Download or read book The Effects of Mandatory Audit Firm Rotation on Client Importance and Audit Industry Concentration written by Christopher Bleibtreu and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Recently, a system of audit firm rotation has been implemented for the audits of listed companies conducted in the EU. In the US, in contrast, the regulator decided against such rotation. Whereas proponents argue that rotation would strengthen independence and decrease audit market concentration, opponents stress the importance of auditors' learning effects, which would be eliminated by a change in auditors. In extending the market matching model of Salop (1979), we provide an analysis that integrates these contradictory views. We assume that both auditors' industry expertise and their experience in auditing a client decrease audit costs. We investigate the bidding strategies applied to re-acquire clients that were lost due to rotation, auditors' profit contributions, the equilibrium number of auditors (i.e., audit market concentration), and the economic importance of specific clients.Our findings indicate that the regulators' goals of simultaneously decreasing client importance and audit market concentration are in direct conflict, and therefore the rotation system might have unintended consequences. Our model thus suggests how different institutional parameters give rise to economic forces that can support diverging decisions regarding the implementation of MAR.
Download or read book Public accounting firms required study on the potential effects of mandatory audit firm rotation written by and published by DIANE Publishing. This book was released on with total page 98 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Mandatory Audit Firm Rotation Study written by United States. General Accounting Office and published by . This book was released on 2004 with total page 172 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Mandatory audit firm rotation study study questionaires responses and summary of respondents comments written by United States. General Accounting Office and published by DIANE Publishing. This book was released on 2004 with total page 167 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Effect of Mandatory Audit Firm Rotation on Audit Quality Audit Fees and Audit Market Concentration written by R. Narayanaswamy and published by . This book was released on 2019 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: In India, the government introduced mandatory audit firm rotation following calls to improve audit quality and auditor independence in the wake of the Satyam accounting scandal. The absence of strong institutional mechanisms to prevent and detect audit failure in a timely manner has led the government to require periodical audit firm rotation. Evidence from firms for the years 2014 to 2017 suggests that mandatory audit firm rotation does not appear to have improved audit quality, reduced audit costs and increased audit market competition.
Download or read book Public Accounting Firms written by United States Government Accountability Office and published by Createspace Independent Publishing Platform. This book was released on 2017-10-20 with total page 98 pages. Available in PDF, EPUB and Kindle. Book excerpt: Public Accounting Firms: Required Study on the Potential Effects of Mandatory Audit Firm Rotation
Download or read book The Impact of Mandatory Audit Firm Rotation on Auditor client Negotiations written by Jianqiang Wang and published by . This book was released on 2003 with total page 152 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 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 Mandatory Audit Rotation written by Kathleen Harris and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates whether mandatory auditor rotation rules are associated with changes in audit quality using available data from three countries that have adopted mandatory auditor rotation (MAR) rules. Consistent with prior literature, I assume that earnings management measures capture the various methods employed by corporate insiders to exercise their discretion to manage earnings that is not constrained by the audit firm. The more discretion, ceteris paribus, in earnings, the lower the audit quality. First, I investigate the debonding effect of an MAR policy. Debonding describes the effect that is often the primary motivation for adopting MAR rules. That is, end the possibility of long-term audit engagements and the economic bond of audit firms to their clients will be broken (by enhancing auditor independence and objectivity). In the sample after adoption of MAR rules, the data show evidence of less earnings management, less managing to earnings targets, and more timely loss recognition compared to the sample before adopting MAR rules. From these results, I conclude that audit markets appear to improve, on average, from enactment of MAR rules. I then investigate the allowed discretion in the year before and the year after auditor changes in which rotation rules have been adopted (termed the low client-specific knowledge effect). I find evidence of lower audit quality in both years. These results highlight the importance, particularly to regulators of audit markets, of considering ways to mitigate the erosion of audit quality when making the transition to new auditors under MAR rules (e.g., the use of detailed handover files between predecessor and successor audit firms or "four-eyes principle" in years of initial audits).
Download or read book Mandatory Audit Firm Rotation Study written by United States Government Accountability Office and published by Createspace Independent Publishing Platform. This book was released on 2017-10-21 with total page 168 pages. Available in PDF, EPUB and Kindle. Book excerpt: Mandatory Audit Firm Rotation Study: Study Questionnaires, Responses, and Summary of Respondents' Comments
Download or read book The Effect of Mandatory Audit Firm Rotation on Audit Quality and Audit Fees written by Soo Young Kwon and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a unique setting in which mandatory audit firm rotation was required from 2006-2010, and in which both audit fees and audit hours were disclosed (South Korea), this study provides empirical evidence of the economic impact of this policy initiative on audit quality, and the associated implications for audit fees. This study compares both pre- and post-policy implementation and, after the implementation of the policy, mandatory long-tenure versus voluntary short-tenure rotation situations. Where audit firms were mandatorily rotated post-policy, we observe that audit quality (measured as abnormal discretionary accruals) did not significantly change compared with pre-2006 long-tenure audit situations and voluntary post-rotation situations. Audit fees in the post-regulation period for mandatorily rotated engagements are significantly larger than in the pre-regulation period, but are discounted compared to audit fees for post-regulation continuing engagements. We also find that the observed increase in audit fees and audit hours in the post-regulation period extends beyond situations where the audit firm was mandatorily rotated, suggesting that the introduction of mandatory audit firm rotation had a much broader impact than the specific instances of mandatory rotation.
Download or read book Investor Reaction to the Prospect of Mandatory Audit Firm Rotation written by Lauren C. Reid and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The PCAOB recently considered implementing mandatory audit firm rotation in hopes of better aligning auditors' interests with investors' interests, suggesting that the PCAOB views long auditor tenure as problematic. However, the accounting profession argues that long tenure actually improves audit quality. This study provides insight into investors' views by evaluating the market's reaction to events related to the potential adoption of rotation that occurred between 2011 and 2013. The results provide some evidence that the market reacts negatively (positively) to events that increased (decreased) the likelihood of rotation, although these results are sensitive to the market index used to calculate abnormal returns. More importantly, particularly given the lack of a U.S.-specific control group, cross-sectional tests provide strong evidence that the market reaction is more negative (positive) on dates that increased (decreased) the likelihood of rotation given longer auditor tenure. Moreover, we also find that the market reaction is more negative (positive) on dates that increased (decreased) the likelihood of rotation given a Big 4 auditor.
Download or read book Competition in the Audit Market written by Joseph Gerakos and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The audit market's unique combination of features - its role in capital market transparency, mandated demand, and concentrated supply - means it receives considerable attention from policymakers. We explore the effects of two market scenarios that have been the focus of policy discussions: mandatory audit firm rotation and further supply concentration due to the exit of a "Big 4" audit firm. To do so, we first estimate publicly traded firms' demand for auditing services, allowing the services provided by each of the Big 4 to be differentiated products. We then use those estimates to calculate how each scenario would affect client firms consumer surplus. We estimate that, conservatively, mandatory audit firm rotation would induce consumer surplus losses of approximately $2.7 billion if rotation were required after ten years and $4.7-5.0 billion if after only four years. We find similarly that exit by one of the Big 4 would reduce client firms' surplus by $1.4-1.8 billion. These estimates reflect only the value of firms' lost options to hire the exiting audit firm; they do not include likely fee increases resulting from less competition among audit firms. The latter could result in audit fee increases between $0.75-1.3 billion per year for mandatory rotation and $0.47-0.58 billion per year for the disappearance of a Big 4 audit firm. Such losses are substantial; by comparison, total audit fees for public firms were $11 billion in 2010.
Download or read book Mandatory Audit Firm Rotation and Audit Quality written by Andrew B. Jackson and published by . This book was released on 2010 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates the effect a regime of mandatory audit firm rotation would have on audit quality in an Australian setting. Using two measures of audit quality, being the propensity to issue a going-concern report and the level of discretionary accruals, the study examines the switching patterns of clients in their current voluntary switching capacity, and the levels of audit quality. We find that audit quality increases with audit firm tenure, when proxied by the propensity to issue a going concern opinion, and is unaffected when proxied by the level of discretionary accruals. We conclude that given the additional costs associated with switching auditors there are minimal, if any, benefits of mandatory audit firm rotation. Other initiatives to address concerns about auditor independence and audit quality therefore need be considered before imposing mandatory audit firm rotation.
Download or read book Mandatory Audit Firm Rotation and Audit Quality written by Mara Cameran and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In a setting where mandatory audit firm rotation has been effective for more than 20 years (i.e., Italy), we analyse changes in audit quality during the auditor engagement period. In our research setting, auditors are appointed for a three-year period and their term can be renewed twice up to a maximum of nine years. Since the auditor has incentives to be reappointed at the end of the first and the second three-year periods, we expect audit quality to be lower in the first two three-year periods compared to the third (i.e. the last) term. Assuming that a better audit quality is associated with a higher level of accounting conservatism, and using abnormal working capital accruals (AWCA) as a proxy for the latter, we find that the auditor becomes more conservative in the last three-year period, i.e. the one preceding the mandatory rotation. These results are confirmed using Basu's (1997) timely loss recognition model. In an additional analysis, we use earnings response coefficients as a proxy for investor perception of audit quality, and we observe results consistent with an increase in audit quality perception in the last engagement period.
Download or read book Competition in the Audit Market written by Joseph J. Gerakos and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The audit market's unique combination of features-its role in capital market transparency, mandated demand, and concentrated supply-means it receives considerable attention from policymakers. We explore the effects of two market scenarios that have been the focus of policy discussions: a) further supply concentration due to one of the "Big 4" auditors exiting and b) mandatory audit firm rotation. To do so, we first estimate publicly traded firms' demand for auditing services, treating services provided by each of the Big 4 as differentiated products. We then use those estimates to calculate how each scenario would affect client firms' consumer surplus. We estimate that, conservatively, exit by one of the Big 4 would reduce client firms' surplus by $1.2-1.8 billion per year. These estimates reflect only firms' lost options to hire the exiting auditor; they do not include the likely fee increases resulting from less competition among auditors. We calculate that the latter could result in audit fee increases between $0.3-0.5 billion per year. Such losses are substantial; by comparison, total audit fees for public firms were $11 billion in 2010. We find similarly large impacts from mandatory audit firm rotation, estimating consumer surplus losses at approximately $2.4-3.6 billion if rotation were required after ten years and $4.3-5.5 billion if rotation were mandatory after only four years.
