Download or read book The Effect of Accounting Uncertainty and Auditor Reputation on Auditor Independence written by Brian W. Mayhew and published by . This book was released on 2001 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reports the results of experimental economic markets designed to examine whether an auditor's objectivity (independence) is impacted by uncertainty regarding the appropriate accounting treatment for a client. In particular, we are interested in whether the auditor exploits this uncertainty by agreeing with her client's preferred accounting treatment even when her evidence suggests an alternative treatment is more likely to be correct. We examine the effect of accounting uncertainty in a setting where the auditor not only wants to satisfy her client but also wants to maintain a reputation for audit objectivity in the market.The results provide strong evidence that the level of accounting uncertainty impacts auditor independence. Specifically, when accounting uncertainty did not exist, auditors maintained their independence by truthfully reporting the observed value. Auditors appeared to remain independent due to concerns about their reputations with managers and investors. However, when accounting uncertainty existed, auditors impaired their independence by misreporting the observed value in favor of the manager. Our results specify some initial boundary conditions for the impact of auditor reputation and investor pricing on auditor independence, and suggest that regulators should focus on enhancing auditor incentives to maintain independence when faced with accounting uncertainty. It appears that regulators do not need to be as concerned about independence violations when accounting pronouncements provide unambiguous guidance. An auditor's concern about her reputation provides adequate incentive to prevent independence impairment when she is certain about the appropriate accounting treatment. Our results also suggest future research should assess the ability of other audit market forces to reduce the propensity of auditors to violate independence when faced with accounting uncertainty.

Download or read book The Effect of Accounting Uncertainty and Auditor Reputation on Auditor Objectivity written by Brian W. Mayhew and published by . This book was released on 2002 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reports the results of experimental economic markets that examine whether accounting uncertainty impacts an auditor's objectivity in a setting where the auditor also has an incentive to build and maintain a reputation for objectivity. In particular, we explore if an auditor's reputation impacts her decision of whether to exploit uncertainty regarding the appropriate accounting treatment for a client by agreeing with her client's preferred accounting treatment even when her evidence suggests an alternative treatment is more likely to be correct. While a wide range of research has examined the impact of uncertainty on auditor objectivity, our research is the first to explicitly incorporate auditor reputation into the research design. Our research design captures a professional auditor's incentives to build and maintain a reputation that may mitigate her incentives to violate her objectivity in the presence of accounting uncertainty. The results provide strong evidence that accounting uncertainty impacts auditor objectivity even though the lack of objectivity diminishes the auditor's reputation which in turn damages market participants. Specifically, our markets suggest that when accounting uncertainty does not exist, an auditor maintains her objectivity by truthfully reporting. It appears that she remains objective due to concerns about her reputation with managers and investors. However, when accounting uncertainty does exist, an auditor impairs her objectivity by misreporting in favor of managers. Our results specify boundary conditions for the impact of auditor reputation on auditor objectivity, and suggest that regulators should focus on enhancing auditor incentives to maintain objectivity when faced with accounting uncertainty. It appears that due to reputation effects, regulators do not need to be as concerned about objectivity violations when accounting pronouncements provide unambiguous guidance. Our results suggest that future research should assess the ability of other forces to reduce the propensity of auditors to violate objectivity when faced with accounting uncertainty.

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 The Death of Corporate Reputation written by Jonathan Macey and published by FT Press. This book was released on 2013-03-20 with total page 283 pages. Available in PDF, EPUB and Kindle. Book excerpt: Why did the financial scandals really happen? Why are they continuing to happen? In The Death of Corporate Reputation, Yale's Jonathan Macey reveals the real, non-intuitive reason, and offers a new path forward. For over a century law firms, investment banks, accounting firms, credit rating agencies and companies seeking regular access to U.S. capital markets made large investments in their reputations. They treated customers well and sometimes endured losses in transactions or business deals in order to sustain and nurture their reputations as faithful brokers and “gate-keepers.” This has changed completely . The existing business model among leading participants in today’s capital markets no longer treats customers as valued clients whose trust must be earned and nurtured, but as one-off “counter-parties” to whom no duties are owed and no loyalty is required . The rough and tumble norms of the market-place have replaced the long-standing reputational model in U.S. finance. This book describes the transformation in American finance from the old reputational model to the existing laissez faire model and argues that the change came as a result of three factors: (1) the growth of reliance on regulation rather than reputation as the primary mechanism for protecting customers and (2) the increasing complexity of regulation, which made technical expertise rather than reputation the primary criterion on which customers choose who to do business with in today’s markets; and (3) the rise of the “cult of personality” on Wall Street, which has led to a secular demise in the relevance of companies’ reputations and the concomitant rise of individual “rain-makers” reputation as the basis for premium pricing of financial services. This compelling book will drive the debate about the financial crisis and financial regulation for years to come -- both inside and outside the industry.

Download or read book Auditor Reputation Auditor Independence and the Stock Market Impact of Andersen s Indictment on its Client Firms written by Srinivasan Krishnamurthy and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we study a broad sample of Andersen clients and investigate whether the decline in Andersen's reputation, due to its criminal indictment on March 14, 2002, adversely impacted the market's perception of its audit quality. Because these reputational concerns are more of an issue if an auditor's independence is impaired, we investigate the relationship between the abnormal market returns for Andersen clients around the indictment announcement and several fee-based measures of auditor independence. Our results suggest that when news about Andersen's indictment was released, the market reacted negatively to Andersen clients. More importantly, the indictment period abnormal return is significantly more negative when the market perceived the auditor's independence to be threatened. We also examine the abnormal returns when firms announce the dismissal of Andersen as an auditor. Consistent with the audit quality explanation, we document that when firms quickly dismissed Andersen, the announcement returns are significantly higher when firms switched to a Big 4 auditor than when they either switch to non-Big 4 auditors or do not announce the identity of the replacement auditor. Our empirical results support the notion that auditor reputation and independence have a material impact on perceived audit quality and the credibility of audited financial statements and that the market prices this.

Download or read book Auditor Independence written by Ismail Adelopo and published by Routledge. This book was released on 2016-04-08 with total page 368 pages. Available in PDF, EPUB and Kindle. Book excerpt: In Auditor Independence, Ismail Adelopo argues that the importance of auditors' independence cannot be over-emphasised. Not only do auditors provide certification of the truth and fairness of the information prepared by managers, they also have a duty to express opinions on the degree of compliance with laws and regulations guiding a firm's operations. Theirs is a socially important responsibility. In all that has been proposed to mitigate the governance crisis and restore confidence in the market system, relatively little attention has been paid to auditor independence. Examining the historical role of auditing in corporate governance and the regulatory context, this book sets the function within a theoretical framework and then provides empirical analysis of the problem issues such as the relationship between audit committees and external auditors and the probity of providing non-auditing services to audit clients. The focus on matters that are damaging to market confidence and threatening to the reputation of the auditing profession, means the conclusions and recommendations in this book are important for key stakeholders, including policy makers, regulators, those running companies, and their investors and customers. This is also a book for those responsible for training in the auditing profession and for others with a research or academic interest in the matters addressed.

Download or read book Advances in Accounting Behavioral Research written by Khondkar E. Karim and published by Emerald Group Publishing. This book was released on 2023-03-13 with total page 270 pages. Available in PDF, EPUB and Kindle. Book excerpt: Volume 26 of Advances in Accounting Behavioral Research compiles innovative and new explorations into the behavioral aspects of accounting and auditing including the effects of organizational commitment, the impact of stressors on performance, the effects of auditor familiarity and the examination of personality traits.

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 Auditor Reputation Auditor Independence and the Stock Market Reaction to Andersen s Clients written by Srinivasan Krishnamurthy and published by . This book was released on 2003 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we study a comprehensive sample of Andersen clients and investigate whether the deterioration of Andersen's reputation after its criminal indictment on March 14, 2002 adversely impacted the perceived credibility of their audit quality. Since these reputational concerns are more of an issue if an auditor's independence is impaired, we investigate the relationship between the abnormal market returns around the indictment announcement for Andersen clients and auditor independence. Our results suggest that when news about Andersen's indictment was released, the market reacted more negatively to Andersen clients than to clients of the other Big Four auditors. More importantly, the indictment period abnormal return is significantly higher when auditor independence is perceived to be high, i.e., the audit firm provides fewer non-audit related services to the client. This result is robust when we include size, book to market ratio, ownership structure, sales growth, leverage and proxies for investor losses as control variables. We also document that when firms announce Andersen's replacement with a non-Big Four auditor, the CAR is significantly negative. This is significantly lower than the return to firms that switch to other Big Four auditors. Collectively, our empirical results provide evidence in support of the notion that auditor reputation and independence have a material impact on audit quality and credibility of audited financial statements, and that the market prices this.

Download or read book Principles of Financial Regulation written by John Armour and published by Oxford University Press. This book was released on 2016-08-04 with total page 780 pages. Available in PDF, EPUB and Kindle. Book excerpt: The financial crisis of 2007-9 revealed serious failings in the regulation of financial institutions and markets, and prompted a fundamental reconsideration of the design of financial regulation. As the financial system has become ever-more complex and interconnected, the pace of evolution continues to accelerate. It is now clear that regulation must focus on the financial system as a whole, but this poses significant challenges for regulators. Principles of Financial Regulation describes how to address those challenges. Examining the subject from a holistic and multidisciplinary perspective, Principles of Financial Regulation considers the underlying policies and the objectives of regulation by drawing on economics, finance, and law methodologies. The volume examines regulation in a purposive and dynamic way by framing the book in terms of what the financial system does, rather than what financial regulation is. By analysing specific regulatory measures, the book provides readers to the opportunity to assess regulatory choices on specific policy issues and encourages critical reflection on the design of regulation.

Download or read book The Effect of Auditor Reputation on the Pricing of Audit Services written by John Allwin Brozovsky and published by . This book was released on 1990 with total page 518 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Influence of Information Order Effects and Trait Professional Skepticism on Auditors Belief Revisions written by Kristina Yankova and published by Springer. This book was released on 2015-02-10 with total page 321 pages. Available in PDF, EPUB and Kindle. Book excerpt: Kristina Yankova addresses the question of what role professional skepticism plays in the context of cognitive biases (the so-called information order effects) in auditor judgment. Professional skepticism is a fundamental concept in auditing. Despite its immense importance to audit practice and the voluminous literature on this issue, professional skepticism is a topic which still involves more questions than answers. The work provides important theoretical and empirical insights into the behavioral implications of professional skepticism in auditing.

Download or read book Can Audit Fees Inhibit Accounting Misstatements Moderating Effects of Auditor Reputation from Chinese Experience written by Bin Li and published by . This book was released on 2015 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the association between audit fees and accounting misstatements, and test the moderating effect of auditor reputation on this association in China, where auditors' legal liability is essentially weak. We find that current-year audit fees are negatively and significantly associated with the likelihood of current-year financial statement being misstated. This result is consistent with prior work, indicating a negative relation between audit fees and future misstatements in a strong litigation environment such as in the United States. This finding indicates that higher audit fees can reflect audit effort, even in a setting where litigation plays essentially no role. Prior literature suggests that audit firms have reputational incentives; thus, we use auditor irregularities and audit firm rank as proxies for auditor reputation and find that the negative relationship between misstatements and audit fees weaken as auditor reputation decreases. Our results indicate that auditor reputation can negatively moderate the relationship between audit fees and misstatements and is more important in the absence of litigation.

Download or read book An Empirical Study of Auditor Independence as Perceived by Selected Financial Statement Users written by P. Michael Moore and published by . This book was released on 1983 with total page 376 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Auditor Reputation and Auditor Independence written by Zulkarnain Muhamad Sori and published by . This book was released on 2006 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper examines the impact of auditor reputation (i.e. size of audit firm) on auditor independence. Questionnaires and interview survey were used to seek the perceptions of senior managers of Malaysian audit firms, banks and public listed companies. Consistent with the documented evidence, the Big Four firms were perceived to be superior compared to the non-Big Four firms in all aspects relating to independence from their clients. Respondents indicated that Big Four auditors are better able to resist management pressure in conflict situations, are more effective at detecting activities that will affect clients' company continuity, are more risk averse and thus more disinclined to be associated with public scandals and/or audit failures, are more risk averse with regard to litigation arising from fraud/misstatement/irregularities and are more independent than non-Big Four auditors. It may be that the Big Four auditors are more exposed and subject to close scrutiny by the public and regulators, especially when negative behaviour is perceived. The findings suggest that the Big Four auditors are perceived to be more independently than the non-Big Four auditors.

Download or read book Auditor Independence written by Jeffrey C. Steinhoff and published by DIANE Publishing. This book was released on 2002 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Effects of Independent Audit Committee Member Characteristics and Auditor Independence on Financial Restatements written by Vineeta Divesh Sharma and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The U.S. Securities and Exchange Commission (SEC) continues to reform the corporate governance mechanisms in order to improve the quality of financial reporting and thus, enhance the confidence of investors in the stock market and in the accounting profession. Despite the efforts of the SEC, financial reporting scandals continue with record numbers of financial restatements documented by the General Accounting Office. A financial restatement is a correction of a previously misstated financial statement. There is a small volume of literature examining the effects of corporate governance mechanisms on financial restatements. The results of these studies however, are mixed and possibly explained by their narrow focus and omitted variables that could influence the effectiveness of audit committees. Consequently, this study examines the effects of independent audit committee member characteristics and auditor independence on financial restatements. Specifically, this study investigates the relationship between the likelihood of financial restatements and: (1) the expertise of the independent audit committee members, (2) the expertise and diligence of the independent audit committee members, (3) the reputation of the independent audit committee members, (4) the interaction effect of expertise, diligence and reputation, (5) the tenure of the independent audit committee members, and (6) the cash compensation paid to independent audit committee members. Prior studies have not investigated some of these variables or the interaction effects of independent audit committee member characteristics on financial restatements. This study also investigates the association between auditor independence and financial restatements. The SEC alleges that an increasing number of audit failures are due to the lack of auditor independence. One of the major sources of the lack of auditor independence is the auditor's economic dependency on the client. The provision of non-audit services increases the financial reliance of the auditor on the client. As a result, the auditor may become reluctant to raise issues with the preparation of the financial statements at the risk of foregoing the lucrative non-audit services fees. The SEC believes that longer audit firm tenure can also impair auditor independence and Section 203 of the Sarbanes-Oxley Act suggests periodic audit firm rotation. Therefore, auditor independence was measured as: (1) fees paid to the auditor, and (2) audit firm tenure. Finally, this study extends the prior literature by studying the interaction effects of independent audit committee member characteristics and auditor independence on financial restatements. This interaction effect is important because the external auditor and the audit committee are regarded vital governance mechanisms that interact and exchange dialogue in the performance of their respective oversight of the financial reporting process. Prior research has not investigated this important interaction effect. The sample of the study comprises 69 U.S. publicly listed companies that announced their restatement from 1 January 2001 to 31 December 2002. These companies were matched with 69 non-restatement companies based on industry and size. The data for the study is derived from SEC filings such as Form 10-K and DEF 14A, and Compustat. The univariate results show that compared to restatement firms, non-restatement firms generally have effective audit committee characteristics. The audit committees of non-restatement firms have members who are experts, diligent, reputable and appropriately compensated. They also pay lower non-audit services and total fees, and have audit firms with longer tenure. The multivariate results show that after controlling for other governance structures and firm specific non-governance variables, the likelihood of financial restatements is related to independent audit committee member characteristics and auditor independence. Specifically, the likelihood of financial restatements decreases when independent audit committee members are: (1) experts, (2) experts and diligent, (3) reputable, (4) experts, diligent and reputable, and (5) appropriately compensated. The audit committee member tenure variable is insignificant. In relation to the auditor independence variables, the multivariate results show that the likelihood of financial restatements increases when the non-audit services and total fees generated by the client are higher. On the other hand, the likelihood of financial restatements decreases when audit firm tenure is longer. The empirical results of this study suggest that independent audit committees are more effective overseers of the corporate financial reporting and auditing processes when: they comprise majority experts, they meet regularly, their members are reputable, and audit committee members are appropriately compensated. On the other hand, external auditors are not deemed to be effective overseers of the corporate financial reporting process when the non-audit services and total fees generated by the client are higher but are effective when audit firm tenure is long. The results support the SEC's concerns regarding the provision of non-audit services impairing auditor independence. The results also support the Sarbanes-Oxley Act of 2002 which under Section 201 prohibits external auditors from providing certain non-audit services to its audit client. Overall, these results support the regulatory efforts to increase the quality of financial reporting by enhancing the corporate governance process related to audit committees and auditor independence. However, the results do not support calls to limit the tenure of the auditor. The results of the multivariate interaction effects suggest that, after controlling for other governance structures and firm specific non-governance variables, when the non-audit services and total fees generated by the client are higher, the likelihood of financial restatements increases under conditions when the audit committee is not effective (a non expert audit committee, an audit committee that does not meet regularly, an audit committee whose members are not reputable or an audit committee that is not appropriately compensated). The implication of this result is that it provides evidence of conditions under which restatements take place. Knowledge of such conditions could aid regulators further improve the financial reporting process and corporate governance. This knowledge will support regulators in revising policies that ensure audit committee members are not only independent but also comprise other critical qualities. These improvements to the audit committee coupled with the existing regulations on the provision of non-audit services suggest a company's governance will be more effective. Overall, the results extend current knowledge in the sparse but growing literature related to financial restatements and corporate governance, and extend our understanding of the effectiveness and interaction of governance mechanisms in reducing financial restatements.