Determinants of Auditor Choice in Non-Financial Listed Firms on the Vietnamese Stock Market

Audit plays an important role in maintaining and issuing high-quality financial statements. This article investigates the factors that can affect auditor choice in developing countries. The authors utilize STATA to test Binary Logistic on a sample of Vietnamese listed firms data during the period between 2014 and 2017. These studies have examined the characteristics of the firm itself or the client's characteristics, prompting the process of selecting an auditor in the same regulatory environment. The results present that there is a positive relationship between firm size, firm growth, and auditor choice. While financial leverage has a negative relationship with the selection of audit firms.

Key audit risks and audit procedures during the initial year of the COVID-19 pandemic: an analysis of audit reports 2019-2020

Purpose The purpose of this study is to explore audit procedure disclosures related to key audit risks, during the prior year and the initial year of the COVID-19 outbreak, by reporting on matters published in over 3,000 Australian statutory audit reports during 2019 and 2020. Design/methodology/approach This study partially uses latent semantic analysis methods to apply textual and readability analyses to external audit reports in Australia. The authors measure the tone of the audit reports using the Loughran and McDonald (2011) approach. Findings The authors find that 3% of audit procedures undertaken during 2020 were designed to address audit risks associated with the COVID-19 pandemic. As a percentage of total audit procedures undertaken during 2020, the authors find that smaller practitioners reported much less audit procedures related to COVID-19 audit risks than most larger audit firms. Finally, the textual analysis further found differences in the sentiment or tone of words used by different auditors in 2020, but differences in sentiment or tone were not found when 2020 was compared to the prior year 2019. Originality/value This study provides early evidence on whether auditors designed audit procedures to deal specifically with audit risks that arose due to the COVID-19 pandemic and on the extent and nature of those audit procedures. The study will help policymakers to better understand whether Key Audit Matters provided informational value to investors during a time of global crisis.

Audit partner workload, gender and audit quality

PurposeThe paper aims to investigate the relation between the auditor's workload (LogAPW) and audit quality. Further, it explores whether the presence of a female audit partner (hereafter FEM) influences the LogAPW effect on audit quality.Design/methodology/approachA dataset of 1,629 firm-year observations from 181 companies listed in the NASDAQ OMX Stockholm for the years 2010–2018 has been analyzed. The testable hypotheses have been tested using least squares regressions clustered at the Swedish public-listed companies (client-firm) level.FindingsThe research findings first indicate that overburdened audit partners (APS) are associated with lower-quality audits, consistent with the “busyness hypothesis.” Nevertheless, the adverse association turns to be positive for FEMs, supporting the thesis that FEMs have more tendency, as compared to their male counterparts, to preserve their partnership's position in the public-audit firms. Collectively, these results seem sound, as the results hold unchanged after controlling for the endogeneity concerns and provide the same conclusion for a host of additional measures for both the client-firms' discretionary accruals and the LogAPW.Research limitations/implicationsEven though a lower magnitude of the client-firms' discretionary accruals corresponds to a lower-opportunistic behavior of managers, the research is limited to by which lower values of earnings management reflect a better-quality financial reporting. Given that the empirical analysis has been confined to the Swedish Corporation, the regression results might not be generalizable for other countries with different contextual features.Practical implicationsThe study might participate to the ongoing debate about the introduction of more women to the public-audit firms' elite positions (e.g. partnership) by providing evidence for the favorable female auditor effect on the quality of the client-firms' financial reporting.Originality/valueThe regression results provide a preliminary evidence on how does the presence of a FEM mitigate the inverse relation between the LogAPW and audit quality, which is an issue that has not been examined before.

The effect of audit firm attributes on audit delay in the presence of financial reporting complexity

Purpose This study aims to examine the effects of audit firm attributes on audit delay associated with financial reporting complexity (FRC). Design/methodology/approach The authors use regression models with a sample of public firms with distinct monetary eXtensible Business Reporting Language tags to test the research hypotheses. Findings The authors find that two audit firm attributes (audit firm tenure and non-audit services performance) moderate the effect of FRC on audit delay. Practical implications The study provides insights to regulators, practitioners and investors into how firms may reduce audit delay from FRC by keeping their long-tenured auditors and allowing their auditors to gain more knowledge about the firms by providing non-audit services. The results, therefore, have implications for mandatory audit firm rotation. Originality/value To the best of the knowledge, this study conducts the first comprehensive analysis of this topic, exploring the impact of three audit firm attributes on audit delay caused by FRC. It attempts to illustrate the impact of external audit firms on reducing the adverse consequences of FRC.

The economic impact of audit failures

This paper examines the economic consequences associated with an audit failure in the field of statutory auditing services, by analyzing changes in the audit firm’s market share around the time of the investigation process undertaken by the Spanish Public Oversight Board. We explore the variations in audit market share by applying the difference in differences method to a treatment group of 70 sanctioned audit firms and a matched control group of 70 non-sanctioned audit firms. The period of analysis covers the years from 1999 to 2015. Our results show that the sanctioned audit firms suffered a significant decrease in their relative number of clients. Moreover, this measure of market share decreased not only after the publication of the sanction disclosure (which may be attributed to reputational losses) but also after the initiation of the investigation (which may be attributed to the firm’s reluctance to audit risky clients). Findings are similar for both small and large firms when the market share is measured in terms of clients, whereas the evidence is weak concerning variations in their turnover-based market share. Our conclusions could be of interest for audit firms and also for audit regulators when designing disciplinary systems. Este trabajo examina las consecuencias económicas asociadas a un fallo de auditoría en el ámbito de los servicios de auditoría legal, analizando los cambios en la cuota de mercado de la firma de auditoría en torno al momento del proceso de investigación emprendido por el Consejo de Supervisión Pública español. Exploramos las variaciones en la cuota de mercado de la auditoría aplicando el método de diferencia en diferencias a un grupo de tratamiento de 70 firmas de auditoría sancionadas y a un grupo de control emparejado de 70 firmas de auditoría no sancionadas. El periodo de análisis abarca los años comprendidos entre 1999 y 2015. Nuestros resultados muestran que las firmas de auditoría sancionadas sufrieron un descenso significativo en su número relativo de clientes. Además, esta medida de la cuota de mercado disminuyó no sólo después de la publicación de la comunicación de la sanción (lo que puede atribuirse a las pérdidas de reputación), sino también después del inicio de la investigación (lo que puede atribuirse a la reticencia de la empresa a auditar clientes de riesgo). Los resultados son similares tanto para las pequeñas como para las grandes empresas cuando la cuota de mercado se mide en términos de clientes, mientras que la evidencia es débil en lo que respecta a las variaciones de su cuota de mercado basada en el volumen de negocio. Nuestras conclusiones podrían ser de interés para las firmas de auditoría y también para los reguladores de la auditoría a la hora de diseñar sistemas disciplinarios.

Real Earnings Management: Do the Experience and Gender of Big4 Auditors Matters?

Objective - This study examines whether the experience and gender of auditors in Big4 firm in relationship of deterring Real Earnings Management (REM).Different from the majority of previous studies, this study focuses on auditors in Big4 audit firms and real earnings management within Malaysian business environment. Big4 audit firms are associated with high quality audit because of the reputation to uphold, thus adopted stringent quality control and assurance approach, systems and procedures. Once adopted, the effect of individual characteristics may become less important. Thus, it is questionable whether individual characteristics such as auditor experience and gender could still have an influence on the outcomes of an audit, in this case, REM, when the audit firms are Big 4 (assuming very stringent quality control procedures are adopted). Methodology/Technique –This study substantiates prior literature and conducted tests only on companies audited by Big4 audit firms. We also find that auditor experiences confirms to Agency Theory where REM reduces when the experience increases. Data was obtained from the Companies Commission of Malaysia (SSM), DataStream and Bursa Malaysia. Findings - The result confirms prior literature that auditor experience is still an important factor that can limit REM, even in companies audited by the Big4 firms. The results however reveal that Big4 female auditors do not have any significant effect in reducing REM. Novelty -Although female auditors are claimed by Gender Socialization Theory, to have better moral judgments than male auditors, the result shows both genders are equal, at least in limiting REM. Type of Paper: Empirical. JEL Classification: M40; M41; M42 Keywords: Big4 Auditors; Auditor Experience; Real Earnings Management; Auditor Gender; Bursa Malaysia

Using Storytelling to Apply Lessons from PCAOB Enforcements

The real-life failures of others provide vivid opportunities to learn. Audit failures and rule infractions stemming from Public Company Accounting Oversight Board (PCAOB) inspections represent the few instances where detailed information about financial statement audits is made publicly available. The PCAOB enforcement reports contain a wealth of information and offer greater transparency in regard to the audits of SEC registrants. This project uses these reports to teach real-life lessons in the context of the complex regulatory environment in which registered audit firms operate. Students examine the information from these enforcements and then craft and present the stories of the related audit failures. This approach has a proven impact on learning, and students who completed the project reported enhanced knowledge of the regulatory process and audit standards. The student presentations can also be used in a professional environment for CPAs to earn CPE. We provide advice to faculty who wish to pursue a similar option.

The going-concern opinion and the adverse credit rating: an analysis of their relationship

Purpose The purpose of this study is to examine the relationship between going-concern (GC) opinions issued by the Big 4 audit firms and adverse credit ratings from the two largest credit rating agencies (CRAs) – Standard & Poor’s (S&P) and Moody’s. This question is relevant because there have been suggestions that auditors and CRAs should become more similar to each other, and because the two largest CRAs have different ownership structures that could affect their ratings. Design/methodology/approach Univariate and multivariate analyses are performed using a sample of firms that filed for bankruptcy between January 1, 2002 and December 31, 2013 that also had an audit opinion signed during the 12 months prior to bankruptcy, along with a credit rating issued by either or both S&P and Moody’s. Both influence each other. The likelihood of an auditor issuing a GC opinion is related to the credit rating issued by both S&P and Moody’s in the month prior to the audit report signing. The results also show differences between the CRAs. S&P reacted in the month after an auditor issued a GC opinion by downgrading its ratings 68% of the time. However, Moody’s did not react as strongly as S&P, downgrading its ratings only 24% of the time. Findings Both audit reports and credit ratings influence each other. The likelihood of an auditor issuing a GC opinion is related to the credit rating issued by both S&P and Moody’s in the month prior to the audit report signing. The results also show differences between the CRAs. S&P reacted in the month after an auditor issued a GC opinion by downgrading its ratings 68% of the time. However, Moody’s did not react as strongly as S&P, downgrading its ratings only 24% of the time. Originality/value Auditors are more likely to issue GC opinions when there is a downgrade to the credit rating, and CRAs are more likely to downgrade their ratings when there is a GC opinion. The study highlights that CRAs with different ownership structures provide different credit rating outcomes.

The Impact of Auditors’ Industry Knowledge and Experience on Premature Sign-Offs: Evidence from Jordan

This study aims to investigate the impact of auditors’ industry knowledge (AIK) and auditor experience (EXP) on premature sign-offs (PMSOs) among external auditors. PMSOs is one of dysfunctional behaviours in auditing that eventually affects the audit quality. Audit quality is defined as all audit procedures are satisfactorily performed and stakeholders are not negatively affected with the results of poor audit quality. While the topic of audit quality has received great attention from previous studies decades ago, studies on how AIK and auditor experience affects PMSOs are limited. Therefore, this study examined the effects of AIK and auditor experience on PMSOs. Survey data was gathered from 144 auditors in the Jordanian audit firms. AMOS-SEM was used to analyse the data for testing the hypotheses. Results revealed that AIK and auditor experience negatively affected PMSOs. Based on these findings, this study suggests that to a certain extent PMSOs practices are prevalent in Jordanian audit firms, AIK, and auditor experience are a measure that can be used to reduce the PMSOs practices. Thus, this study provides empirical evidence of the impact factor determining the effect of auditor knowledge in the industry and auditor experience on the dysfunctional behaviour-PSMOs and impact on audit quality. The limitations of this study and recommendations for future research are also provided.

Accounting Firm Association Membership and Audit Firm Growth

In this study, we explore a topic of primary concern to small audit firms – attracting public audit clients. A potential avenue available to small audit firms to enhance their visibility and legitimacy among potential public audit clients is to join an association of accounting firms (ACAP 2008; GAO 2008). We examine whether small audit firms with accounting association membership have greater public clientele growth than their peer audit firms without association membership. We find that member firms experience public clientele growth as measured by number of clients and revenues audited. We find that this growth is impacted by both gaining new entrants to the audit market and winning over clients from competitors. Further, we find that the reputation of associations positively affects the clientele growth seen by member firms. In additional analyses, we also find some evidence of private client growth of association members using LexisNexis® Company Dossier data.