Do Audit Firm Tenure and Size Moderate Changes in Financial Reporting Quality Due to Mandatory IFRS Adoption?

2019 ◽  
Vol 38 (4) ◽  
pp. 201-224
Author(s):  
William N. Riccardi
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Negative Consequences ◽  
Audit Firm ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Big 4 ◽  
Mandatory Adoption

SUMMARY Regulators have expressed concerns that auditors become less effective external monitors as the length of the auditor-client relationship increases. I examine how audit firm tenure is associated with changes in financial reporting quality due to mandatory adoption of International Financial Reporting Standards. I argue that auditors were integral in proper implementation of IFRS and could have mitigated potential negative consequences associated with IFRS adoption. My findings suggest that short audit firm tenure was associated with a decrease in quality, relative to those with medium length tenure. Differences between clients with medium and long tenure are generally not significant. Other results indicate that companies with a Big 4 auditor had greater improvements, or smaller decreases, in reporting quality relative to non-Big 4 clients. My results do not support concerns that longer tenure impairs audit quality. My study is also relevant to standard setters as they evaluate the results of IFRS adoption.

scholarly journals International financial reporting standards (IFRS) adoption and oil & gas companies performance in Nigeria

2017 ◽  
Vol 5 (2) ◽  
pp. 146 ◽  
Author(s):  
Aminu Abdullahi ◽  
Musa Yelwa Abubakar ◽  
Sunusi Sa’ Ad Ahmad
Keyword(s):  
Financial Reporting ◽  
Oil And Gas ◽  
Reporting Quality ◽  
Easy Access ◽  
Debt Ratio ◽  
Return On Equity ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Mandatory Adoption ◽  
Oil And Gas Companies

This study investigates the effect of IFRS adoption on the performance of oil and gas marketing companies in Nigeria. The study utilise financial statements of a sample of eight (8) oil and gas companies operating in the country. These companies were purposively selected due to availability of data. Firms’ performance was proxied by Profit Margin (PM), Return on Assets (ROA) and Return on Equity (ROE) ratios and were considered as dependent variables to be determined by reporting regime (RR) as independent variable. While Current Ratio (CR), quick Test (QT), Total Debt Ratio (TDR) Earnings per Share (EPS) and Equity Debt Ratio (EDR) are use as control variables. The ratios were computed and compared for 4 years (2010 to 2011) before mandatory IFRS adoption and 2012 to 2013 often mandatory adoption OLS, regression with help of eviews 9 was employed for the analysis. The study reveals IFRS adoption has not improved the performance of oil and gas companies in Nigeria. The paper recommended that, oil and gas companies should continue to comply with provisions of IFRS as it will improve their reporting quality which may also improve their performance as result of more investment flow, easy access to capital and comparability.

Audit quality and earnings management: evidence from Jordan

2016 ◽  
Vol 17 (2) ◽  
pp. 170-189 ◽  
Author(s):  
Ebraheem Saleem Salem Alzoubi
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Quality ◽  
Reporting Quality ◽  
Least Square ◽  
Cross Sectional ◽  
Content Type ◽  
Audit Firm ◽  
Big 4 ◽  
Jones Model

Purpose – The purpose of this paper is to test the association between audit quality and earnings management (EM). Audit quality studies documented that accruals would reduce when the auditor is independent or the audit firm is large. Design/methodology/approach – This paper uses generalised least square regression to investigate the influence of audit quality on EM. The sample contained 86 companies listed on the Amman Stock Exchange from 2007 to 2010. The cross-sectional modified Jones model was employed to measure discretionary accruals as a proxy for EM. Findings – This paper revealed that there is a significantly negative association between audit quality and EM. The result inferred that EM level is significantly lower among companies using the services of independent auditors. Moreover, this study exposed that the level of EM is significantly less among companies hiring a Big 4 audit firm, as compared to companies utilising the service of a non-Big 4 audit firm. Research limitations/implications – The measurement error, which is a rigorous concern for studies on EM, is one of the limitations in this study. Hence, the current study wholly inherited the limits of the modified Jones model. Practical implications – The findings based on the current study would provide beneficial information for regulators in Jordan and other countries with an institutional environment similar to that of Jordan. Moreover, the results provided valuable information to investors in assessing the influence of audit quality on financial reporting quality (FRQ). Originality/value – The current study contributed to auditing and corporate governance literature and its influence on EM among Jordanian companies. This research will be of value to companies seeking to reduce EM and enhance FRQ.

The Impact of Mandatory IFRS Adoption on Audit Fees: Theory and Evidence

2012 ◽  
Vol 87 (6) ◽  
pp. 2061-2094 ◽  
Author(s):  
Jeong-Bon Kim ◽  
Xiaohong Liu ◽  
Liu Zheng
Keyword(s):  
Financial Reporting ◽  
Reporting Quality ◽  
Audit Fees ◽  
Data Availability ◽  
Financial Reporting Quality ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Audit Fee ◽  
European Union Countries ◽  
The Impact

ABSTRACT: This study examines the impact of International Financial Reporting Standards (IFRS) adoption on audit fees. We first build an analytical audit fee model to analyze the impact on audit fees for the change in both audit complexity and financial reporting quality brought about by IFRS adoption. We then test the model's predictions using audit fee data from European Union countries that mandated IFRS adoption in 2005. We find that mandatory IFRS adoption has led to an increase in audit fees. We also find that the IFRS-related audit fee premium increases with the increase in audit complexity brought about by IFRS adoption, and decreases with the improvement in financial reporting quality arising from IFRS adoption. Finally, we find some evidence that the IFRS-related audit fee premium is lower in countries with stronger legal regimes. Our results are robust to a variety of sensitivity checks. Data availability: Data are available from public sources identified in the paper.

scholarly journals AN INVESTIGATION ON THE EFFECT OF AUDIT COMMITTEE ON FINANCIAL REPORTING QUALITY IN PRE AND POST IFRS ADOPTION: EVIDENCE FROM MALAYSIAN COMPANIES

2020 ◽  
Vol 8 (2) ◽  
pp. 25-35
Author(s):  
Citrawati Jatiningrum ◽  
Fauzi ◽  
Rita Irviani ◽  
Mujiyati ◽  
Shahanif Hasan
Keyword(s):  
Earnings Management ◽  
Empirical Evidence ◽  
Financial Reporting ◽  
Audit Committee ◽  
Audit Quality ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Ifrs Adoption ◽  
Significant Difference ◽  
The Relationship

Purpose of study: This study sought to investigate the effect of the audit committee on Financial Reporting Quality (FRQ), explicitly focuses on the period pre- and post-mandatory IFRS adoption in Malaysia. The Financial Reporting Quality in this study proxied by earnings management. Malaysian. Methodology: The sample study has covered 81 listed companies on Bursa Malaysia, with 567 observations, which examined the time of 2009 to 2015. The relationship was analyzed by statistical multiple regression linear methods and also examined the significance of differences between pre and post IFRS adoption by paired sample t-test. Result: The main finding reveals that the relationship between the audit committee and financial reporting quality after IFRS adoption in Malaysia has more significant. However, empirical evidence showed that the post period of mandatory IFRS evidently no significant difference level of earnings management practice. This result indicates that the IFRS adoption cannot reduce managerial discretion yet and the possibility for EM manipulation for Malaysian companies. Implication/Application: This finding has critical implications for regulators and policymakers, that the consequences of IFRS adoption do not increase the quality of financial reporting when EM practices still continue in the different forms. Novelty/Originality of this study: This study gives empirical evidence that there are differences in relationship level between audit quality and earnings management in the period before and after IFRS mandatory adoption in Malaysia companies.

scholarly journals A discussion of auditor-client co-production of the audit and the effect on production efficiency

2016 ◽  
Vol 90 (9) ◽  
pp. 348-351
Author(s):  
Systse Duiverman ◽  
Christine Nolder
Keyword(s):  
Financial Reporting ◽  
Production Efficiency ◽  
Audit Quality ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Big 4 ◽  
Audit Efficiency ◽  
Efficiency And Effectiveness ◽  
Audit Production ◽  
Audit Effectiveness

This article provides a reflection on the paper and presentation during the FAR Conference of 9 and 10 May 2016 of “Auditor-client co-production of the audit and the effect on production efficiency” by Gaeremynck, Willekens, and Knechel (GWK). The authors examine the effect of auditor-client co-production on the efficiency of an audit, a topic relevant to the whole audit-client financial reporting and assurance supply chain. Using a sample of working papers from a Belgium Big 4 firm, the authors explore the controllable (i.e., managerial) and non-controllable (i.e., environmental) factors that contribute to variations in audit efficiency within the auditor-client coproduction of financial reporting quality. The results suggest that partner tenure positively contributes to the efficiency of the audit engagement, but the audit work prepared by the client, interim-work by the auditor, and the final audit work performed during off-peak season negatively affect audit efficiency. While this may be surprising from an efficiency standpoint, it may be that such measures add to the audit effectiveness to an extent that outweighs any efficiency loss. Audit quality or audit production, after all, is a matter of efficiency and effectiveness. GWK offer a number of important insights for practitioners interested in the delicate balance of managing efficiency and effectiveness. In the paragraphs that follow, we aim to both summarize the GWK research and highlight the importance of the findings to practice.

Voluntary IFRS Adoption by Unlisted European Firms: Impact on Earnings Quality and Cost of Debt

2020 ◽  
Vol 55 (03) ◽  
pp. 2050013
Author(s):  
Mara Cameran ◽  
Domenico Campa
Keyword(s):  
Financial Reporting ◽  
Positive Impact ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Cost Of Debt ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
The Cost ◽  
The Impact ◽  
Unlisted Firms

This paper investigates the impact of the voluntary adoption of International Financial Reporting Standards (IFRS) by unlisted firms on both their financial reporting quality and cost of debt. Using a large international sample of unlisted EU companies for which the choice of IFRS is voluntary, we find that IFRS adoption has a positive impact on financial reporting quality and results in a decrease in the cost of debt. In addition, unlisted firms adopting IFRS are more likely to be acquired or go public in the years subsequent to the adoption, relative to other unlisted firms. We document a tangible benefit of voluntary IFRS adoption by unlisted firms.

Is There an Association between Earnings Management and Auditor-Provided Tax Services?

2011 ◽  
Vol 33 (2) ◽  
pp. 111-135 ◽  
Author(s):  
Gopal V. Krishnan ◽  
Gnanakumar Visvanathan
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Quality ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Significant Relation ◽  
Audit Firm ◽  
Academic Researchers ◽  
Loss Avoidance ◽  
The Media

ABSTRACT The issue of whether auditor-provided nonaudit services enhance or exacerbate financial reporting quality has been intensely debated among regulators, auditors, investors, academic researchers, and the media. In 2006, the SEC approved the rules proposed by the PCAOB limiting the tax services that incumbent auditors can offer to their clients. We contribute to this debate by examining whether auditor-provided tax services mitigate earnings management. We find a negative and significant relation between earnings management (loss avoidance) and tax fee paid to the incumbent auditor. Our results are consistent with knowledge spillover, i.e., when the same audit firm provides both audit and tax services, insight learned from providing tax services can contribute to audit quality.

scholarly journals An Empirical Evidence of the Value Relevance and Timeliness of Financial Reports in the Post Adoption of IFRS in Nigeria

2021 ◽  
Vol 2 (1) ◽  
pp. 16-25
Author(s):  
Saheed Ademola Lateef ◽  
Norfadzilah Rashid ◽  
Johnson Kolawole Olowookere ◽  
Abdullahi Bala Ado
Keyword(s):  
Financial Reporting ◽  
Value Relevance ◽  
Stock Exchange ◽  
Reporting Quality ◽  
Theory And Practice ◽  
Financial Reporting Quality ◽  
Reporting Standards ◽  
Financial Reports ◽  
Financial Reporting Standards ◽  
Ifrs Adoption

The emergencies of the globalization of accounting standards and other critical issue have been reported to reduce the cost of enhancing comparability, understandability, and producing supplementary information, and analysis of the accounting reports. This allowed many developing nations who do not want to be left behind to take a cue from the world's major economies to meet the international financial reporting standards (IFRS) that Nigeria has taken measures to converge equally. The study examines the effect of IFRS adoption on financial reporting quality of listed non-financial companies in the Nigerian stock exchange. Particularly, in the area of value relevance and timely loss recognition. The study used 63 non-financial companies’ annual reports listed on the Nigerian Stock Exchange (NSE) for the period of 2008 to 2018 (i.e., 5years pre-adoption and 5years post adoption). Multiple linear regression was used in analyzing the collected data via STATA software. The result shows a significant increase in the value relevance of financial reports after IFRS adoption. The study also showed that the identification of significant losses increased in the post-IFRS adoption era. Based on the result, the study suggests that the relationship between accounting measures on IFRS adoption and financial reporting quality indicates that both foreign and local investors can predict the future of market value of individual securities. Therefore, investor receives considerable information by knowing the price information on time that shows more value relevant. Finally, this study contributed to the theory and practice, as well as direction for further studies related to the financial reporting standards and the reporting quality.

Has Sarbanes-Oxley standardized audit quality?

2017 ◽  
Vol 32 (1) ◽  
pp. 2-23 ◽  
Author(s):  
Matthew Hoag ◽  
Mark Myring ◽  
Joe Schroeder
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Earning Forecast ◽  
Content Type ◽  
Audit Firm ◽  
Sarbanes Oxley ◽  
The Impact ◽  
Industry Expertise

Purpose The purpose of this paper is to examine whether the institutional changes accompanying the passage of the Sarbanes-Oxley Act of 2002 (SOX) have standardized the audit’s role in the overall financial reporting process, thereby reducing the impact of auditor characteristics on financial reporting quality. Design/methodology/approach To test this hypothesis, the association between audit quality characteristics (auditor size and industry expertise) and measures of financial reporting quality (analyst earning forecast dispersion and accuracy) are estimated using regression analysis. Results of this analysis are compared across the pre- and post-SOX periods. Findings The results of the study document a significant relationship between auditor size (Big N vs non-Big N) and financial reporting quality (as proxied by analyst earnings forecast properties) during the pre-SOX period but not in the post-SOX period. Auditor industry expertise is significantly associated with financial reporting quality throughout the entire sample period. Thus, financial reporting quality continues to be dependent on the degree of specialization of an audit firm in both the pre- and post-SOX periods; however, the impact of auditor size as a surrogate for quality has diminished. Originality/value The SOX Act of 2002 represented one of the most significant changes in the regulation of audits. This paper adds to the literature by examining the Act’s effects on financial professionals’ perception of the impact of audit firm characteristics on their client’s financial reporting quality.

scholarly journals IFRS Adoption and Financial Reporting Quality: A Review of Evidences in Different Jurisdictions

2016 ◽  
Vol 69 ◽  
pp. 93-106
Author(s):  
Habeeb Mohamed Nijam ◽  
Athambawa Jahfer
Keyword(s):  
Financial Reporting ◽  
Value Relevance ◽  
Reporting Quality ◽  
Economic Consequences ◽  
Financial Statement ◽  
Financial Reporting Quality ◽  
Book Value ◽  
Financial Reporting Standards ◽  
Ifrs Adoption

Conventional and commonly held wisdom with respect to the adoption of International Financial Reporting Standards (IFRS) is that they lead to improved financial reporting quality and comparability and thereby favorable economic consequences. There are however contradicting evidences disproving this conventional wisdom or rejecting its gross generalization over the entire jurisdictions harmonizing on IFRS. Driven by this fact, quests for knowledge about the dynamics and contexts that lead to differential effects of IFRS get momentum. In an attempt to explore the insight into the effects of international accounting harmonization by way of IFRS adoption, this paper reviews selected literatures on the consequences of IFRS adoption. This review discusses some empirical evidences that have been reported in various countries that include Europe, USA, United Kingdom, Germany, Spain, Norway, Greece, Poland, Belgian, France, Italian, Turkey, United Arab Emirates (UAE), Kuwait, Jordan, China, Malaysia, Australia, Hong Kong, New Zealand, Kenya and Nigeria. Our review focuses on the aspects of value relevance, disclosure quality, cost of capital, earning management and financial statement impact due to the IFRS adoption. This review reveals that the economic consequences of IFRS adoption is significantly different though its impact reported to be positive in majority of cases. There are also notable number of studies that report indifferent and or negative effects of IFRS adoption. When IFRS studies report mixed evidence with respect to value relevance of book value of equity and earing, book value of equity supersedes the earning parameters. IFRS are found to supersede many other domestic financial reporting standards in terms of amount and the quality of disclosures in financial statement. This review also obtains that IFRS’s impact on the reduction of cost of capital depends on financial reporting incentives, law enforcement, types of legal systems and various other country-specific and capital market characteristics. Further, though there are some evidences to the contrary, the quality of earnings reported under IFRS has been established to be superior to other local standards.

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