Auditor Response to Negative Media Coverage of Client Environmental, Social, and Governance Practices

2019 ◽  
Vol 33 (3) ◽  
pp. 1-23 ◽  
Author(s):  
Jenna J. Burke ◽  
Rani Hoitash ◽  
Udi Hoitash
Keyword(s):  
Media Coverage ◽  
Audit Fees ◽  
Economic Incentive ◽  
Media Criticism ◽  
Client Retention ◽  
Pricing Decisions ◽  
Financial Condition ◽  
Increased Risk ◽  
Governance Practices ◽  
Auditor Resignation

SYNOPSIS We use new data to examine auditor response to negative media coverage of client environmental, social, and governance (ESG) practices. This coverage can be indicative of an increased risk of material misstatement, which is an important assessment in client retention and pricing decisions. Specifically, media criticism can threaten a client's financial condition, as well as reveal management effectiveness and integrity issues that are further compounded by negative attention and related financial problems. We therefore predict that auditors will notice and incorporate media-provided ESG information in their risk response, which has not been examined by prior research. Supporting this prediction, we find that ESG-related negative media coverage of an audit client is associated with a higher likelihood of auditor resignation and increased audit fees. This response is incremental to the issues that underlie this media coverage. Overall, these findings identify an additional economic incentive for companies to avoid poor ESG practices.

CEO and CFO Equity Incentives and the Pricing of Audit Services

2013 ◽  
Vol 33 (2) ◽  
pp. 1-25 ◽  
Author(s):  
B. Anthony Billings ◽  
Xinghua Gao ◽  
Yonghong Jia
Keyword(s):  
Positive Association ◽  
Audit Fees ◽  
Internal Controls ◽  
Audit Risk ◽  
Pricing Decisions ◽  
Equity Incentives ◽  
Accounting Scandals ◽  
Using Data ◽  
Distinctive Role

SUMMARY: The alleged perverse role of managerial incentives in accounting scandals, and the distinctive role of auditors in identifying and intervening in attempted earnings manipulation, highlight the importance of explicitly considering executive incentive plans by auditors in the auditing process. By empirically testing auditors' responses to CEO/CFO equity incentives in planning and pricing decisions using data from 2002 through 2009, we document compelling evidence that CFO equity incentives are positively associated with audit fees and CEO equity incentives are not statistically related to audit fees, suggesting that auditors perceive heightened audit risk associated with CFO equity incentives. Our further analyses reveal that the positive association between CFO equity incentives and audit fees is more pronounced in firms with weak internal controls, indicating heightened risk associated with CFO equity incentives in this setting perceived by auditors. JEL Classifications: G30, G34, M42, M52.

The Relationship between Aggressive Real Earnings Management and Current and Future Audit Fees

2016 ◽  
Vol 36 (1) ◽  
pp. 85-107 ◽  
Author(s):  
Adam Greiner ◽  
Mark J. Kohlbeck ◽  
Thomas J. Smith
Keyword(s):  
Earnings Management ◽  
Firm Value ◽  
Audit Fees ◽  
Cash Flows ◽  
Data Availability ◽  
Real Earnings Management ◽  
Increased Risk ◽  
Pricing Behavior ◽  
Reported Earnings ◽  
The Relationship

SUMMARY We examine the relationship between aggressive income-increasing real earnings management (REM) and current and future audit fees. Managers pursue REM activities to influence reported earnings and, as a consequence, alter cash flows and sacrifice firm value. We posit that the implications of REM are considered in auditors' assessments of engagement risk related to the client's economic condition and result in higher audit fees. We find that, with the exception of abnormal reductions in SG&A, aggressive income-increasing REM is positively associated with both current and future audit fees. Additional analyses provide evidence consistent with increased effort combined with increased risk contributing to the current pricing effect, with increased business risk primarily driving the future pricing effect. We, therefore, provide evidence that aggressive income-increasing REM activities have a significant influence on auditor pricing behavior, consistent with the audit framework associating engagement risk with audit fees. JEL Classifications: G21; G34; M41. Data Availability: The data in this study are available from public sources indicated in the paper.

Corporate reputation, trait covariation and the averaging principle ‐ The case of the UK pensions mis‐selling scandal

2001 ◽  
Vol 35 (3/4) ◽  
pp. 387-413 ◽  
Author(s):  
Roger Bennett ◽  
Helen Gabriel
Keyword(s):  
Media Coverage ◽  
Empirical Investigation ◽  
Bad News ◽  
Insurance Companies ◽  
Averaging Principle ◽  
Media Criticism ◽  
The Public ◽  
The Uk ◽  
A Company

Presents the results of an empirical investigation into whether the attribution by members of the public of an unfavourable reputational trait (e.g. dishonesty) to a company covaries with other traits ascribed to the same enterprise. Additionally it examines whether people aggregate successive pieces of unfavourable information received about a business to form a continuously worsening impression of it; or whether they mentally average bad news, so that successive adverse items can actually improve the overall impression – provided the later messages are not as damaging as the earlier ones. The study is based on the UK pensions mis‐selling scandal, which generated severe, long‐term media criticism of the large UK insurance companies. Hence it analyses a unique reputational management situation in that the firms involved are subject to continuous and intense scrutiny, protracted and hostile media coverage, periodic public censure by regulatory authorities, and interference in day‐to‐day management by government agencies. The proposition that pensions are an “avoidance product” is also explored.

Evaluating the Effect of Abnormal Audit Fees on Future Restatements

2012 ◽  
Vol 7 (1) ◽  
pp. P15-P21 ◽  
Author(s):  
Alan I. Blankley ◽  
David N. Hurtt ◽  
Jason E. MacGregor
Keyword(s):  
Negative Relationship ◽  
Audit Fees ◽  
Audit Committees ◽  
Client Retention ◽  
Audit Planning ◽  
The Future ◽  
The Relationship

SUMMARY This article summarizes our recently published article, “Abnormal Audit Fees and Restatements” (Blankley et al. 2012), which discusses the relationship between abnormal audit fees and future restatements. We find that there is a negative relationship between the two; specifically, unusually low audit fees are associated with an increased likelihood of a future restatement (i.e., one or two years in the future). This relationship has important implications for auditors in terms of audit planning, pricing, and client retention. After summarizing the published study, we discuss how examining abnormal audit fees may be useful for audit professionals and audit committees.

scholarly journals The influence of the newspaper media on the corporate governance practices of Irish listed PLCs

2010 ◽  
Vol 7 (3) ◽  
pp. 259-274
Author(s):  
Louise Gorman ◽  
Theo Lynn ◽  
Mark Mulgrew
Keyword(s):  
Corporate Governance ◽  
News Media ◽  
Media Coverage ◽  
Boards Of Directors ◽  
Newspaper Coverage ◽  
Share Price ◽  
Shareholder Protection ◽  
Governance Practices ◽  
Company Directors ◽  
Newspaper Articles

While a great deal of research has focused on the factors driving adoption of codes of best practice in corporate governance, only recently has the influence of the news media been considered. Corporate governance literature has largely converged upon internal monitoring and shareholder activist strategies as methods of shareholder protection following the decline of the market for corporate control. Commentators and activists alike have generally neglected the opportunity for an independent party, which watches over the management of companies, to guard shareholders’ interests. Ireland is just one country where the value of media coverage of corporate governance violations to: (i) shareholders, (ii) policymakers and (iii) company directors has not been assessed. This paper investigates the reaction of these groups to newspaper coverage of corporate governance violations so as to determine the influence of the newspaper media on the corporate governance practices of public limited companies (plcs) listed on the Irish Stock Exchange. Using newspaper articles, media activity was analysed and measured in 15 instances of corporate governance violations and the relationships between this activity and the actions and behaviours of investors, policymakers and company directors as indicated by stock market data8, government reports9 and newspaper articles respectively were examined. Evidence from this study suggests that the Irish newspaper media influences (i) the boards of directors of Irish listed plcs, in that subsequent newspaper articles report reformatory measures taken by the boards in the vast majority of companies in the sample; (ii) the government authorities who are responsible for the legislative and regulatory infrastructure in which they operate, with statistical evidence of increases in government attention to corporate governance issues following increased newspaper coverage of theses issues and (iii) the investing decisions of investors in Irish listed plcs, with statistical verification of a relationship between movements in share price and volumes of newspaper articles relating to corporate governance violations by listed companies.

Offshore trading activities and audit fees: a textual approach

2020 ◽  
Vol 35 (4) ◽  
pp. 549-573
Author(s):  
Janus Jian Zhang ◽  
Yun Ke ◽  
Shuo Li ◽  
Yanan Zhang
Keyword(s):  
Audit Fees ◽  
Risk Indicator ◽  
Audit Pricing ◽  
Content Type ◽  
Listed Firms ◽  
Pricing Decisions ◽  
Big 4 ◽  
Analysis Technique ◽  
Trading Activities ◽  
Offshore Activities

Purpose The purpose of this paper is to investigate whether and how auditors’ pricing decisions are affected by their clients’ offshore trading activities, which are comprehensively measured through a textual analysis technique. Design/methodology/approach The authors identified a sample of 32,264 firm-year observations from publicly listed firms in the US during 2004 to 2015. The authors then used multivariate regressions to examine the effect of offshore trading activities on audit fees. In the regression models, the authors also control for a series of factors that are documented to influence audit pricing. Findings The authors find that offshore trading activities are positively associated with audit fees, suggesting that offshore activities are likely to increase a client firm’s business risk and/or the extent of client complexity. The authors also find that auditors charge higher audit fees only to firms purchasing inputs produced by their own assets overseas but not to firms buying inputs produced by local firms overseas. Moreover, the association between offshore trading activities and audit fees is more pronounced for offshore activities that are in countries with high trading centrality, for Big 4 auditors, or for auditors with industry expertise. Originality/value This paper extends the literature on the consequences of offshore activities by providing evidence on how auditors react to offshore activities. Moreover, it contributes to the audit fee literature. Prior studies largely focus on client-level determinants, while this study complements this line of literature by identifying firm’s offshore activities as an important risk indicator, which is perceived by auditors in their pricing decisions. A firm’s offshore activity is unique because the risk implication of the offshore activities depends not only on factors within the firm, but also on factors outside the firm in foreign nations.

The Changes of Audit Fees by Management Risk in firm

2019 ◽  
Author(s):  
Vihaan K. Mukherjee
Keyword(s):  
Experimental Research ◽  
Audit Fees ◽  
Financial Condition ◽  
The Impact ◽  
Industry Circumstance

Audit cost greatly affects the freedom of review work and the nature of review report, which has excited numerous researchers' exploration and discourse. Hazard arranged inspecting requires confirmed open bookkeepers to place endeavors in the current financial condition, investigate and assess the significance dimension of reviewing from different perspectives, for example, the industry circumstance, business exercises and inside control of undertakings, to decide the part with higher hazard dimension of examining and lead key evaluating. This article chooses A recorded organizations' money related announcing information, building up review expenses and estimating business chance list of the relapse demonstrate, numerous relapse investigation. In the meantime, the impact of review expenses related file has carried on the experimental research. The exploration results show that: the advantage risk proportion and review expenses of recorded organizations are decidedly connected; money due turnover and net loan cost on deals are contrarily associated with review charges. What's more, as indicated by the aftereffects of research and investigation, I set forward significant assessments and recommendations.

Client Acceptance and Engagement Pricing following Auditor Resignations in Family Firms

2016 ◽  
Vol 35 (4) ◽  
pp. 137-158 ◽  
Author(s):  
Samer Khalil ◽  
Mohamad Mazboudi
Keyword(s):  
Ownership Structure ◽  
Family Firms ◽  
Audit Fees ◽  
Audit Pricing ◽  
Pricing Decisions ◽  
Big 4 ◽  
Professional Manager ◽  
Financial Restatements ◽  
The Family ◽  
Client Acceptance

SUMMARY This paper investigates whether auditors' client acceptance and pricing decisions following the resignation of the incumbent auditor in family firms are significantly different from those in non-family firms. Relying on the auditing literature (client acceptance and audit pricing) and using insights from the agency theory, we document that successor auditors incorporate a firm's ownership structure into their acceptance and pricing decisions following the resignation of the incumbent auditor. Big 4 auditors are more likely to serve as successor auditors following auditor resignations in family firms as opposed to non-family firms. The changes in audit fees following auditor resignations in family firms, however, are significantly smaller than those in non-family firms. These results hold when we account for whether a family firm is managed by a founder, a descendant, or by a professional manager, and when we use the percentage of shares held by the family members as another proxy for family ownership. Additional analysis further demonstrates that the likelihood of financial restatements in family firms in the post-resignation period are significantly lower than those in non-family firms. Overall, our findings suggest that Big 4 auditors perceive family firms from which the incumbent auditors resigned as being less risky than their non-family counterparts.

Violations of Suicide-Prevention Guidelines in US Media Coverage of Physician's Suicide Death During the COVID-19 Pandemic

Crisis ◽  
2021 ◽  
Author(s):  
Erika E. Lynn-Green ◽  
Klaudia Jaźwińska ◽  
Adam L. Beckman ◽  
Stephen R. Latham
Keyword(s):  
Healthcare Worker ◽  
Suicide Prevention ◽  
News Media ◽  
Media Coverage ◽  
Healthcare Workers ◽  
Best Practice ◽  
Reporting Guidelines ◽  
Increased Risk ◽  
The Media ◽  
Media Practices

Abstract. Background: Healthcare workers are at elevated risk for suicide; though it has yet to be studied, this risk may be exacerbated by the COVID-19 pandemic. News media coverage of high-profile suicide is associated with an increased risk of subsequent suicides. No analysis has yet been published of US media practices for reporting on healthcare worker suicides during the pandemic. Aims: The researchers aimed to evaluate pandemic-era media practices by investigating adherence to best-practice suicide reporting guidelines in coverage of Dr. Lorna Breen's death. Methods: The researchers conducted a content analysis of all unique articles by top outlets reporting Dr. Breen's death between April 26 and 29, 2020, and scored them based on their adherence to the 15 best-practice suicide reporting guidelines. Results: Every media outlet violated an average of at least 5 of 15 suicide guidelines in reporting on Dr. Breen's death; some abided by as few as 2 of 15 recommended guidelines. Seven of 15 guidelines were adhered to by fewer than one third of articles. The National Suicide Prevention Lifeline number, notably easy to include, appeared in only 75% of articles. Limitations: The researchers were limited to reviewing media coverage of one specific instance of COVID-era healthcare worker suicide, making these findings applicable as a prominent case study rather than forming a generalizable claim about suicide reporting during the pandemic or about reporting on healthcare suicides. Conclusion: These violations highlight a range of opportunities to improve suicide prevention in the media, which has a responsibility to ensure reporting does not exacerbate the risk of suicide. Improved adherence to these guidelines could reduce harm for healthcare workers during the pandemic.

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