Auditor Workload Compression and Busy Season Auditor Switching

2011 ◽  
Vol 25 (2) ◽  
pp. 357-380 ◽  
Author(s):  
Dennis M López ◽  
Gary F Peters
Keyword(s):  
Positive Association ◽  
Data Availability ◽  
Fiscal Year ◽  
Auditor Switching ◽  
Economic Significance ◽  
Behavioral Studies ◽  
Audit Firms ◽  
Empirical Perspective ◽  
Workload Compression ◽  
The Impact

SYNOPSIS This study investigates the impact of the busy season and concomitant concentrated demands on audit resources on the likelihood of auditor switching. Hereafter, we refer to the concentration of companies with the same fiscal year-end date within an auditor's client portfolio as “workload compression.” Despite the economic significance of December year-end clients for audit firms and the challenges imposed by workload compression, the busy season remains a relatively unexplored area of study in the archival auditing literature (Sweeney and Summers 2002). This study represents an attempt to fill this void and validate some of the findings of prior behavioral studies from an empirical perspective. We employ a sample of 10,238 company-year observations for years 2004 through 2007 and find evidence consistent with December year-end companies having a lower likelihood of auditor switching than that of non-December year-end companies. However, we also find evidence of a significantly positive association between the likelihood of auditor switching and workload compression. Thus, our results suggest that it is not just the fiscal year-end month of a client that matters, but the concentration of busy season companies within an auditor's client portfolio also affects the auditor-client relationship. Data Availability: Data are available from public sources identified in the paper.

Hiring Auditors with a Part II Quality Control Report: An Opportunity for Increased Earnings Management or Lower Audit Fees?

2020 ◽  
Vol 5 (1) ◽  
pp. 73-93
Author(s):  
Jared Eutsler ◽  
D. Kip Holderness ◽  
Megan M. Jones
Keyword(s):  
Quality Control ◽  
Audit Quality ◽  
Audit Fees ◽  
Data Availability ◽  
Fiscal Year ◽  
The Public ◽  
Audit Firms ◽  
Public Company ◽  
General Demand ◽  
Systemic Quality

ABSTRACT The Public Company Accounting Oversight Board's (PCAOB) Part II inspection reports, which disclose systemic quality control issues that auditors fail to remediate, signal poor audit quality for triennially inspected audit firms. Auditors that receive a Part II inspection report typically experience a decrease in clients, which demonstrates a general demand for audit quality. However, some companies hire auditors that receive Part II inspection reports. We examine potential reasons for hiring these audit firms. We find that relative to companies that switch to auditors without Part II reports, companies that switch to auditors with Part II reports have higher discretionary accruals in the first fiscal year after the switch, which indicates lower audit quality and a heightened risk for future fraud. We find no difference in audit fees. Our results suggest that PCAOB Part II inspection reports may signal low-quality auditors to companies that desire low-quality audits. Data Availability: Data are available from the public sources cited in the text.

The Impact of PCAOB AS5 and the Economic Recession on Client Portfolio Characteristics of the Big 4 Audit Firms

2013 ◽  
Vol 32 (4) ◽  
pp. 95-127 ◽  
Author(s):  
Joseph H. Schroeder ◽  
Chris E. Hogan
Keyword(s):  
Financial Risk ◽  
Economic Recession ◽  
Data Availability ◽  
Publicly Traded ◽  
Audit Firm ◽  
Big 4 ◽  
Audit Firms ◽  
Risk Characteristics ◽  
The Impact

SUMMARY We examine the impact of PCAOB Auditing Standard No. 5 (AS5) and the economic recession on risk characteristics and degree of auditor/client misalignment in the publicly traded client portfolios of Big 4 firms. AS5 and the economic recession both likely resulted in an increase in audit firm personnel capacity as well as a decline in current and future revenue prospects, leading to concerns that the Big 4 firms may pursue clients that present greater risk to the portfolio. We find that the overall portfolio in 2009 presents greater financial risk, attributable to the impact of the recession on continuing clients. A net decrease in audit and auditor business risks is also attributable to continuing clients over this period, as increases for new clients are offset by reductions due to departing clients. Overall, the results, which should be of interest to regulators, indicate that Big 4 firms continued to balance their portfolio with risk in mind. Data Availability: Data are publicly available from sources identified in the paper.

scholarly journals Do Gender Diversity Recommendations in Corporate Governance Codes Matter? Evidence from Audit Committees

2020 ◽  
Vol 39 (1) ◽  
pp. 173-197 ◽  
Author(s):  
Nigar Sultana ◽  
Steven F. Cahan ◽  
Asheq Rahman
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Gender Diversity ◽  
Positive Association ◽  
Data Availability ◽  
Audit Committees ◽  
Women Directors ◽  
Corporate Governance Codes ◽  
Limited Supply ◽  
The Impact

SUMMARY Motivated by two opposing views, the limited supply view and the discrimination view, we examine the impact of gender diversity guidelines on the strength of the association between the presence of female audit committee members and audit quality. The limited supply view predicts that the effect of female audit committee members on audit quality would decrease after the guidelines were issued because they increased the demand for women directors without a commensurate increase in the supply of qualified women directors. The discrimination view predicts this relation would increase after the guidelines were issued since some firms would have abandoned their suboptimal hiring practices that favored men over better qualified women, resulting in higher quality firm-director matches as opportunities for women increase. Consistent with the limited supply view, we find that the positive association between audit committee gender diversity and audit quality weakened after gender diversity guidelines were introduced in Australia. JEL Classifications: G38; M42; M48. Data Availability: Data are available from the databases cited in the text.

The Impact of Graphical Displays of Pro Forma Earnings Information on Professional and Nonprofessional Investors' Earnings Judgments

2012 ◽  
Vol 25 (1) ◽  
pp. 37-60 ◽  
Author(s):  
William N. Dilla ◽  
Diane J. Janvrin ◽  
Cynthia Jeffrey
Keyword(s):  
Data Availability ◽  
Fiscal Year ◽  
Nonprofessional Investors ◽  
Earnings Information ◽  
Graphical Displays ◽  
Pro Forma Earnings ◽  
Presentation Formats ◽  
Earnings Performance ◽  
The Impact ◽  
Pro Forma

ABSTRACT: Regulation G (SEC 2003b) requires managers to reconcile textual non-GAAP performance measures (i.e., pro forma disclosures) to GAAP. Graphical disclosures also require reconciliation; however, neither the format nor the placement of the reconciliation is specified. We apply cognitive fit theory to argue that the influence of graphical information presentation formats is contingent on investor type and judgment complexity. Participants in our study viewed a simulated Investor Relations website for a large drug retailer and made judgments regarding current fiscal year earnings performance, earnings potential, and investment amount. We manipulated graphical (GAAP-only versus GAAP and pro forma) and textual (GAAP-only versus pro forma reconciled to GAAP) earnings disclosure content in a 2 × 2 between-participants design. We find that nonprofessional investors' current fiscal year earnings performance, earnings potential, and investment amount judgments are all influenced by graphical displays, which include pro forma as opposed to GAAP-only earnings information. Graphical displays of pro forma earnings information do not influence professional investors' current year earnings performance judgments; however, these displays do influence professional investors' earnings potential and investment amount judgments because they are more complex. Our results suggest a need to further examine the influence of graphical pro forma earnings presentation formats on investor judgments. Data Availability: Contact the first author.

The Impact of Religion on Financial Reporting Irregularities

2011 ◽  
Vol 87 (2) ◽  
pp. 645-673 ◽  
Author(s):  
Sean T. McGuire ◽  
Thomas C. Omer ◽  
Nathan Y. Sharp
Keyword(s):  
Social Norms ◽  
Earnings Management ◽  
Financial Reporting ◽  
Rural Areas ◽  
Positive Association ◽  
Data Availability ◽  
Real Earnings Management ◽  
Business Practices ◽  
Agency Conflicts ◽  
The Impact

ABSTRACT This study examines the impact of religion on financial reporting. We predict that firms in religious areas are less likely to engage in financial reporting irregularities because prior research links religiosity to reduced acceptance of unethical business practices. Our results suggest that firms headquartered in areas with strong religious social norms generally experience lower incidences of financial reporting irregularities. We also examine whether religiosity influences managers' methods of managing earnings. Although we find a negative association between religiosity and abnormal accruals, we find a positive association between religiosity and two measures of real earnings management, suggesting that managers in religious areas prefer real earnings management over accruals manipulation. We provide evidence that our results are not driven by firms headquartered in rural areas and conclude that religious social norms represent a mechanism for reducing costly agency conflicts, particularly when other external monitoring is low. Data Availability: Contact the authors.

scholarly journals Family control, audit committees and audit fees

2010 ◽  
Vol 7 (3) ◽  
pp. 73-85 ◽  
Author(s):  
Sidney Leung ◽  
Ran Wang
Keyword(s):  
Hong Kong ◽  
Audit Committee ◽  
Positive Association ◽  
Audit Fees ◽  
Audit Committees ◽  
Fiscal Year ◽  
Audit Risk ◽  
Family Control ◽  
The Impact

This paper examines the impact of family control on audit effort and audit risk as proxied by audit fees, the relation between the quality of the audit committee (AC) and audit fees, and how family control influences the association between AC quality and audit fees. Using a sample of Hong Kong companies from the 2005/06 fiscal year, we find that family-controlled firms have lower audit fees. The results also show a positive association between AC quality and audit fees in Hong Kong. Moreover, the association of higher AC quality with higher audit fees is stronger in family-controlled firms than in non-family-controlled firms. Collectively, our findings suggest that audit committees in family-controlled firms require a higher degree of external audit effort than do those in non-familycontrolled firms.

Information Transfer of Bankruptcy Announcements: Examining the Impact of Auditor Opinions

2019 ◽  
Vol 34 (1) ◽  
pp. 45-66
Author(s):  
Jeffrey R. Casterella ◽  
Rosemond Desir ◽  
Matthew A. Stallings ◽  
James S. Wainberg
Keyword(s):  
Capital Market ◽  
Stock Price ◽  
Information Transfer ◽  
Data Availability ◽  
Going Concern ◽  
Market Participants ◽  
Audit Firms ◽  
Peer Firms ◽  
Going Concern Opinion ◽  
The Impact

SYNOPSIS Auditing standards require auditors to consider whether there is “substantial doubt” that their client will remain a going concern and to, accordingly, modify the audit report (PCAOB AS 2415). Prior research reports larger negative excess returns for bankrupt firms when bankruptcies occur without a prior going concern opinion. We investigate whether such audit opinions can also have an impact on industry peer firms. We find that peer firms experience significantly larger negative stock price drops when rivals' bankruptcies are not preceded by a going concern opinion. In addition, we find evidence of incremental stock price declines for peer firms when Big N audit firms fail to issue a going concern opinion. These findings should be of significant interest to regulators, auditors, and capital market participants as they serve to enhance our current understanding of the importance of going concern opinions for the share pricing of industry peer firms. JEL Classifications: G14; G33; M4; M42. Data Availability: All data are from public sources identified in the manuscript.

The Impact of Partners' Economic Incentives on Audit Quality in Big 4 Partnerships

2021 ◽  
Author(s):  
Simon Dekeyser ◽  
Ann Gaeremynck ◽  
W. Robert Knechel ◽  
Marleen Willekens
Keyword(s):  
Audit Quality ◽  
Positive Association ◽  
Economic Incentives ◽  
Negative Association ◽  
Client Characteristics ◽  
Financial Situation ◽  
Audit Firm ◽  
Big 4 ◽  
Audit Firms ◽  
The Impact

Economic incentives are fundamental for understanding auditor behavior. In this paper, we investigate the association between the extent of partners' fee-based compensation, partners' observable net wealth, and audit quality. Using a sample of Belgian Big 4 audit firms and their predominantly private clients, our results suggest a negative association between audit quality and partner fee-based compensation, and a positive association between audit quality and partner observable net wealth. Moreover, our results show that the latter association is most significant when a partner is carrying a lot of debt, which indicates that a partner's financial situation may affect audit quality. The extent of fee-based incentives also varies among partners of the same audit firm. Furthermore, partner and client characteristics differ based on the extent of fee-based compensation. Our findings should be of interest to regulators and audit firms as they suggest that audit partner's economic incentives significantly affect audit quality.

Economic Significance of Social Capital

2011 ◽  
pp. 46-65 ◽  
Author(s):  
L. Polishchuk ◽  
R. Menyashev
Keyword(s):  
Social Capital ◽  
Collective Action ◽  
Common Good ◽  
Economic Conditions ◽  
Formal Institutions ◽  
Transmission Channels ◽  
Economic Significance ◽  
Bonding And Bridging ◽  
The Impact

The paper deals with economics of social capital which is defined as the capacity of society for collective action in pursuit of common good. Particular attention is paid to the interaction between social capital and formal institutions, and the impact of social capital on government efficiency. Structure of social capital and the dichotomy between its bonding and bridging forms are analyzed. Social capital measurement, its economic payoff, and transmission channels between social capital and economic outcomes are discussed. In the concluding section of the paper we summarize the results of our analysis of the role of social capital in economic conditions and welfare of Russian cities.

THE IMPACT OF MINERAL FERTILIZERS ON THE BIOLOGICAL YIELD OF SUGAR BEET CROP (BETA VULGARIS L. VAR. SACCHARIFERA)

2018 ◽  
Vol 28 (4) ◽  
pp. 1281-1284
Author(s):  
Petar Petrov ◽  
Bojan Mitrovski
Keyword(s):  
Sugar Beet ◽  
Field Trials ◽  
Mineral Fertilizers ◽  
Qualitative Properties ◽  
New Production ◽  
Economic Significance ◽  
Random Block ◽  
Biological Yield ◽  
Sugar Beet Crop ◽  
The Impact

Due to the great economic significance of the sugar beet, the new production trends are aimed at improving the quantitative and qualitative properties and one of the basic agro technical measures that is directly dependent on the yield and quality of the turnip is the properly conducted plant nutrition. Exporting high quantities of nutrients from the soil, the sugar beet requires application of advanced agro-technology, primarily application of adequate and controlled nutrition and irrigation. Application of this measure, in combination with soil processing, has sustained influence over the following cultures in the crop rotation in terms of nutrients regiment and fight against weeds.In order to determine the effects of mineral fertilizers on sugar beet, field experiment was conducted on fluvisol soil. The experiment is set according to a random block system, following the standard methods of agricultural chemistry for conducting field trials. The experiment includes eight variants, as follows: 1. Control (non-fertilized), 2. NP, 3. NK, 4. PK, 5. NPK, 6. N2PK, 7. N2P2K, 8. N3PK.In the phase of technological maturity of sugar beet, collection of the vegetative material and measurement of the height of the biological yield of the turnips was carried out. Based on the survey results, it can be concluded that the variant N2P2K has achieved the highest yield of swollen roots, i.e. 69.330 kg/ha. The highest yield of leafy greens was achieved in the variant N3PK, i.e. 41.920 kg/ha, which indicates the fact that nitrogen has direct influence over the vegetation mass of sugar beet.

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