Download or read book Does Mandatory Auditor Tenure Disclosure Improve Audit Quality written by Anushka Shrestha and published by . This book was released on 2021 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Impact of Mandatory Auditor Tenure Disclosures on Ratification Voting Auditor Dismissal and Audit Pricing written by Ryan Dunn and published by . This book was released on 2020 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent amendments to Auditing Standard (AS) 3101 require disclosure of the initial year of the auditor-client relationship. As potential changes to the standard were being discussed, auditors, clients, and some PCAOB members expressed reservations about the necessity of tenure disclosures and were particularly concerned about including tenure information as part of the audit report. Our purpose in this study is to investigate whether the tenure disclosures now mandated by AS 3101 are associated with changes in stakeholder behavior. We find that after the implementation date, shareholder ratification votes against the auditor and the probability of subsequent auditor dismissal increase for long-tenured versus short-tenured auditors. Our auditor dismissal findings are particularly strong when changes in ratification voting are most negative. We also find some evidence that negotiating power decreases for long-tenured auditors in the post-disclosure period as evidenced by lower audit fees. Our results are comparable for companies that voluntarily disclosed and companies that did not disclose auditor tenure in their proxy statements prior to the AS 3101 amendment, suggesting that the placement of the disclosure in the audit report is an important determinant of stakeholder behavior.

Download or read book Does Auditor Tenure Improve Audit Quality Moderating Effects of Industry Specialization and Fee Dependence written by Chee Yeow Lim and published by . This book was released on 2015 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate whether the relation between auditor tenure and audit quality is conditional on auditor specialization and fee dependence. Although prior studies have investigated the relation between extended auditor-client tenure and audit quality, none has examined how this relation is jointly influenced by both auditor specialization and fee dependence. Our main analyses, using accrual quality as a measure of audit quality, show that firms audited by specialists (vs. non-specialists) have relatively higher audit quality with extended auditor tenure, and that this relation is negatively moderated by auditors' fee dependence on clients. These results are robust to sensitivity tests, and alternative proxies for audit quality such as the issuance of going concern opinions and the market's response to quarterly earnings surprises.

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 Audit Firm Tenure and Audit Quality written by Li Zheng Brooks and published by . This book was released on 2013 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose that audit quality is likely to increase in the earlier years due to a Learning Effect and in later years it decreases due to a Bonding Effect. Adopting a quadratic model, we find that the average turning point is between 12 to 16 years for a large sample of U.S. firms. With an average tenure of 9 years in our sample, these findings imply that mandatory auditor firm rotation may not be necessary. Further, we find that the turning point varies by auditor - it is longer for non-Big N auditors, non-specialist auditors, and auditors with high client importance, and the deterioration of audit quality exists in low litigation industries only, consistent with the Bonding Effect explanation. Moreover, we find the turning point gets longer in the post-SOX period. Our results have implications for the current debate on mandatory audit firm rotation.

Download or read book Estimating the Effect of Auditor Tenure on Audit Quality written by Junwei Peng and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: After several major financial scandals, mandatory auditor rotation was raised as a measure to improve the auditor independence. For regulators who are to set mandatory rotation limit need detailed information about the turning points of the inverted U-shaped relationship between audit quality and auditor tenure, such as the statistical implication of a representative turning point of audit quality obtained by OLS estimation based on quadratic model or even the entire distribution of the sample firm-auditors' turning points. These two problems remain unsolved. This paper derived the statistical implication of the representative turning point of audit quality obtained by OLS estimation based on quadratic model. This paper also proposed an estimation method based on survival analysis to estimate the entire distribution curve for the turning points of all the sample firm-auditors in the form of their cumulative probability curve. Mote Carlo simulation was used to the performance of various estimation methods, such as accuracy, robustness, and information usefulness.

Download or read book The Role of Audit Firm Tenure in a Firm s Propensity to Disclose Material Weaknesses in Internal Controls After SOX written by David Adu-Boateng and published by . This book was released on 2012 with total page 306 pages. Available in PDF, EPUB and Kindle. Book excerpt: Audit firm tenure impacts the quality of audit work and the disclosure of material internal control weaknesses. Public firms are required by the Sarbanes Oxley Act of 2002 (SOX) Section 302 to disclose material internal control weaknesses. Researchers debate whether audit firm rotation is necessary for improving audit quality (Chen, Lin, & Lin, 2008). Generally, an auditor needs sufficient time to become familiar with a client's business in order to enhance effective controls and financial reporting. However, long tenure may diminish auditor independence, and in turn reduce the quality of audit work and encourage a client to violate SOX disclosure requirements. Therefore, it is expected that the disclosure of material internal control weaknesses is less likely given long audit tenure. Prior studies consider many variables that impact the disclosure of control weaknesses, except audit tenure. Further, prior studies do not address the issue of whether familiarity or independence explains non-disclosure. This dissertation investigates the role of audit firm tenure and concludes that the disclosure of material internal control weaknesses is more likely given short tenure. Further, familiarity with the client's business, which is associated with long tenure, explains non-disclosure and not the lack of independence. Therefore, audit firm rotation may not be necessary.

Download or read book Auditor Tenure and Perceptions of Audit Quality written by Aloke Ghosh and published by . This book was released on 2004 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze how investors and information intermediaries perceive auditor tenure. Using earnings response coefficients from returns-earnings regressions as a proxy for investor perceptions of earnings quality, we document a positive association between investor perceptions of earnings quality and tenure. Further, we find that the influence of reported earnings on stock rankings becomes larger with extended tenure, although the association between debt ratings and reported earnings does not vary with tenure. Finally, we find that the influence of past earnings on one-year-ahead earnings forecasts becomes larger as tenure increases. In general, our results are consistent with the hypothesis that investors and information intermediaries perceive auditor tenure as improving audit quality. One implication of our study is that imposing mandatory limits on the duration of the auditor-client relationship might impose unintended costs on capital market participants.

Download or read book Auditor Tenure Information Asymmetry and Earnings Quality written by Sidney Leung and published by . This book was released on 2017 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: We confirm the results of prior studies that auditor tenure improves earnings quality on average. We extend their findings to show that the improvement in earnings quality resulting from longer auditor tenure is greater for firms with higher information asymmetry, after controlling for auditor's industry specialization. We argue that audits of client firms with higher information asymmetry demand more client specific knowledge that cannot be gleaned from industry or general experience. Longer tenure helps auditors acquire such knowledge and therefore, the benefit of longer audit tenure is greater in firms with greater information asymmetry. We use bid-ask spread, return volatility, intensity of R&D expenditure and a composite distance measure to measure information asymmetry. Our results imply that frequent auditor changes are costlier for firms with higher information asymmetry. At the policy level, our results imply that mandatory auditor rotation is more (less) costly for firms with high (low) information asymmetry.

Download or read book Audit Regulations Audit Market Structure and Financial Reporting Quality written by Christopher Bleibtreu and published by . This book was released on 2021-11-24 with total page 200 pages. Available in PDF, EPUB and Kindle. Book excerpt: Audit Regulations, Audit Market Structure, and Financial Reporting Quality provides a structured overview of the empirical and analytical literature on the effects of audit market regulations. After a short introduction, the monograph is organized as follows. Chapter II addresses the structure of the audit markets of industrialized countries. First presenting an overview of the concentration metrics used to describe the structure of an audit market or a market segment, then providing the empirical findings on audit market concentration at the national level and presenting an overview of the main reasons that led to the currently high degree of concentration. Chapter III summarizes the reasons why regulators worldwide consider a high degree of concentration to be a concern. In particular, it reviews the regulator's assumption that a high degree of concentration inevitably leads to a low degree of competition and to the corresponding effects of low audit quality and high audit fees. It also provides an overview of the empirical findings on the association between concentration and audit quality and fees, respectively. Chapter IV introduces the mandatory audit firm rotation, the prohibition on the joint supply of audit and non-audit services, and joint audits as examples for regulations that are likely to have both incentive and market structure effects. Chapter V summarizes the empirical findings on the effects of these regulations on audit quality and market structure. Chapter VI summarizes models that regard the market structure as given. The results from these models show that the effects of regulations are not straightforward, but depend on various factors related to the auditor, the client, and the legal environment. Chapter VII gives an overview of analytical research that simultaneously considers incentive effects and market structure effects. It also provides a brief overview of industrial organization models that seem suitable to expand the models applied to investigate the effects of audit regulations. Chapter VIII concludes and highlights avenues for future research.

Download or read book Collaborative Tenure Audit Committee Chair Changes and Earnings Management written by Nelson Milan Carrasco Abarca and published by . This book was released on 2013 with total page 92 pages. Available in PDF, EPUB and Kindle. Book excerpt: In a recent concept release the Public Company Accounting Oversight Board (PCAOB) highlighted concerns regarding auditor independence and auditor objectivity. They expressed concern that auditors may have a bias to accept management's views, particularly in long auditor tenure relations, and asked for public comments on the idea of mandatory auditor rotation. Prior research has focused primarily on the auditor side of the relation, however, my study considers the collaborative effect of the three parties involved in the financial reporting process (management (Chief Executive Officer (CEO), the auditor, and the audit committee). I find that longer collaborative tenure between the CEO and the auditor is associated with lower positive discretionary accruals (i.e., less earnings management). This finding is contrary to the PCAOB's concerns regarding long auditor tenure and lower financial reporting quality. I do not find that the joint tenure of the three parties (CEO, auditor and audit committee chair) is significantly associated with earnings management or accrual quality. I also find that the first year of an audit committee chair change is associated with an increase in positive discretionary accruals. This association does not differ based on different lengths of auditor tenure. However, longer collaborative tenure between the auditor and the CEO constrains earnings management and there is an even greater effect when there is an audit committee chair change (i.e., there are lower positive discretionary accruals). This study provides evidence that longer auditor tenure is not necessarily an undesirable situation, either by itself and particularly not if the long tenure is coupled with long tenure of the CEO.

Download or read book Summary of the Accounting Establishment written by United States. Congress. Senate. Committee on Government Operations. Subcommittee on Reports, Accounting, and Management and published by . This book was released on 1976 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Alleged Audit and Financial Reporting Failures written by Paul Lynn Walker and published by . This book was released on 1999 with total page 94 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Impact of Disclosing Auditor Independence and Tenure on Non professional Investor Judgment and Decision making written by Lonnie Tyler Williams and published by . This book was released on 2016 with total page 115 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study experimentally investigates how disclosing both the auditor’s obligation to remain independent of its client and auditor tenure in the audit report influence non-professional investors’ judgments and decision-making, especially the decision about whether to invest in a particular auditee. In the Auditor’s Reporting Model (ARM) proposal, the Public Company Accounting Oversight Board (PCAOB) asserts that inclusion of additional information in the audit report will improve the informativeness of the audit report for investors and as a result will modify its relevance to investment decisions. Using an experiment, I find that these disclosures positively influence non-professional investor judgments of auditor attributes – specifically auditor independence and auditor competence. Further, I note that the disclosures augment judgments of auditor credibility and audit quality as well as the report’s perceived informativeness. I also find that the disclosure of long tenure has a significant positive effect on consequent investment decisions. The findings of this study are important to informing regulators on how reform to the audit report increases report readers’ sensitivity to the perceptions of the financial statement auditor, which ultimately influences non-professional investor decision-making.

Download or read book Auditor Tenure and Accounting Conservatism written by Dan Li and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Accounting regulators are concerned about the potential threat of long-term auditor-client relationships on auditor independence, leading to lower audit quality. The main objective of this study is to examine the association between auditor tenure and an important feature of accounting, namely conservatism. Following Basu (1997) and Ball, Kothari and Robin (2000), I define conservatism as the quicker recognition in earnings of bad news about expected future cash flows. I investigate whether long-term auditor-client relationships are associated with less timely recognition of earnings to bad news, and a lower rate of reversal of negative earnings changes. The overall results strongly show that conservatism decreases as auditor tenure lengthens. The results are robust across various measures of conservatism and a series of sensitivity tests. However, auditors' litigation exposure appears to be able to mitigate the adverse impact of auditor tenure. In additional tests, I find that the reduced conservatism is not driven by the larger clients that auditors have incentives to retain. Moreover, I find that even industry specialists could not avoid the negative impact of longer auditor-client relationships on conservatism. The study provides some support to the regulators who are concerned about the potential negative impact of auditor tenure on audit quality and the rule of mandatory audit firm rotation.

Download or read book Handbook on Ethics in Finance written by Leire San-Jose and published by . This book was released on 2019 with total page 600 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Audit Partner Tenure Audit Firm Tenure and Discretionary Accruals written by Chih-Ying Chen and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Mandatory audit partner rotation has been adopted in certain countries while audit firm rotation is still being debated in many places. Most of the extant research on the relation between auditor tenure and earnings quality provides evidence at the audit firm level. However, since audit firm tenure is correlated with partner tenure and audit firm rotation is more costly than partner rotation, it is important to know whether earnings quality is related to audit firm tenure, partner tenure, or both. We investigate this issue using a sample of Taiwanese companies for which the audit report must be signed by two partners with their names disclosed in the report. Using performance adjusted discretionary accruals as a proxy for earnings quality, we find that the absolute and positive values of discretionary accruals decrease significantly with partner tenure. After controlling for partner tenure, we find that absolute discretionary accruals decrease significantly with audit firm tenure. Our findings are not consistent with the arguments that earnings quality decreases with extended audit partner tenure and that audit firm rotation in addition to partner rotation would improve earnings quality. Our results are robust to alternative ways of measuring partner tenure under the dual signature system. However, since the audit reports do not disclose which partner is responsible for maintaining the auditor-client relationship, measurement errors in partner tenure remain an issue that cannot be fully addressed in the context of our study.