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.

What determines the progress of online information access to banking corporate governance practices? The case of Paraguay

This paper contributes to the lack of longitudinal studies concerning online information access to corporate governance (CG) practices in the banking sector of Latin American countries. In particular, this study aims to analyze the factors that influence information transparency, both mandatory and voluntary, related to CG practices of banks that operate in Paraguay via their websites from 2016 to 2019. Findings indicate the need to improve the level of information available on websites, with disclosure of voluntary information on CG practices being more prevalent than the disclosure of mandatory information. Likewise, banks that operate in Paraguay have made scant “progress” regarding online access to their governance information over the years analyzed. Moreover, the factors “Bank size” and “listed status” positively influence the information transparency regarding CG practices of Paraguayan banks. In contrast, “leverage,” “liquidity,” “size of the audit firm,” and “credit risk rating” are factors that have a negative relation with the extent of CG disclosure.

Impact of corporate board and external audit attributes on earnings quality: Experience from Nigeria quoted foods and beverages firms

The recent audit failures has pointed to weaknesses in financial report and give occasion of doubt to users about the reliability of earnings declared by firms. This study examines the effects of corporate board and external audit attributes on earnings quality of listed foods and beverages firms in Nigeria. Secondary data were employed through audited annual reports and accounts of eight (8) selected foods and beverages firms listed on the Nigerian Stock Exchange using judgmental sampling technique. Data collected were analyse using descriptive statistics like table, percentage and inferential statistics such as panel regression analysis. All Analysis were tested at 5% level of significance. The results revealed that audit firm size (β=14485.32, P=0.000) which is external audit attribute and board size (β=-2741.887, P=0.000), audit committee presence (β= -8225.11, P=0.044) and company size (β= 5454.20, P=0.000) were the significant determinants of external audit and corporate board attributes of listed foods and beverages firms in Nigeria. Also, the result of panel regression revealed that audit independence (β= -6.57e-06, P=0.035) and audit firm size (β=0.1141479, P= 0.018) were the external audit attributes that had significant effect on discretionary accruals. The study therefore concluded that corporate board attributes (audit committee) and external audit attributes (auditor independence, audit firm size) had significant effect on earnings quality as measured by earnings management of selected foods and beverages firms in Nigeria. The study recommends that in order to enhance auditor’s independence, uniform audit fee should be formulated, and also, disclosure should be made on other corporate board attributes like board members’ year of experience and gender and for effective monitoring system.

Does earnings management mediate the relationship between audit quality and company performance? Evidence from Jordan

Purpose The purpose of this study is to look at the direct relationship between audit quality, earnings management (EM) practices and company performance, as well as the indirect influence (mediation) of EM practices in the relationship between audit quality and company performance. It offers empirical evidence from the Jordanian market, which is considered an emerging market. Design/methodology/approach The population of this study is represented in Jordanian service companies listed on the Amman Stock Exchange (ASE), with a total of 344 company-year observations. Furthermore, panel data analysis was used in this study, and data for the study were acquired from yearly reports as well as the ASE’s database. Findings Based on generalized method of moments model, the present findings demonstrate that the size of the audit firm and the tenure of the audit firm have a positive and negative influence on EM practices, respectively, but that industry-specialist audit firm has a negative and insignificant effect. EM practices have a negative impact on two company performance proxies (ROA and ROE), but have no effect on earnings per share (EPS). Furthermore, the size of the audit firm has a positive and significant influence on the performance proxies of the company [i.e. return on assets (ROA) and return on equity (ROE)]. The presence of an industry-specialist audit firm has a positive and significant influence on two proxies of company performance (ROE and EPS), but a negative and significant impact on ROA. An audit firm’s tenure has a negative and significant impact on two performance proxies (ROA and EPS), but a positive and significant impact on ROE. Then, EM practices either fully or partially mediate the relationship between audit quality proxies and company performance as assessed by ROA, ROE and EPS. Research limitations/implications The current study’s limitation is that it only searched in Jordanian service companies listed on ASE from 2012 to 2019 to meet the study’s objectives; thus, the authors recommend that future work investigate the study model for other sectors, whether in Jordan or other emerging markets such as the Middle East and North Africa. Another limitation of this study is that the study models lack important variables, which may affect EM and company performance, such as corporate governance and ownership structure characteristics; as a result, the authors recommend that future work includes such variables in future research models to have more explanations in this context. Practical implications Analysts, investors and other strategic decision makers may use the findings of this study to improve the efficiency and efficacy of Jordan’s financial market. These findings will enhance policymakers’ willingness to establish appropriate regulations, which might improve Jordan’s financial market performance and efficacy. These findings may help investors make better judgments by using audit quality proxies and EM indicators, which can forecast business success. Originality/value First, this study distinguishes itself from prior studies through establishing a new research model, by investigating the mediating effect of EM in the relationship between audit quality and company performance. It provides empirical evidence from the Jordanian market; hence, it increases the body of the knowledge in this context. Second, to the best of the authors’ knowledge, this is the first study to look into the link between audit quality, EM and company performance together; hence, the model of this study is developed using agency theory and information asymmetry theory. Third, the current study adds new evidence to the role of audit quality and EM in companies, as well as how audit quality and EM practices affect company performance in emerging markets such as Jordan.

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.

The Value of Auditor Industry Specialization: Evidence from a Structural Model

This study investigates the value of auditor industry specialization. In the first step, we use a discrete choice model to derive the first-order demand for auditor industry specialization. Our results reveal that clients have a general preference for auditor industry specialization, relating to both audit firm and audit office specialization. Further, we observe that specializations at the audit firm and audit office level are substitutes. We also find that larger and more complex clients have a stronger demand for industry specialization at the audit office level. In the second step, we use the results from the discrete choice model to quantify the value of auditor industry specialist for clients. We find that the overall value of industry specialization aggregated across all clients is 5.2 million USD (0.36% of audit fees) and that industry specialization at the firm (office) level is decisive for auditor choice in 4% (6%) of all cases.

Auditing and earnings management in New Zealand

<p>The research summarised in this thesis focuses on two research issues of particular importance to the New Zealand economy. First, the thesis examines the impact of audit factors on the level of earnings management. Second, the thesis empirically assesses the relationship between the level of earnings management and the audit fees charged by audit firms. In the empirical work summarised in this thesis I use the absolute value of discretionary accruals (DACCs) as a proxy for earnings management. I estimate DACCs for each sample firm by using the modified Jones (1991) model. Moreover, several auditor characteristics have been employed in the thesis as proxies for auditor quality and independence. I use a BIG4 dummy variable (that equals 1 if the auditor is a Big 4 audit firm and 0 otherwise), an AOFFICE dummy variable (that equals 1 if the audit firm’s office is located in Wellington or Auckland and 0 otherwise), an AO dummy variable (that equals 1 if the client firm receives a qualified or conditional audit opinion and 0 otherwise) and a FISCAL dummy variable (that equals 1 if the client firm’s fiscal year-end falls in the period from March to June and 0 otherwise) as proxies for audit quality. I also use a RNAF variable (as measured by the ratio of non-audit fees to total fees paid) and a C_AUDITOR dummy variable (that equals 1 if a client firm changes its audit firm and 0 otherwise) as proxies for auditor independence in relation to the level of DACCs. The empirical results summarised in the thesis show that the level of DACCs is significantly and negatively associated with the BIG4 and AOFFICE variables. This result is consistent with the common perception that higher quality auditors will lead to a higher audit quality and that this in turn will reduce level of DACCs. I also find a positive and statistically significant relationship between the FISCAL variable and the level of DACCs. This result indicates that DACCs are likely to be higher if the audit is conducted during the busy audit season. The empirical results summarised in the thesis also show a positive and significant relationship between the audit opinion (AO) variable and the level of DACCs. This means that a qualified or conditional audit opinion is more likely to occur if the financial statements involve a relatively higher level of DACCs. However, the empirical results summarised in the thesis report an insignificant relationship between the level of DACCs and the C_AUDITOR and RNAF variables. These results mean that auditor independence does not appear to have any impact on the level of DACCs. In part two of this thesis, I examine whether the level of DACCs in the current year is associated with the level of the audit fee in the next ensuing year. Here it is well known that each year the auditor will review both the general and specific factors affecting their audit responsibilities in relation to a particular audit client. Hence, the agreed audit fee for the next ensuing year is likely to reflect information about the level of earnings management in prior years and of how the issues arising out of these earnings management procedures have been resolved between the client firm and the audit firm. In order to test this hypotheses, I employ the audit fee model of Simunic (1980) as refined by Choi et al. (2009), Francis and Simon (1987), Hay et al. (2006b) and Menon and Williams (2001). As expected, the second set of empirical results summarised in the thesis show a positive and statistically significant relationship between the level of DACCs in the current year and the level of the audit fee in the next ensuing year. This means that a high level of DACCs in the current year will impact positively on the level of the audit fee in the next ensuing year.</p>

Auditing and earnings management in New Zealand

<p>The research summarised in this thesis focuses on two research issues of particular importance to the New Zealand economy. First, the thesis examines the impact of audit factors on the level of earnings management. Second, the thesis empirically assesses the relationship between the level of earnings management and the audit fees charged by audit firms. In the empirical work summarised in this thesis I use the absolute value of discretionary accruals (DACCs) as a proxy for earnings management. I estimate DACCs for each sample firm by using the modified Jones (1991) model. Moreover, several auditor characteristics have been employed in the thesis as proxies for auditor quality and independence. I use a BIG4 dummy variable (that equals 1 if the auditor is a Big 4 audit firm and 0 otherwise), an AOFFICE dummy variable (that equals 1 if the audit firm’s office is located in Wellington or Auckland and 0 otherwise), an AO dummy variable (that equals 1 if the client firm receives a qualified or conditional audit opinion and 0 otherwise) and a FISCAL dummy variable (that equals 1 if the client firm’s fiscal year-end falls in the period from March to June and 0 otherwise) as proxies for audit quality. I also use a RNAF variable (as measured by the ratio of non-audit fees to total fees paid) and a C_AUDITOR dummy variable (that equals 1 if a client firm changes its audit firm and 0 otherwise) as proxies for auditor independence in relation to the level of DACCs. The empirical results summarised in the thesis show that the level of DACCs is significantly and negatively associated with the BIG4 and AOFFICE variables. This result is consistent with the common perception that higher quality auditors will lead to a higher audit quality and that this in turn will reduce level of DACCs. I also find a positive and statistically significant relationship between the FISCAL variable and the level of DACCs. This result indicates that DACCs are likely to be higher if the audit is conducted during the busy audit season. The empirical results summarised in the thesis also show a positive and significant relationship between the audit opinion (AO) variable and the level of DACCs. This means that a qualified or conditional audit opinion is more likely to occur if the financial statements involve a relatively higher level of DACCs. However, the empirical results summarised in the thesis report an insignificant relationship between the level of DACCs and the C_AUDITOR and RNAF variables. These results mean that auditor independence does not appear to have any impact on the level of DACCs. In part two of this thesis, I examine whether the level of DACCs in the current year is associated with the level of the audit fee in the next ensuing year. Here it is well known that each year the auditor will review both the general and specific factors affecting their audit responsibilities in relation to a particular audit client. Hence, the agreed audit fee for the next ensuing year is likely to reflect information about the level of earnings management in prior years and of how the issues arising out of these earnings management procedures have been resolved between the client firm and the audit firm. In order to test this hypotheses, I employ the audit fee model of Simunic (1980) as refined by Choi et al. (2009), Francis and Simon (1987), Hay et al. (2006b) and Menon and Williams (2001). As expected, the second set of empirical results summarised in the thesis show a positive and statistically significant relationship between the level of DACCs in the current year and the level of the audit fee in the next ensuing year. This means that a high level of DACCs in the current year will impact positively on the level of the audit fee in the next ensuing year.</p>