. This new regime is the product of continuing pressure by the audit profession for liability reform and concern by Government regarding the market structure for audit services. This commentary critically evaluates the regime from law and accounting perspectives. It concludes by reflecting on its longer term implications for audit quality, perceptions of the audit profession and the evolution of a future research agenda. [source]

Anomalies in the Oversight of Australian Auditors

AUSTRALIAN ACCOUNTING REVIEW, Issue 2 2010
Graeme L. Wines
This commentary identifies and comments on anomalies in the oversight of Australian auditors and audit firms. Regulatory and professional oversight and inspection of Australian auditors and audit firms arise from a number of sources, highlighting its multi-faceted nature. This makes it impossible to identify a single body with ultimate responsibility for auditor oversight. Three recent Australian reviews commissioned by the Financial Reporting Council, together with an evaluation of the roles of the various regulatory and professional bodies, are used in this commentary as a platform from which to identify a number of significant anomalies in oversight processes. Major anomalies highlighted arise from the overlapping nature of the duties and functions of the various bodies and the variation in oversight across different categories of audit service providers. Policymakers should closely examine the issues raised in the paper if auditor oversight is to be undertaken in an effective and efficient manner. [source]

Australian Audit Reports: 1996,2003

AUSTRALIAN ACCOUNTING REVIEW, Issue 40 2006
ELIZABETH CARSON
In 1996 Australia revised audit reporting standard AUS 702 to align with many of the concepts in the international audit reporting standard ISA 700. These included preventing auditors issuing a "subject to" qualified opinion, and permitting auditors to modify the audit report in specific circumstances by including an emphasis of matter (EoM) paragraph. This research examines the frequency with which different types of opinions are issued and the circumstances giving rise to the inclusion of an EoM paragraph, and compares the types of opinions issued by the major audit firms and for the various industry sectors over the period 1996,2003. [source]

An Australian Response to Recent Developments in the Market for Audit Services

AUSTRALIAN ACCOUNTING REVIEW, Issue 27 2002
Keith A. Houghton
Where the quality (both competence and independence) of an audit is tested, often in the circumstance of a corporate failure, auditors frequently have good defences as to their competency but rarely do they have equally convincing defences for the objectivity of their decisionmaking or the independence of their audit. This paper recommends that large audit firms establish an independence board with the authority to define, review and decide upon all threats and potential threats to independence. It would also have responsibility for quality-control and educational programs in respect of audit firm's independence decision-making. [source]