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Audit Quality (audit + quality)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	95%

Distribution within Business, Economics, Finance and Accounting

Financial Accounting	32%
General & Introductory Accounting	23%

Selected Abstracts

The Impact of Corporate Governance and Audit Quality on the Cost of Private Loans,

ACCOUNTING PERSPECTIVES, Issue 4 2009
Ling Chu
ABSTRACT The objective of this paper is to examine whether banks discriminate between firms on the basis of their financial condition when assessing the credit default risk, and to what extent corporate governance and auditor quality mitigate such risks in the pricing of new bank loans. The results indicate that, depending on the probability of bankruptcy, banks rely on different monitoring devices. For firms with a low probability of bankruptcy, banks do not rely on the quality of corporate governance or the auditor's industry specialization. However, auditor tenure and a change in auditor affect the spread. For firms with a high probability of bankruptcy, the spread is adjusted for the quality of corporate governance and the auditor's specialization. These results are robust to alternative specifications and measures. [source]

Audit Quality, Corporate Governance, and Earnings Management: A Meta-Analysis

INTERNATIONAL JOURNAL OF AUDITING, Issue 1 2010
Jerry W. Lin
Earnings management is of great concern to corporate stakeholders. While numerous studies have investigated the effects of various corporate governance and audit quality variables on earnings management, empirical evidence is rather inconsistent. This meta-analysis identifies 12 significant relationships by integrating results from 48 prior studies. For corporate governance, the independence of the board of directors and its expertise have a negative relationship with earnings management. Similar negative relationships exist between earnings management and the audit committee's independence, its size, expertise, and the number of meetings. The audit committee's share ownership has a positive effect on earnings management. For audit quality, auditor tenure, auditor size, and specialization have a negative relationship with earnings management. Auditor independence, as measured by fee ratio and total fee, is also a deterrent to earnings management. [source]

Perceived Audit Quality, Modified Audit Opinions and the Likelihood of Liquidating Bankruptcy among Financially Weak Firms

INTERNATIONAL JOURNAL OF AUDITING, Issue 3 2009
Stefan Sundgren
The paper examines the relationship between audit quality, modified audit opinions and the likelihood of liquidating bankruptcy among financially weak firms. The sample consists of 27,999 Finnish companies. It is argued that the choice of a high-quality auditor signals managers' credibility and that creditors would be more inclined to prefer liquidating bankruptcy as the resolution of financial difficulties if the firm is audited by a low-quality auditor. The results show that liquidating bankruptcy is less common among Big 4 audited firms. A positive association between the likelihood of bankruptcy and different types of modified audit opinions, including opinions with remarks related to the quality and presentation of financial statements, is also found. [source]

Country-Specific Risk and the Cost and Benefit of Audit Quality: Evidence from Israeli Initial Public Offerings in the United States

INTERNATIONAL JOURNAL OF AUDITING, Issue 3 2002
Edward B. Douthett Jr.
We examine audit fees and returns to auditor reputation for Israeli entrepreneurs making initial public offerings (IPOs) of equity in U.S. capital markets. We find that the cost of audit quality in terms of audit fees is higher, and the benefit of audit quality in terms of IPO proceeds is lower for a sample of Israeli IPOs matched to a control sample of U.S. IPOs. The results suggest that the higher levels of country-specific risk in Israel are modifying the cost and benefits of audit quality for Israeli entrepreneurs selling securities in the U.S. [source]

Does Opinion Shopping Impair Auditor Independence and Audit Quality?

JOURNAL OF ACCOUNTING RESEARCH, Issue 3 2006
TONG LU
ABSTRACT This study investigates how companies' threats to dismiss auditors and their engagement in opinion shopping influence auditor independence and audit quality, which in turn affect misstatements in financial statements. It also examines how outsiders' reactions to auditor switching influence opinion shopping. The results indicate that neither the predecessor auditor's nor the successor auditor's independence is compromised by dismissal threats and opinion shopping. Further, the successor auditor's audit quality exceeds the predecessor auditor's audit quality. In addition, auditor switching decreases potential understatements and increases potential overstatements in financial statements, and the capital market's and the successor auditor's reactions to auditor switching reduce the benefits of opinion shopping to companies. Additionally, the study sheds some light on the potential effects of both the Sarbanes-Oxley's restriction on non-audit services and mandatory auditor rotation or retention. The paper also derives a rich set of empirical implications. [source]

Market Implications of the Audit Quality and Auditor Switches: Evidence from China

JOURNAL OF INTERNATIONAL FINANCIAL MANAGEMENT & ACCOUNTING, Issue 1 2009
Z. Jun Lin
Independent audits enhance the credibility of corporate financial reports and assist investors to make rational decisions in the capital market. Nonetheless, the utility of the auditing function depends upon the quality of audits, which is determined by the independence and expertise of auditors. Hence, auditor choice and switch will not only affect an audit's quality, but will also influence decisions made by investors and other market participants. The purpose of this paper is to investigate how investors respond to the quality of audits and auditor switches in the Chinese context. Empirical results show that the quality of an audit and switching to a larger auditor have a positive (negative) impact on earnings response coefficients (ERCs) for firms with positive (negative) abnormal earnings. In contrast, switching to a smaller auditor has a negative (positive) impact on ERCs for firms with positive (negative) abnormal earnings. These results suggest that large auditing firms (Top 10) in China are perceived as more effective for curbing income-increased earnings management, which leads to higher (lower) ERCs for clients with positive (negative) abnormal earnings. Firms' switching to a larger auditor may signal high-quality earnings. Therefore, investors more often increase stock prices when firms have positive abnormal earnings and less often depreciate prices for negative abnormal earnings. Similarly, switching to a smaller auditor may signal lower earning quality, resulting in opposite market responses. In general, the empirical evidence suggests that audit information is valued by the capital market in China. Large auditing firms have been able to product-differentiate themselves within the Chinese stock market. [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]

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]

The Influence of Nonaudit Service Revenues and Client Pressure on External Auditors' Decisions to Rely on Internal Audit,

CONTEMPORARY ACCOUNTING RESEARCH, Issue 1 2005
WILLIAM L. FELIX Jr.
Abstract This paper investigates how external auditor provision of significant nonaudit services and client pressure to use the work of internal audit influence external auditors' use of internal auditors' work. More specifically, we study how external audit evidence gathering choices are influenced by nonaudit fees and client pressure. Our research is motivated by an observation that the magnitude of nonaudit services provided to audit clients introduces the risk that client management may leverage its position with the external auditor and potentially affect the audit process. We address this issue by extending prior research and focusing on the importance of various explanatory variables, including nonaudit service revenues, client pressure, internal audit quality, and coordination, to the external auditor's decision to rely on the work of internal audit. We use data primarily obtained through surveys completed by internal and external auditors. The survey responses represent 74 separate audit engagements. Our findings reveal that when significant nonaudit services are not provided to a client, internal audit quality and the level of internal-external auditor coordination positively affect auditors' internal audit reliance decisions. However, when the auditor provides significant nonaudit services to the client, internal audit quality and the extent of internal - external auditor coordination do not significantly affect auditors' reliance decisions. Furthermore, when significant nonaudit services are provided, client pressure significantly increases the extent of internal audit reliance. Thus, external auditors appear to be more affected by client pressure and less concerned about internal audit quality and coordination when making internal audit reliance decisions at clients for whom significant nonaudit services are also provided. [source]

Improving Jurors' Evaluations of Auditors in Negligence Cases,

CONTEMPORARY ACCOUNTING RESEARCH, Issue 3 2001
Kathryn Kadous
Abstract Prior research indicates that individuals acting as jurors experience outcome effects in audit negligence litigation. That is, jurors evaluate auditors more harshly in light of negative outcomes, even when audit quality is constant. I posit that outcome effects in this setting are caused by jurors using their negative affect (i.e., feelings) resulting from learning about negative audit outcomes as information relevant to auditor blameworthiness. I tested this hypothesis in an experiment in which I manipulated audit quality, outcome information, and provision of an attribution instruction. The attribution instruction was designed to discredit negative affect as a cue to auditor blameworthiness. Consistent with expectations, attribution participants' evaluations of auditors exhibited less reliance on outcome information and more reliance on audit quality information than did evaluations made by control participants. In fact, outcome effects were eliminated for attribution participants. Courts may be able to improve the quality of jurors' decisions in such cases by employing an attribution instruction. [source]

Audit quality, auditor compensation and initial public offering underpricing

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

Audit Quality, Corporate Governance, and Earnings Management: A Meta-Analysis

Perceived Audit Quality, Modified Audit Opinions and the Likelihood of Liquidating Bankruptcy among Financially Weak Firms

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]

Country-Specific Risk and the Cost and Benefit of Audit Quality: Evidence from Israeli Initial Public Offerings in the United States

Does Opinion Shopping Impair Auditor Independence and Audit Quality?

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]

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]

The Force of Law: Australian Auditing Standards and Their Impact on the Auditing Profession

AUSTRALIAN ACCOUNTING REVIEW, Issue 1 2009
Angela Hecimovic
This study examines the impact of the introduction of the legally enforceable Australian Auditing Standards (ASAs) on the auditing profession after the first year of implementation. The study compliments and extends the Australian Government's April 2006 pre-implementation Regulation Impact Statement, which identified potential costs, benefits and other impacts of the new regulatory regime. Relevant data were collected through interviews with the key stakeholders. Overall, the results suggest that the additional burden of compliance with the legally enforceable ASAs has not increased perceived audit quality or public confidence, which were the main aims of the government's regulatory intervention. [source]