The Association between the Number of Auditors as a Proxy for Audit Market Competition and Audit Quality

2018 ◽  
Vol 43 (5) ◽  
pp. 159-196
Author(s):  
Wonsuk Ha ◽  
Catherine Heyjung Sonu ◽  
Jong-Hag Choi ◽  
Ahrum Choi
Keyword(s):  
Audit Quality ◽  
Market Competition ◽  
Audit Market

The effect of auditor narcissism on audit market competition

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hojat Mohammadi ◽  
Mahdi Salehi ◽  
Meysam Arabzadeh ◽  
Hassan Ghodrati
Keyword(s):  
Financial Markets ◽  
Significant Relationship ◽  
Design Methodology ◽  
Audit Quality ◽  
Stock Exchange ◽  
Market Competition ◽  
Competitive Pressure ◽  
Content Type ◽  
Listed Firms ◽  
Audit Market

Purpose This paper aims to assess auditor narcissism’s effect on audit market competition (auditor concentration, clients’ concentration and competitive pressure). Design/methodology/approach This paper’s method is descriptive-correlational based on published information from listed firms on the Tehran Stock Exchange from 2012 to 2018 using a sample of 188 firms (1,310 observations). The method used for hypothesis testing is linear regression using panel data. Findings The results show a negative and significant relationship between auditor narcissism and audit market competition and its indices, including auditor concentration, clients’ concentration and competitive pressure. Moreover, a positive and significant relationship was observed between audit quality and audit market competition and its indices, including auditor concentration, client concentration and competitive pressure. Originality/value To analyzes competition indices in the audit market (auditor concentration, clients’ concentration and competitive pressure). The variable is assessed once more using the exploratory factor analysis of the so-called three variables single variable, named audit market competition. So the central question of the study is investigated within a broader sense. Moreover, as the present study is carried out in the emergent financial markets with extremely competitive audit markets to figure out the effect of auditors’ intrinsic characteristics on such markets’ competitiveness, it can provide useful information in this field.

Dressing for the Occasion? Audit Quality in the Presence of Competition for New Clients

2021 ◽  
Author(s):  
Henrik Moser
Keyword(s):  
Audit Quality ◽  
Market Competition ◽  
New Approach ◽  
Auditor Choice ◽  
Audit Market ◽  
Auditor Quality ◽  
The Impact

This paper investigates the impact of increased audit market competition on audit quality and auditor choice. I develop a model comprising two auditors who compete for a new client by choosing the audit quality for their respective existing clients and using the audited report as a signal. I identify factors that influence auditor quality decisions as well as the behavior of clients, who potentially misstate their reports. Auditors are tempted to alter audit quality because they are eager to appear desirable from a new client's perspective. Interestingly, while recipients of the audited report adjust their conjectures about audit quality, there are conditions under which auditors lower their audit quality to increase the likelihood of being hired. The analysis extends the existing literature by describing a new approach to modeling the auditors' motivation to signal reputation for certain behavior.

Office-Client Balance and Metro Area Audit Market Competition

2020 ◽  
Vol 39 (4) ◽  
pp. 113-141
Author(s):  
Michael L. Ettredge ◽  
Matthew G. Sherwood ◽  
Lili Sun
Keyword(s):  
Relative Abundance ◽  
Audit Quality ◽  
Market Competition ◽  
Data Availability ◽  
Financial Statement ◽  
Audit Market ◽  
Metro Area ◽  
Big 4 ◽  
Jel Classifications

SUMMARY We propose a new audit supplier competition construct, the Office-Client Balance (OCB), which consists of the relative abundance of competing audit offices and audit clients in a metropolitan (metro) area. From this construct, we derive a metro level audit competition proxy reflecting surpluses or shortfalls of total metro audit office numbers relative to the national metro OCB norm: the OCB_TOT. Consistent with the predictions of Porter's Five Forces theory, we find that OCB_TOT is associated with lower fees, more auditor turnover, and more (less) office exits (entrances) in metro audit markets. These findings validate OCB_TOT as a proxy for audit market competition. Our results indicate that greater metro level competition among auditors (more positive OCB_TOT) is associated with higher audit quality, proxied by fewer financial statement misstatements. Several additional analyses suggest that OCB_TOT is useful in explaining clients' choices of local (versus remote) audit offices and Big 4 (versus non-Big 4) offices. Data Availability: Data used in this study are available from public sources. JEL Classifications: G18; L10; M42.

scholarly journals Does a Lack of Choice Lead to Lower Quality? Evidence from Auditor Competition and Client Restatements

2013 ◽  
Vol 32 (3) ◽  
pp. 31-67 ◽  
Author(s):  
Nathan J. Newton ◽  
Dechun Wang ◽  
Michael S. Wilkins
Keyword(s):  
Audit Quality ◽  
Negative Impact ◽  
Market Competition ◽  
Ongoing Debate ◽  
Policy Makers ◽  
Generally Accepted Accounting Principles ◽  
Market Participants ◽  
Audit Market ◽  
Financial Restatements ◽  
The Relationship

SUMMARY: We examine the relationship between auditor competition and the likelihood of financial restatements that occur as a result of failures in the application of generally accepted accounting principles (GAAP). Policy makers and audit market participants have expressed concern that the current level of auditor competition is low, resulting in a negative impact on audit quality. However, we find that restatements are more likely to occur in metropolitan statistical areas (MSAs) that have higher auditor competition. The association between audit market competition and restatements is statistically and economically significant. Our finding of a positive relationship between the likelihood of restatement and audit market competition is relevant to the ongoing debate regarding audit quality and the concentration of audit markets.

Does Big N matter for audit quality? Evidence from Japan

2019 ◽  
Vol 27 (1) ◽  
pp. 2-28 ◽  
Author(s):  
Hu Dan Semba ◽  
Ryo Kato
Keyword(s):  
Audit Quality ◽  
Market Competition ◽  
Fiscal Year ◽  
Litigation Risk ◽  
Bankruptcy Risk ◽  
Content Type ◽  
Audit Market ◽  
Accounting Scandals ◽  
Audit Firms ◽  
Before And After

Purpose There has been growing concern worldwide regarding audit quality in Japan after the Kanebo and Olympus accounting scandals. The purpose of this paper is to examine the Japanese audit market from 2001 to 2011 to determine whether audit quality differs between Big N and Non-Big N audit firms and whether this difference, if existed, changed during 2007 when the number of big audit firms declined from four to three and the requirements of audit quality became more rigorous. Design/methodology/approach This study employs a sample of Japanese listed firms from fiscal year 2001 to 2011. Five proxy variables for audit quality are used and the data are analyzed using the propensity score matching method. Findings The authors show that irrespective of their size, all audit firms in Japan provide the same quality of service, when controlling for client characteristics including keiretsu, foreign sales ratio and bankruptcy risk measured in Japan. Additionally, the results suggest that although only three major audit firms remain in the Japanese audit market after the dissolution of PricewaterhouseCooper’s Chuo-Aoyama firm in 2007, the audit quality difference between Big N and Non-Big N remained unchanged before and after 2007. Originality/value The study contributes to the lack of existing empirical evidence on audit quality in Japan, a country characterized with low audit litigation risk and more emphasis on auditor reputation, given the influence of the notable change in Japanese audit market competition from Big 4 to Big 3. The study’s research design contributes to the extant literature by using multiple proxies of audit quality.

Market Competition, Audit Fee Stickiness, and Audit Quality: Evidence from China

2018 ◽  
Vol 38 (2) ◽  
pp. 79-99 ◽  
Author(s):  
Hsihui Chang ◽  
Yingwen Guo ◽  
Phyllis Lai Lan Mo
Keyword(s):  
Earnings Management ◽  
Audit Quality ◽  
Market Competition ◽  
Positive Association ◽  
Certified Public Accountants ◽  
Listed Firms ◽  
Audit Market ◽  
Audit Firms ◽  
Audit Fee ◽  
Auditor Reporting

SUMMARY This study examines how audit fee stickiness varies with changes in market competition in China and its effect on audit quality. The Chinese audit market structure has changed significantly since the Chinese Institute of Certified Public Accountants (CICPA) issued a proposal to enhance the competitiveness of large domestic audit firms by promoting the consolidation of domestic audit firms in 2007. Using a sample of Chinese listed firms, we find a decrease in upward stickiness and an increase in downward stickiness as market concentration increases in the post-Proposal period. The asymmetry between upward and downward fee stickiness is greater in local markets that are more dominated by the top 10 domestic auditors. Moreover, we find that upward (downward) fee stickiness has a negative (positive) association with audit quality as measured by earnings management and auditor reporting conservatism. JEL Classifications: D40; M42.

scholarly journals Internal Control Opinion Shopping and Audit Market Competition

2015 ◽  
Vol 91 (2) ◽  
pp. 603-623 ◽  
Author(s):  
Nathan J. Newton ◽  
Julie S. Persellin ◽  
Dechun Wang ◽  
Michael S. Wilkins
Keyword(s):  
Internal Control ◽  
Audit Quality ◽  
Market Competition ◽  
Policy Debate ◽  
Current Policy ◽  
Empirical Results ◽  
Audit Market ◽  
Opinion Shopping ◽  
The Impact

ABSTRACT This study examines the extent to which audit clients successfully engage in internal control opinion shopping activities and whether audit market competition appears to facilitate those activities. Regulators have long been concerned about the impact of both audit market competition and opinion shopping on audit quality. We adopt the framework developed in Lennox (2000) to construct a proxy to measure the tendency that clients engage in internal control opinion shopping activities. Our empirical results suggest that clients are successful in shopping for clean internal control opinions. In addition, we find evidence that internal control opinion shopping occurs primarily in competitive audit markets. Finally, our results indicate that among auditor dismissal clients, opinion shopping is more likely to occur when dismissals are made relatively late during a reporting period and when audit market competition is high. Our findings have implications for the current policy debate regarding audit quality and audit market competition.

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