Download or read book Determinants and Consequences of Auditor Conservatism written by Essam Elshafie and published by . This book was released on 2016 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: Lu and Sapra (2009) provide a theoretical framework to investigate the causes and effects of auditor conservatism. They refer to the attestation of an auditor who, when in doubt, disapproves a favorable client report as auditor conservatism. In this paper I examine several factors that affect auditor conservatism. The majority of the extant research in this area uses accounting conservatism measures, such as the level of discretionary accruals or the Basu (1997) model to measure auditor conservatism. In this paper I use a new measure of auditor conservatism based on issuing an adverse internal control report for clients with no financial statements restatements, and I examine the effect of client's business risk, litigation risk, and client pressure on auditor conservatism. In addition, I examine the effect auditor conservatism has on information risk and audit fees. Data are collected over the period of 2004 to 2012, from Audit Analytics, Compustat, the Stanford Securities Class Action Clearinghouse website, and CRSP. The results show that auditor conservatism is positively affected by client business risk and the litigation risk, and negatively affected by client pressure. In addition, the results show that auditor conservatism reduces the information asymmetry and leads to an increase in audit fees.

Download or read book Auditor Conservatism and Investment Efficiency written by Tong Lu and published by . This book was released on 2009 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a theoretical framework to investigate (i) both the determinants and the consequences of auditor conservatism in a capital market setting and (ii) the implications of the Sarbanes-Oxley Act for auditor conservatism and investment efficiency. We derive the following results. First, by varying the mix of audit and nonaudit fees, companies with high business risk induce auditor conservatism while companies with low business risk induce auditor aggressiveness. Second, if auditor conservatism is in force, a greater client pressure on auditors (in the form of granting or withholding potential client business opportunities) improves audit quality and if auditor aggressiveness is in force, a greater client pressure on auditors impairs audit quality. Third, the nature of a firm's investment inefficiency (overinvestment or underinvestment) depends on its auditor's attestation (conservatism or aggressiveness). Fourth, our model sheds light on the potential effects of Section 201 of the Sarbanes-Oxley Act, which prohibits public companies from granting their auditors many types of nonaudit services. Overall, the above results are useful both for public policy making and for empirical research.

Download or read book Determinants and Economic Consequences of Discretionary Accounting Conservatism written by Yen H. Tong and published by . This book was released on 2005 with total page 210 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Auditor Going Concern Reporting written by Marshall A. Geiger and published by Routledge. This book was released on 2021-06-09 with total page 160 pages. Available in PDF, EPUB and Kindle. Book excerpt: Auditor reporting on going-concern-related uncertainties remains one of the most challenging issues faced by external auditors. Business owners, market participants and audit regulators want an early warning of impending business failure. However, companies typically do not welcome audit opinions indicating uncertainty regarding their future viability. Thus, the auditor’s decision to issue a "going concern opinion" (GCO) is a complex and multi-layered one, facing a great deal of tension. Given such a rich context, academic researchers have examined many facets related to an auditor’s decision to issue a GCO. This monograph reviews and synthesizes 182 recent GCO studies that have appeared since the last significant review published in 2013 through the end of 2019. The authors categorize studies into the three broad areas of GCO: (1) determinants, (2) accuracy and (3) consequences. As an integral part of their synthesis, they summarize the details of each study in several user-friendly tables. After discussing and synthesizing the research, they present a discussion of opportunities for future research, including issues created or exacerbated as a result of the global COVID-19 pandemic. This monograph will be of assistance to researchers interested in exploring this area of auditor responsibility. It will also be of interest to auditing firms and individual practitioners wanting to learn what academic research has examined and found regarding this challenging aspect of audit practice. Auditing standard-setters and regulators will find it of interest as the authors review numerous studies examining issues related to audit policy and regulation, and their effects on GCO decisions. The examination of GCO research is extremely timely given the financial and business disruption caused by the worldwide COVID-19 pandemic. This unprecedented global event has caused companies, auditors and professional bodies to revisit and reassess their approach to going concern, and to think even more deeply about this fundamental business imperative.

Download or read book Determinants and Consequences of Auditor Resignations and Dismissals written by Kathleen Marie Hertz and published by . This book was released on 2006 with total page 194 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Understanding Auditor client Relationships written by Gary Kleinman and published by Gary Kleinman. This book was released on 2001 with total page 137 pages. Available in PDF, EPUB and Kindle. Book excerpt: This work is intended to assist researchers, regulators, and practitioners who are interested in the topic of auditor independence. It presents a comprehensive model of the individual, work place, organization, inter-organizational, and organizational field level determinants of the topic.

Download or read book Conditional Conservatism in Accounting written by Giorgio Gotti and published by . This book was released on 2007 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt: Accounting standards mandate different, more conservative, rules for the recognition of unrealized gains than unrealized losses in reported earnings. Conditional conservatism, defined as asymmetric timeliness in the recognition of unrealized losses vs. gains in reported earnings has, since its origins, been a peculiar characteristic of the accounting system. Understanding conservatism's role, its determinants, and its variations across firms is important for interpreting the nature, purposes, and valuation implications of accounting. Basu (1995; 1997) proposed a model to detect accounting conditional conservatism and provided empirical evidence that bad news is recognized more quickly than good news in earnings for a sample over the period 1963-1991. Following his seminal work1, accounting literature adopted the Basu single-period model to measure conditional conservatism (Ball et al. 2000; Ball et al. 2005; Ball and Shivakumar 2005; Lobo and Zhou 2006). However, Basu's proxy for measuring the arrival of good/bad news, the price of the firm's stock, may be influenced, in part, by factors that will never be recorded in a firm's reported earnings. This introduces inaccuracy in the measure of conditional conservatism. To address the problems, I introduce a new measure of conditional conservatism, which results from a Least Absolute Deviation (LAD) piecewise regression and adopts the number of changes in financial analysts' EPS forecasts as a proxy for good/bad news. Then, I use this new measure to test the determinants, suggested by previous literature, of conditional conservatism in accounting. Results show that companies with (1) lower debt-to-assets ratio, (2) large proportion of executives' annual compensation independent of the firm's accounting performance, (3) one of the big 4/big 7 audit firms as auditor, and a auditor opinion qualified with a going concern assumption the previous year exhibit a greater timeliness in the recognition of bad news than good news in annual earnings.

Download or read book Auditors Perception of Management written by Bernard Wong-On-Wing and published by . This book was released on 1986 with total page 186 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Determinants and Market Consequences of Auditor Dismissals After Accounting Restatements written by Karen M. Hennes and published by . This book was released on 2015 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the conditions under which financial restatements lead corporate boards to dismiss external auditors and how the market responds to those dismissal announcements. We find that auditors are more likely to be dismissed after more severe restatements but that the severity effect is primarily attributable to the dismissal of non-Big 4 auditors rather than Big 4 auditors. We also document that among corporations with Big 4 auditors, those that are larger and more complex operationally are less likely to dismiss their auditors. Combined, this evidence suggests that firms with higher switching costs and fewer replacement auditor choices are less likely to dismiss their auditors after a restatement, which is informative to the debates about the costs and benefits of mandatory auditor rotation and limited competition in the audit market. Additionally, we examine contemporaneous executive turnover and find evidence that boards view auditor dismissals as complementary rather than substitute responses to restatements. Finally, we investigate the market reaction to auditor dismissals after restatements. The market reaction to the dismissal is significantly more positive following more severe restatements (5.9%) relative to less severe restatements (0.6%) when the client engages a comparably sized auditor. This positive market reaction is consistent with firms restoring financial reporting credibility by replacing their auditors and highlights the important role that auditors play in the financial markets.

Download or read book Conditional Conservatism and Audit Fees written by Hye Seung (Grace) Lee and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study, we examine the impact of conditional conservatism on audit fees and, more importantly, the influence of corporate governance on this relationship. Prior literature presents evidence regarding explanations for the existence and pervasiveness of accounting conservatism such as compensation and debt contracting, shareholder litigation, taxation, and accounting regulation. However, there is very limited evidence or discussion of the potential benefit of accounting conservatism on audit risk and thus audit fees, and how the potential benefit can be attenuated by corporate governance quality. Using a sample of firm-year observations over the period of 2004-2009, we provide evidence consistent with conditional conservatism and firms' commitment to such conservatism reducing their audit fees. However, our evidence shows that this reduction in audit fees is moderated by higher corporate governance quality. These results have implications for auditors, regulators, standard setters, and firms' managers. In addition, our study extends the literature on the determinants of audit fees.

Download or read book Conditional Conservatism in Accounting written by Giorgio Gotti and published by . This book was released on 2008 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: Following Basu's (1995, 1997) seminal work, accounting literature adopted the Basu coefficient to measure conditional conservatism (among others, Ball et al. 2003; Ball et al. 2000; Ball et al. 2005; Ball and Shivakumar 2005; Lobo and Zhou 2006; Chandra et al. 2004). However, Basu's choice of proxy for measuring the arrival of good/bad news, stock returns, introduces inaccuracy in the measure of conditional conservatism (Dietrich et al. 2007; Roychowdhury and Watts 2007; Givoly et al. 2007). To address the problem, I introduce a new measure of conditional conservatism, which results from a Least Absolute Deviation (LAD) piecewise regression and adopts the number of changes in financial analysts' EPS forecasts as a proxy for good/bad news about future earnings and extends the analysis to two-year and three-year time horizons. I use this new measure to test three determinants that prior literature suggested to explain the presence of accounting conservatism. Results show that companies with high debt-to-assets ratio - closer to default on their debt covenants, with large portion of executives' compensation tied to the firm's performance, and in the year prior to a going concern opinion from their auditors report aggressively, recognizing future good news in annual earnings more quickly than bad news.

Download or read book Is There a Brain Drain in Auditing The Determinants and Consequences of Auditors Leaving Public Accounting written by W. Robert Knechel and published by . This book was released on 2019 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates why auditors leave public accounting and the consequences of auditor departures. We find that audit competency is negatively associated with a departure decision. Specifically, audit partners and managers, as well as auditors generating more audit revenues and providing higher quality audits, have a lower likelihood of departure. However, female, young, non-Big 4 auditors, and those with better educational backgrounds have a higher likelihood of departing public accounting. In terms of consequences, we find that the audit firm is more likely to lose clients whose incumbent auditor departs. Clients that stay with the same firm, however, pay lower audit fees with no drop off of audit quality after their auditor's departure. In supplementary analyses, we also demonstrate that the determinants and consequences of auditor departures are different from those of auditor turnover. Specifically, while higher audit competency decreases the likelihood of auditor departures, it increases auditor turnover. Our study provides insights that should be of interest to the audit profession, audit firms, and regulators.

Download or read book Differential Determinants and Effects of Audit Quality written by Jamie L. Hoelscher and published by . This book was released on 2013 with total page 156 pages. Available in PDF, EPUB and Kindle. Book excerpt: Lastly, in my third study, I examine "real" effects of industry specialist auditors. I find firms engaging the services of city industry specialist auditors are associated with higher levels of potentially value enhancing corporate risk-taking. In addition, I find a substitution effect, as the effect of industry specialist auditors is incrementally lower for firms with alternative forms of external monitoring.

Download or read book On the Firm specific Component of Conservatism and Its Determinants written by Sandip Dhole and published by . This book was released on 2010 with total page 190 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Determinants and Consequences of Auditor Dyad Formation at the Top Level of Audit Teams written by Benedikt Downar and published by . This book was released on 2019 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates the determinants and consequences of forming dyads at the top level of audit teams, i.e., dyads between concurring and lead auditor. We apply the sociological theory of homophily, i.e., the implicit preference for similar others, to hierarchically structured auditor dyads. Semi-structured interviews with highly experienced auditors show that concurring auditors enjoy some autonomy in selecting the lead auditor, providing opportunities for homophily to matter. Our regression analyses reveal that sharing the same dialect and gender increases the likelihood of dyad formation beyond what one would expect based on the characteristics of the pool of available auditors. Further, we observe that forming auditor dyads sharing the same age is avoided, suggesting that the need to establish a legitimate hierarchical relationship through social differentiation represents a boundary condition for homophily. Testing for the consequences of auditor dyad formation using an instrumental variable approach, we find that auditor dyads sharing the same dialect provide lower audit quality. We conclude that homophily matters in auditor dyad formation with potentially adverse consequences for audit quality.

Download or read book The Routledge Companion to Auditing written by David Hay and published by Routledge. This book was released on 2014-09-15 with total page 387 pages. Available in PDF, EPUB and Kindle. Book excerpt: Auditing has been a subject of some controversy, and there have been repeated attempts at reforming its practice globally. This comprehensive companion surveys the state of the discipline, including emerging and cutting-edge trends. It covers the most important and controversial issues, including auditing ethics, auditor independence, social and environmental accounting as well as the future of the field. This handbook is vital reading for legislators, regulators, professionals, commentators, students and researchers involved with auditing and accounting. The collection will also prove an ideal starting place for researchers from other fields looking to break into this vital subject.

Download or read book Behind Closed Doors What Company Audit is Really About written by V. Beattie and published by Springer. This book was released on 2001-03-13 with total page 326 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book takes us 'behind closed doors' to uncover the nature of the relationship between the audit engagement partner and the company finance director in major listed companies. Based on matched interviews with finance directors and audited engagement partners of six listed companies, the book uncovers both sides' perceptions of how contentious and non-contentious issues are resolved. New insights are provided about the workings of the audit process itself, how negotiation is conducted and the personal relationships and balance of power between the auditors and the board of directors.