Industry specialist auditors and affiliated business groups: An examination of fee lowballing and audit quality

2021 ◽  
Author(s):  
Fan‐Hua Kung ◽  
Yu‐Shan Chang ◽  
Dana A. Forgione
Keyword(s):  
Audit Quality ◽  
Business Groups ◽  
Industry Specialist

Audit Quality and the Market Value of Cash Holdings: The Case of Office-Level Auditor Industry Specialization

2014 ◽  
Vol 34 (2) ◽  
pp. 27-57 ◽  
Author(s):  
Jeong-Bon Kim ◽  
Jay Junghun Lee ◽  
Jong Chool Park
Keyword(s):  
Financial Reporting ◽  
Firm Value ◽  
Capital Investment ◽  
Audit Quality ◽  
Cash Holdings ◽  
Market Value ◽  
High Quality ◽  
Value Of Cash ◽  
Office Level ◽  
Industry Specialist

SUMMARY This study investigates the monitoring role of high-quality auditors defined as office-level industry specialists in the stock market valuation of cash assets. We find that the market value of cash holdings is significantly higher for the client of an industry specialist auditor. The marginal value of cash is 34 cents higher for the client of a joint-industry specialist at both the national and city levels than for the client of a nonspecialist. We also find that cash holdings are more closely associated with capital investment and the market value of capital investment is significantly higher when the auditor is a joint-industry specialist. Moreover, we find that the value of cash increases significantly when the client changes its auditor to a joint-industry specialist. Our findings hold even after controlling for the client's governance efficacy and financial reporting quality. Our results provide new insight into the mechanism through which high-quality audits affect firm value: External audits facilitate shareholders' monitoring over managerial cash expenditures, thereby leading market participants to attach a higher value to cash holdings.

scholarly journals Does Industry Specialist Auditor Provide More Insights in Their audit report? An Empirical Study of Key Audit Matters Section

2021 ◽  
pp. 69-94
Author(s):  
Li-Jen He
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
The United States ◽  
International Standards ◽  
Audit Report ◽  
Disclosure Quality ◽  
Industry Specialization ◽  
Audit Reports ◽  
Industry Specialist

Abstract In 2015, International Auditing and Assurance Standards Board (IAASB) released new International Standards on Auditing 701 and required auditors to disclose key audit matters (KAM) in the audit report. Similar standards were also released in the United States in 2017 and the United Kingdom and Ireland Financial Reporting Council (FRC) in 2014. As KAM are expected to inform on matters of the greatest significance during an audit, before exploring the question regarding whether investors will obtain useful information from additional matter disclosures, the anterior consideration may be in regard to how audit quality affects the disclosure quality of KAM. This study use hand-collected data of the KAM disclosed in the audit reports of Taiwanese listed companies in 2016 to explore the association between auditor industry specialization and audit quality by the disclosure of KAM in new audit reports. The empirical results show that the association between the industrial specialist audit partner and the measurement of KAM quality is significantly positively related. The findings support our hypothesis that specialist auditors’ KAM are more informative than those issued by non-specialist auditors, and provide new evidence supporting prior studies about the superior auditing ability and disclosure quality of auditor industry specialist. Keywords: Key Audit Matters, KAM, International Standards on Auditing 701, International Auditing and Assurance Standards Board.

Audit Fee Premiums and Audit Quality of Global Industry Specialist Auditors

2021 ◽  
Vol 46 (1) ◽  
pp. 41-82
Author(s):  
Soo Young Kwon ◽  
Eunsun Ki ◽  
Hyoeun Kim
Keyword(s):  
Audit Quality ◽  
Global Industry ◽  
Audit Fee ◽  
Industry Specialist

National Level, City Level Auditor Industry Specialization and Cost of Debt

2010 ◽  
Vol 24 (3) ◽  
pp. 395-417 ◽  
Author(s):  
Chan Li ◽  
Yuan Xie ◽  
Jian Zhou
Keyword(s):  
Audit Quality ◽  
Credit Rating ◽  
National Level ◽  
Debt Financing ◽  
Cost Of Debt ◽  
Industry Specialization ◽  
Auditor Industry Specialization ◽  
Debt Capital ◽  
Bond Spreads ◽  
Industry Specialist

SYNOPSIS: We examine the relation between industry specialist auditors and cost-of-debt financing using a national and city level industry specialist framework. Consistent with the assumption that higher audit quality is associated with lower information risk, which benefits clients in raising debt capital, we find that firms audited by city level industry specialist auditors, either alone or jointly with national level industry specialist auditors, enjoy significantly lower cost-of-debt financing measured by both credit rating and bond spread. Our results suggest that, compared to clients of non-industry specialists, firms’ odds of worse credit ratings are 0.859 (0.664) times lower, and their bond spreads are 17 (16) basis points lower if they are clients of city-level-only (joint national and city level) industry specialists. In addition, our evidence shows that, for joint national and city level industry specialists, both information and insurance roles are significant to reduce cost-of-debt financing.

Audit quality and audit report lag: case of Indonesian listed companies

2017 ◽  
Vol 25 (2) ◽  
pp. 191-210 ◽  
Author(s):  
Rusmin Rusmin ◽  
John Evans
Keyword(s):  
Audit Quality ◽  
Stock Exchange ◽  
Two Dimensions ◽  
Manufacturing Companies ◽  
Audit Report ◽  
Home Office ◽  
Content Type ◽  
Big 4 ◽  
Auditor Quality ◽  
Industry Specialist

Purpose The purpose of this paper is to empirically examine the relation between two dimensions of auditor quality, namely, auditor industry specialization and auditor reputation and the audit report lag. Design/methodology/approach The data collection focuses on companies listed on the Indonesia Stock Exchange for the financial year of 2010 and 2011. To ensure data homogeneity and reduce industry bias, this study focuses solely on manufacturing companies identified by the Indonesian Capital Market Directory. Findings This study finds a negative and significant association between industry-specialist auditors and audit report timeliness. Companies audited by industry-specialist auditors have shorter audit delays. The authors also find evidence that Big 4 auditors perform significantly faster audit work than their non-Big 4 counterparts. In addition, this study reports a statistical and significant relationship between auditing complexity, companies’ profitability, auditors’ business risk, and industry classification and audit report lag. The results show that firms with a large number of subsidiaries and firms experiencing poorer financial performance are found to be associated with longer reporting delays. Moreover, audit report timeliness is found to be faster for companies in the low-profile industry sector and owned by family members. Research limitations/implications Similar to other empirical investigations, this study is not without certain caveats. First, the period of audit report lag in this study reflects the audit work from the year-end to the audit report date. The authors do not consider audit work conducted outside this period in the analysis. Second, there are numerous control variables and although the authors have attempted to capture those variables to maintain the integrity of the research there are likely other excluded variables that may be important in explaining audit report timeliness. Finally, there are other factors, for example, an administrative approval process with the audit firm home office, which can affect audit report lags but have not been included in the model analysis. Future studies can seek to focus on refinements to the proxy measures for dependent and experimental variables. Practical implications Insights drawn from this study may be of assistance to policy makers as they consider the costs and benefits associated with varying levels of audit market concentration as well as providing a snapshot of the level of non-compliance on audit timeliness in Indonesia. Originality/value This study provides further empirical evidence on the relation between auditor quality and audit report lag using data from a different domestic setting. This study also enriches the auditor quality literature by employing industry-specialist and Big 4 auditors as a predictor for the timeliness of audit reports.

scholarly journals Control-Ownership Wedge and Industry Specialist Auditor

2021 ◽  
Vol 9 (1) ◽  
pp. 22-33
Author(s):  
Aree Saeed Mustafa
Keyword(s):  
Audit Quality ◽  
Minority Shareholders ◽  
Control Rights ◽  
Controlling Shareholders ◽  
Model Finding ◽  
Cash Flow Rights ◽  
Research Analysis ◽  
Suitable Environment ◽  
Industry Specialist

This study extends agency theory by explaining the client's understanding of audit quality. This study contributes to the audit literature by examining the effect of wedge control-ownership on industry specialist auditors that have not been researched in Turkey. The interests of minority and controlling shareholders are not completely compatible. The research analysis method used a logistic regression model, finding that firms that practice a larger difference between control rights and cash flow rights tend to prefer high audit quality measures by industry specialist auditors. This study encourages regulators to improve law enforcement to enhance the role of corporate governance in Turkey to address the features of ownership-control firms and offer a suitable environment for investment and minority shareholders.

Do Industry-Specialist Auditors Influence Stock Price Crash Risk?

2014 ◽  
Vol 34 (3) ◽  
pp. 47-79 ◽  
Author(s):  
Ashok J. Robin ◽  
Hao Zhang
Keyword(s):  
Stock Price ◽  
Audit Quality ◽  
Tax Avoidance ◽  
Accounting Conservatism ◽  
Crash Risk ◽  
High Quality ◽  
Industry Specialization ◽  
Auditor Industry Specialization ◽  
Governance Roles ◽  
Industry Specialist

SUMMARY Francis (2011) calls for more research on “the effect of audit quality on economic outcomes.” We respond by examining whether high-quality auditors reduce stock price crash risk, an important consideration for stock investors. We argue that high-quality auditors reduce crash risk because of their information intermediary and corporate governance roles. Using a large sample of U.S. stocks spanning the period 1990–2009, we examine the issue empirically by using auditor industry specialization as our proxy for auditor quality. Our main finding is a statistically significant and negative association between auditor industry specialization and stock price crash risk, implying that high-quality auditors can directly benefit investors by reducing tail risk. In addition, we provide evidence that industry-specialist auditors moderate the effects of opacity, accounting conservatism, and tax avoidance on crash risk. Finally, our main finding of a negative relation between auditor industry specialization and crash risk is robust to using city-level industry specialization as an alternate measure. JEL Classifications: G19; G32; M42.

scholarly journals The puzzle of internal audit function budget toward specialist auditor choice and audit fees

2019 ◽  
Vol 34 (2) ◽  
pp. 208-243 ◽  
Author(s):  
Adel Ali AL-Qadasi ◽  
Shamharir Abidin ◽  
Hamdan Amer Al-Jaifi
Keyword(s):  
Audit Quality ◽  
Internal Audit ◽  
Positive Association ◽  
Audit Fees ◽  
Least Square ◽  
Family Ownership ◽  
Content Type ◽  
Internal Audit Function ◽  
The Impact ◽  
Industry Specialist

PurposeThis study is motivated by the lack of internal audit function (IAF) research and by the call for research on the impact of dominant owners such as family shareholders on audit fees and the demand for audit quality. This study aims to examine the impact of the IAF budget on the selection of industry-specialist auditors and on audit fees, particularly in companies with family-controlled shareholders, a feature unique to Malaysia.Design/methodology/approachData of Malaysian-listed companies during the period 2009-2012 are used. To examine the relationships, logit and ordinary least square regressions are used. Several additional analyses are conducted to assess the robustness of the main results, including alternative measures of specialist auditor and family ownership, endogeneity problems and self-selection bias.FindingsThe results show that the IAF budget is positively related to hiring industry-specialist auditors and audit fees. However, family companies are less likely to support the positive association between IAF costs and engage specialist auditors than non-family companies. In addition, a complementary association between the costs of IAF and audit fees for both family and non-family companies was found. Finally, the results show that there is a negative association between family ownership and the ratio of IAF costs to audit fees, suggesting that family companies rely more upon external auditing than internal auditing.Originality/valueThe contribution of this study is to provide an empirical evidence about the tradeoff between IAF and both industry-specialist auditors and audit fees with considering the moderating impact of family-ownership shareholdings. This issue is yet to be examined, and it provides implications for policymakers and practitioners, as it offers insights into the importance of investing in IAF toward hiring industry-specialist auditors and pricing the audit services.

Auditor Selection and Audit Committee Characteristics

2000 ◽  
Vol 19 (2) ◽  
pp. 47-66 ◽  
Author(s):  
Lawrence J. Abbott ◽  
Susan Parker
Keyword(s):  
Corporate Governance ◽  
Audit Committee ◽  
Audit Quality ◽  
Audit Committees ◽  
Industry Specialization ◽  
The Subject ◽  
Auditor Selection ◽  
High Level ◽  
Industry Specialist

The role of the audit committee in corporate governance is the subject of increasing public and regulatory interest. We focus on one frequently noted function of the audit committee: auditor selection. We argue that independent and active audit committee members demand a high level of audit quality because of concerns about monetary or reputational losses that may result from lawsuits or SEC sanction. Auditors who specialize in the client's industry are expected to provide a higher level of audit quality than do nonspecialists. Thus, we predict that firms with audit committees that are both independent and active are more likely to employ an industry-specialist auditor. We find that firms with audit committees that do not include employees and that meet at least twice per year are more likely to use specialists. This study contributes to our understanding of audit committee functions and provides evidence that industry specialization is an important element of auditor selection.

scholarly journals An Investigation into the Effect of Audit Quality on Accounting Conservatism in Companies Listed in Tehran Stock Exchange

2015 ◽  
Vol 50 ◽  
pp. 107-117
Author(s):  
Mahdi Mohammadinejad Pashaki ◽  
Sina Kheradyar
Keyword(s):  
Capital Market ◽  
Positive Relationship ◽  
Audit Quality ◽  
Stock Exchange ◽  
Accounting Conservatism ◽  
Auditor Tenure ◽  
Statistical Sample ◽  
The Relationship ◽  
Theoretical Foundations ◽  
Industry Specialist

The present study sought to investigate the effect of audit quality on accounting conservatism in Iranian capital market. In this study, given the hypotheses and theoretical foundations of the study, three hypotheses were formulated and the effect of each of the factors of industry-specialist auditor, auditor rank, and auditor tenure was examined on accounting conservatism of companies. The period for investigation was from 2009 to 2013. Its population was determined as all companies listed in Tehran Stock Exchange and the statistical sample of the study included 100 companies. The data required for this study were extracted from website of Tehran Stock Exchange and after collecting events through available resources and entering data in Excel software; its functions were used to calculate the variables of the study. Then, the results from measuring variables were entered into Eviews software for statistical calculations and the relationship between variables were evaluated using this software. The results of the study showed that there is a positive relationship between accounting conservatism and auditing attributes such as auditor rank and auditor tenure. Also, the obtained results indicated that there is no significant relationship between accounting conservatism and customer industry-specialist auditor.

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