Market Reaction to Auditor Ratification Vote Tally

2017 ◽  
Vol 31 (1) ◽  
pp. 141-157 ◽  
Author(s):  
Paul N. Tanyi ◽  
Kristin C. Roland
Keyword(s):  
Empirical Evidence ◽  
Audit Quality ◽  
Market Reaction ◽  
Client Relationship ◽  
High Level ◽  
Auditor Characteristics ◽  
Jel Classifications

SYNOPSIS This paper provides empirical evidence that the proportion of shareholder votes against the ratification of the auditor is informative to investors' perception of the auditor-client relationship. We find that lower shareholder approval of the auditor is associated with a negative market reaction to the 8-K announcement of the auditor ratification vote. Additionally, we find that the market reaction is more negative when a high level of auditor dissatisfaction is likely a surprise to investors, such as when audit and auditor characteristics suggest that the auditor provides high audit quality. We provide confirming evidence that withheld votes are associated with a higher likelihood of a future auditor dismissal and that the market reaction to the dismissal is more positive for firms with lower shareholder approval of the auditor. JEL Classifications: G34; G30; M40.

scholarly journals Affiliated Former Partners on the Audit Committee: Influence on the Auditor-Client Relationship and Audit Quality

2018 ◽  
Vol 38 (3) ◽  
pp. 95-119 ◽  
Author(s):  
Brant E. Christensen ◽  
Thomas C. Omer ◽  
Marjorie K. Shelley ◽  
Paul A. Wong
Keyword(s):  
Quality Improvement ◽  
Social Identity ◽  
Social Identity Theory ◽  
Audit Committee ◽  
Audit Quality ◽  
Audit Fees ◽  
Audit Committees ◽  
Client Relationship ◽  
External Auditor ◽  
Jel Classifications

SUMMARY Researchers and practitioners have expressed the need to understand better the interactions between audit committees and auditors and how these interactions affect audits. Former partners affiliated with the external auditor and serving on the audit committee are a subset of audit committee members who can affect the audit. Consistent with social identity theory, we find that companies with an affiliated partner on their audit committee are less likely to dismiss the member's former firm than companies without the affiliation. Further, we find improved audit quality and increased effectiveness of auditor effort when affiliated partners serve on the audit committee. Finally, this quality improvement occurs contemporaneously with a reduction in audit fees and time spent on fieldwork, suggesting increased efficiency. Our study provides evidence that affiliated former partners on audit committees extend the tenure of the auditor-client relationship while also improving audit processes and outcomes. JEL Classifications: M4; M42; G3.

Who Did the Audit? Audit Quality and Disclosures of Other Audit Participants in PCAOB Filings

2014 ◽  
Vol 90 (5) ◽  
pp. 1939-1967 ◽  
Author(s):  
Carol Callaway Dee ◽  
Ayalew Lulseged ◽  
Tianming Zhang
Keyword(s):  
Audit Quality ◽  
Market Reaction ◽  
Audit Fees ◽  
Discretionary Accruals ◽  
Multivariate Model ◽  
Significant Decline ◽  
Earnings Response Coefficients ◽  
Absolute Value ◽  
Earnings Response ◽  
First Time

ABSTRACT We empirically test whether audit quality is affected when part of an SEC issuer's audit is outsourced to auditors other than the principal auditor (“participating auditors”). We find a significantly negative market reaction and a significant decline in earnings response coefficients (ERCs) for experimental issuers disclosed for the first time as having participating auditors involved in their audits. However, we find no market reaction and no decline in ERCs for a matching sample of issuers that are not disclosed as using participating auditors, nor for issuers disclosed for the second or third time as using participating auditors. We also find actual audit quality as measured by absolute value of performance-matched discretionary accruals is lower for the experimental issuers, although we find no difference in audit fees paid by the experimental and matching issuers in a multivariate model. Our findings suggest that the PCAOB's proposed rule requiring disclosure of the use of other auditors in addition to the principal auditor would provide information useful to investors in assessing audit quality for SEC issuers.

The Association between Audit Manager and Auditor-In-Charge Experience, Effort, and Risk Responsiveness

2018 ◽  
Vol 38 (3) ◽  
pp. 121-147 ◽  
Author(s):  
Christine Contessotto ◽  
W. Robert Knechel ◽  
Robyn A. Moroney
Keyword(s):  
Audit Quality ◽  
Data Availability ◽  
The Core ◽  
Specific Experience ◽  
Primary Core ◽  
Using Data ◽  
Audit Team ◽  
Industry Experience ◽  
Jel Classifications ◽  
Core Role

SUMMARY Audit quality is dependent on the experience and effort of the audit team to identify and respond to client risks (risk responsiveness). Central to each team are the core role holders who plan and execute the audit. While many studies treat the partner as the primary core role holder, the manager and auditor-in-charge (AIC) are also important. Using data for engagements from two midtier firms, we analyze the association between the experience and relative effort of the manager and AIC and risk responsiveness. We find a manager's client-specific experience is associated with risk responsiveness for non-listed clients but find no evidence that the general or industry experience of a manager, or the experience of the AIC, is associated with risk responsiveness. The client-specific experience and relative effort of the partner is associated with risk responsiveness. These results suggests that managers can provide an important, albeit limited, contribution to the audit. JEL Classifications: M2. Data Availability: The data were made available to the researchers on the understanding that they will remain confidential.

An Analysis of Cross-Sectional Differences in Big and Non-Big Public Accounting Firms' Audit Programs

2006 ◽  
Vol 25 (1) ◽  
pp. 27-48 ◽  
Author(s):  
Hans Blokdijk ◽  
Fred Drieenhuizen ◽  
Dan A. Simunic ◽  
Michael T. Stein
Keyword(s):  
Risk Assessment ◽  
Empirical Evidence ◽  
Audit Quality ◽  
Audit Fees ◽  
Public Accounting ◽  
Accounting Firms ◽  
Big 5 ◽  
Public Accounting Firms ◽  
Audit Approach ◽  
Control Risk

A significant body of prior research has shown that audits by the Big 5 (now Big 4) public accounting firms are quality differentiated relative to non-Big 5 audits. This result can be derived analytically by assuming that Big 5 and non-Big 5 firms face different loss functions for “audit failures” and is consistent with a variety of empirical evidence from studies of audit fees, auditor changes, and the stock price reaction to audited earnings. However, there is no existing evidence (of which we are aware) concerning the underlying production differences between Big 5 and non-Big 5 audits. As a result, existing empirical evidence cannot distinguish between the possibility that Big 5 audits are simply perceived to be different (e.g., by investors) or actually differ in how they are produced. Our research objective is to identify the production characteristics of audit engagements that may explain the differences in expected audit quality between Big 5 and non-Big 5 firms. In this archival study, we examine the total audit effort and the allocation of effort to four audit phases—planning, (control) risk assessment, substantive testing, and completion—for a cross-section sample of 113 audits of Dutch companies in 1998/99 by 14 public accounting firms. We find that, after controlling for client characteristics: (1) both types of auditors exert about the same amount of total audit effort; (2) Big 5 auditors allocate relatively more effort to planning and (control) risk assessment, and relatively less to substantive testing and completion; and (3) client size, use of the business-risk-based audit approach, and reliance on client internal controls affect audit hours differently for the two auditor types. We conclude that the Big 5 firms actually produce a higher audit quality level, and that this quality difference is related to how audit hours are deployed in a more contextual and less procedural audit approach.

Divestiture and Its Market Reaction in a Consolidating Industry: The Global Brewing Industry

2021 ◽  
pp. 1-21
Author(s):  
Ludwig Erl ◽  
Florian Kiesel
Keyword(s):  
Mergers And Acquisitions ◽  
Capital Market ◽  
Market Reaction ◽  
Market Performance ◽  
Abnormal Returns ◽  
Brewing Industry ◽  
Efficiency Gains ◽  
Market Values ◽  
Jel Classifications ◽  
The Capital Market

Abstract This study provides a perspective on the market performance of divestitures in the global brewing industry. In 2018, the five largest players accounted for 60% of the global beer volume. We analyze to what extent the capital market values divestitures in an industry where players usually seek efficiency gains and growth through mergers and acquisitions. Based on a sample of 61 divestiture intent announcements in the period from 1999–2018, this study shows that publicly listed brewing groups experience significant positive abnormal returns of about 1.4%. We measure the influential effect of success determinants concerning the underlying industry, the divested business, the divestiture structure, and the divestor itself. (JEL Classifications: G14, G34, L25, Q14)

scholarly journals A neurocognitive model of ideological thinking

2021 ◽  
pp. 1-15
Author(s):  
Leor Zmigrod
Keyword(s):  
Empirical Evidence ◽  
Motivational Factors ◽  
Cognitive Systems ◽  
Social Forces ◽  
Low Level ◽  
Cognitive Principles ◽  
High Level ◽  
Ideological Attitudes ◽  
The Brain

Abstract Ideological behavior has traditionally been viewed as a product of social forces. Nonetheless, an emerging science suggests that ideological worldviews can also be understood in terms of neural and cognitive principles. The article proposes a neurocognitive model of ideological thinking, arguing that ideological worldviews may be manifestations of individuals’ perceptual and cognitive systems. This model makes two claims. First, there are neurocognitive antecedents to ideological thinking: the brain’s low-level neurocognitive dispositions influence its receptivity to ideological doctrines. Second, there are neurocognitive consequences to ideological engagement: strong exposure and adherence to ideological doctrines can shape perceptual and cognitive systems. This article details the neurocognitive model of ideological thinking and synthesizes the empirical evidence in support of its claims. The model postulates that there are bidirectional processes between the brain and the ideological environment, and so it can address the roles of situational and motivational factors in ideologically motivated action. This endeavor highlights that an interdisciplinary neurocognitive approach to ideologies can facilitate biologically informed accounts of the ideological brain and thus reveal who is most susceptible to extreme and authoritarian ideologies. By investigating the relationships between low-level perceptual processes and high-level ideological attitudes, we can develop a better grasp of our collective history as well as the mechanisms that may structure our political futures.

Audit Firm Tenure, Audit Firm Size and Audit Quality

2014 ◽  
Vol 2 (4) ◽  
pp. 69-76
Author(s):  
Padri Achyarsyah ◽  
Molina Molina
Keyword(s):  
Firm Size ◽  
Significant Influence ◽  
Audit Quality ◽  
Hypothesis Test ◽  
Professional Services ◽  
Primary Data ◽  
Accounting Firms ◽  
Client Engagement ◽  
Audit Firm ◽  
Client Relationship

Objective - The objective of this paper is to examine the effect of audit firm tenure and audit firm size on audit quality. This study applies explanatory research in which questionnaire and interviews serve as the primary data. The population of this study is public accounting firms which are registered in the Indonesian capital market. Methodology/Technique - The study presents a survey using professional auditors. The multiple regression methode is used to conduct an hypothesis test of the effect of audit firm tenure and audit firm size on audit quality. Findings - The result of study depicted that audit firm tenure has no significant influence on the audit quality, while the audit firm size has significant influence on the audit quality. Audit quality deteriorate, when the length of the audit firm client engagement is longer. No particular concern to audit firm size since the big audit firm size has extensive training for their staffs and sufficient system in place. Novelty - The study contributes to auditing literature in the areas of audit quality. The length of the audit firm client relationship and audit firm size always rise the contradiction to the audit quality. The audit firm tenure and audit firm size support previous study, additional insight are gained toward in the elections of the audit firm that serves professional services in capital markets. Type of Paper - Empirical Keywords: Audit Firm Tenure; Audit Firm Size; Audit Quality; Auditor

The impact of audit committee characteristics on internal audit professionalization: empirical evidence from Greece

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Christina Vadasi ◽  
Michalis Bekiaris ◽  
Andreas G. Koutoupis
Keyword(s):  
Empirical Evidence ◽  
Audit Committee ◽  
Audit Quality ◽  
Research Question ◽  
Internal Audit ◽  
Audit Committees ◽  
Annual Reports ◽  
Substantial Impact ◽  
Content Type ◽  
The Impact

Purpose This paper aims to provide empirical evidence of the association between audit committee characteristics and internal audit quality through internal audit professionalization. Design/methodology/approach The investigation of the research question was based on 45 usable responses that were received from a survey of chief audit executives from firms listed on the Athens Stock Exchange and combined with publicly available information from annual reports. Findings The results indicate that audit committee characteristics (independence, diligence through frequent meetings and interaction with internal audit through valuation) influence internal audit professionalization. In addition, they demonstrate that internal audit professionalization is also influenced by CEO duality and firm’s external auditor. Practical implications The findings of this study have implications for audit committees wishing to improve their overall effectiveness, by identifying areas with substantial impact on internal audit quality. Moreover, regulators of corporate governance bodies can also benefit from the results to strengthen audit committee’s efficiency regarding internal audit function oversight. Originality/value The results add to the literature on the discussion of internal audit professionalization and complement the work of other researchers in the field of audit committee’s impact on internal audit quality/effectiveness. This study attempts to fill a gap in the literature on the effect of audit committee characteristics on internal audit professionalization, an element introduced from an institutional theory perspective.

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