Download or read book What are the Drivers of Audit Quality After an Auditor Change Evidence from Voluntary and Mandatory Auditor Switches written by Ulf Mohrmann and published by . This book was released on 2017 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: While the accounting literature implies that increased discretionary accruals follow auditor changes, the underlying causal mechanism of this increase remains unclear. The potential reasons are the loss of the auditor's firm-specific knowledge or the firm's opportunistic choice of a new auditor. Differentiating between the drivers is important to understand the consequences of auditor changes and to decide on a regulatory reaction. Using the unique legal environment in the European Union, this study uses both voluntary and mandatory auditor changes to distinguish between these explanations. Whereas the loss of firm-specific knowledge affects both types of auditor changes, mandatory changes are less affected by opportunistic choices. I find that voluntary auditor changes are positively associated with discretionary accruals but not mandatory changes. The difference between the mandatory and voluntary changes is highly significant even after controlling for self-selection. Thus, the decrease in reporting quality is due to the strategic decision to change the auditor rather than to the loss of firm-specific knowledge.

Download or read book Essays on the Quality of Audited Financial Statements written by Ulf Mohrmann and published by Logos Verlag Berlin GmbH. This book was released on 2016-02-15 with total page 300 pages. Available in PDF, EPUB and Kindle. Book excerpt: The dissertation consists of four essays on the quality of audited financial statements. The first analysis investigates the association between several regulations of the audit market and earnings characteristics. The second essay differentiates between different drivers of audit quality after an auditor change by comparing the effects of voluntary and mandatory auditor changes. The third study analyses the different strategies of Big4 and non-Big4 auditors in dealing with Level 3 fair values. The fourth part examines banks' valuation behavior concerning Level 3 fair values.

Download or read book Does the Timing of Auditor Changes Affect Audit Quality Evidence from the Initial Year of the Audit Engagement written by Cory A. Cassell and published by . This book was released on 2017 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: We focus on the first year of the auditor-client relationship and investigate whether audit quality varies with the timing of the new auditor's appointment. We find that audit quality is not lower for companies that engage new auditors before the end of the third fiscal quarter than for companies that do not change auditors. However, companies that engage new auditors during or after the fourth fiscal quarter are more likely to misstate their audited financial statements than companies that engage new auditors earlier in the year and companies that do not change auditors. In additional tests, we find that the decrease in audit quality associated with late auditor changes is more pronounced for companies with complex operations (i.e., more operating segments). These results suggest that the extent to which audit quality suffers in the first year of audit engagements is affected by both the amount of time required to understand the client's business, assess risks, and perform the audit (all of which are driven by client complexity), as well as the amount of time available for auditors to perform these tasks.

Download or read book Quality Levels of Predecessor and Successor Auditors written by Scott Whisenant and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study we investigate relations between the quality levels of successor and predecessor auditors for a sample of client-initiated auditor switches. We use reasons reported by managers for changing auditors to investigate whether those reasons are differentially related to changes in the quality levels of successor and predecessor auditors. Based on prior evidence on auditor realignments, we classify the reasons from managers into three categories that appear to summarize the motivating factors surrounding client-initiated changes. The three categories relate to structural changes of the company, audit fees, and accounting disagreements. In this study we introduce a three-level auditor quality proxy that suggests and allows future researchers, to consider auditor quality as other than a binary variable (i.e., Big 6 versus non-Big 6). We find that the quality level of the successor auditor is related to the quality level of the predecessor auditor irrespective of the reason for the change. Our results suggest that auditor quality levels are, on average, unchanged following a client-initiated change. However, an investigation of any changes in auditor quality subsequent to our classification of client-initiated changes into the three categories suggests that managers' reasons are differentially related to the change in quality of the auditor. Managers who cite structure reasons move up in quality, confirming prior literature. Managers who cite fees as a reason tend to move down in quality, which is different from findings in prior papers. Finally, we find that clients who cite accounting disagreement as the reason for changing also move down in quality, which is consistent with managers searching for less conservative auditors. Our evidence offers additional insights into possible reasons that managers change auditors and may suggest the need for financial reporting regulators to consider increased or improved disclosures related to the reasons for changing auditors particularly in the case of client-initiated changes.

Download or read book Why and How Audits Must Change written by Thomas P. Houck and published by John Wiley & Sons. This book was released on 2003-07-25 with total page 243 pages. Available in PDF, EPUB and Kindle. Book excerpt: Here are the essential steps that accounting firms must take to improve audit quality. The author provides detailed coverage of important topics such as risk-based auditing techniques, analytical procedures, technology, and internal controls. After explaining why frequently used audit approaches are inadequate for detecting material fraud, the author: Provides specific and practical guidance to help auditors conduct higher quality audits Offers guidance to financial executives on ways to evaluate their independent audits Describes the steps that accounting firms must take to implement these much-needed changes Order your copy today!

Download or read book The Intersection of Auditor Independence Objectivity and Integrity in High risk Audit Conditions written by George Kwadwo Baah and published by . This book was released on 2016 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The rich store of audit quality research and steady improvements to auditing standards over the decades have not yielded the desired impact on audit quality. While most litigations following corporate failure naming auditors as defendants tend to accuse auditors of lack of independence, objectivity and willful participation in fraud, the impact of these character dimensions on audit quality has not been fully explored. Professional accounting bodies impress upon their members to be independent in fact and in appearance, be objective and exhibit integrity in their decisions about their clients' financials statement, yet, not much is known about how independence, objectivity, and integrity impact audit quality. Secondly, not much is known about how auditors enact independence, objectivity, and integrity on an audit engagement. Also, inputs from auditors have been quite underutilized in audit quality research in recent years, yet auditors are the people who implement changes in auditing standards and regulations. This dissertation focuses on the very character dimensions that auditors tend to be accused of lacking to examine the impact of independence, objectivity, integrity, and environmental constraints on audit quality. Guided by institutional theory and the theory of negotiated order, a multi-staged, three-part sequential mixed methods study consisting of one quantitative and two qualitative studies were conducted using responses from audit managers. Survey responses from auditors in the United Kingdom and the United States were used to perform an exploratory theoretical study of the impact of Independence, Objectivity, Integrity, and Constraints on Audit Quality. The second study was conducted to identify a highly constrained business environment where the impact of Independence, Objectivity, and Integrity on Audit Quality could be validated. Following the second study, a third study was conducted to understand the effects of the institutional environment on audit quality and how auditors respond to the effects of the institutional factors. The research finds that auditors' integrity is a consistent determinant of audit quality. The positive significant impact of integrity on audit quality does not change when integrity interacts with environmental constraints. Contrary to the general notions about the importance of independence to audit quality, the research finds that independence and objectivity do not have a significant direct effect on audit quality. However, moderating independence on objectivity leads to a significant effect on audit quality. Independence strengthens the positive effect of objectivity on audit quality. But the positive impact of interacting independence and objectivity on audit quality reduces substantially when the interaction variable interacts with environmental constraints. Auditors tend not rely on their independence when the impact of environmental constraints are weak, and they tend to ignore or bend their interpretation and enactment of independence and objectivity and rather rely on their integrity when the environmental constraints are high. These findings show that agents resort to their inner core beliefs when making decisions under high-risk conditions. This dissertation makes theoretical and practical contributions to the literature. The quantitative research for the dissertation is the first known empirical analyses or validation of impact of external constraints, independence, objectivity, and integrity on audit quality using data from auditors. The research challenges the continued emphasis on independence as the core determinant of audit quality instead of the integrity of auditors. Also, study two of the dissertation is the first known study to find that aid project failure was mainly due to managerial failure though literature has blamed poor institutions, weak economies, and corruption as the culprits. Though prior audit quality studies have used responses from auditors, most recent researches in that domain have used data from sources other than auditors, yet auditors are the people who actually perform the work. The finding that auditors' perceptions about the core determinant of audit quality is integrity and not independence suggests that perhaps custodians of the profession have not focused on the fundamental character determinant of audit quality. This finding makes a contribution to theory and practice.

Download or read book Audit Quality and Auditor Switching written by Clive S. Lennox and published by . This book was released on 1998 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews the literature on audit quality and auditor switching to assess different countries policy regimes. It argues that policy-makers should limit managerial influence over auditor switching rather than reduce auditors' economic dependency on clients. In particular, the paper advocates proper communication between shareholders and auditors, and a policy of mandatory auditor retention. In contrast, some countries have adopted policies of mandatory rotation, and have banned non-audit services and introductory fee discounts. It is argued that such policies are less desirable on both theoretical and empirical grounds.

Download or read book The Impact of Fresh Eyes written by Hannah Elizabeth Richards and published by . This book was released on 2021 with total page 93 pages. Available in PDF, EPUB and Kindle. Book excerpt: Regulators have repeatedly debated mandatory auditor rotation. Proponents emphasize the benefits that a new auditor brings, specifically, improved independence and a fresh perspective,leading to higher quality audits. However, opponents argue that changing auditors is costly and impedes audit quality. The United States currently requires audit partner rotation, but it is not clear that partner change alone significantly impacts audit outcomes. In this dissertation, I provide evidence that the fresh perspective brought about by changes in the engagement team improves the detection and reporting of internal control material weaknesses (ICMW) after controlling for the likelihood of the existence of ICMW. I examine three different engagement team changes:audit firm change, audit office change, and audit partner change. My findings show that a turnover of the whole engagement team through an audit firm change increases the likelihood of the auditor reporting an ICMW. This effect is larger than that for either partial engagement team changes(i.e., office and partner changes). Additionally, I do not find any association between partner change and the likelihood of a reported ICMW.

Download or read book Is Financial Reporting and Audit Quality Lower when Auditors Lack Independence written by Ranier Michael Robinson and published by . This book was released on 2020 with total page 99 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) are concerned about circumstances that threaten auditor independence based on their belief that auditor independence is essential to the efficiency of capital markets. The relationship between auditor independence and financial reporting and audit quality, have been difficult to establish because the extent of auditor independence is unobservable. Prior research has relied on proxies for auditor independence, and overall the results provided by this research are mixed. In this study, I utilize a sample of firms that switch auditors retrospectively to avoid further violation of SEC independence rules-as a more direct measure of auditor independence. Using propensity score matching and a difference-in-differences research design, I find evidence that independence violations are associated with impaired financial reporting and audit quality. Further, I find improvements in both financial reporting and audit quality subsequent to an auditor switch for independence violation firms relative to non-independence issue control firms. Overall, these results provide justification for regulators' concerns about the potential negative consequences of a lack of auditor independence on financial reporting quality and audit quality.

Download or read book The Effects of Significant Changes in Auditor Clientele and Auditor client Mismatches on Audit Quality written by Kenneth L. Bills and published by . This book was released on 2012 with total page 110 pages. Available in PDF, EPUB and Kindle. Book excerpt:

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 Quality Matters written by John Winston Mayne and published by Routledge. This book was released on 2018-12-12 with total page 389 pages. Available in PDF, EPUB and Kindle. Book excerpt: Information--regular, systematic, reliable--is the life-blood of democracy and the fuel of effective management. Surely today there is no problem with information, for this is the age of information overload. It pours onto our computer screens and out of our printers. Indeed, many governments claim, often with some justification, to be more open and transparent than ever before. But what if the life-blood is contaminated, or the fuel polluted? Then the body politic sickens and the engine of public management runs rough. It is the vital issue of the quality of the information we receive that this book addresses. Quality Matters compares approaches across different jurisdictional settings and across three different types of information evaluation. The chapters describe and analyze quality assurance in a number of countries and within a variety of international organizations. These have been selected either because they are widely considered to be leaders in evaluating information or because they have experience with assuring quality information that can instruct others. Contributors are from Australia, Canada, the European Union, France, the Netherlands, New Zealand, Sweden, Switzerland, United Kingdom, United States, and the World Bank. This pioneering study analyzes practices for assuring the quality of evaluation, performance auditing, and reporting in the face of political, organizational, and technical obstacles. A final chapter addresses the extent to which quality assurance systems become bothersome rituals or remain meaningful mechanisms to ensure quality control. This well-structured volume will be of particular interest to policymakers and adds much to the literature on program evaluation and performance auditing.

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 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 The Impact of Inconsistent Evidence Documentation on Third party Perceptions of Audit Quality and Judgements of Auditor Liability written by Casey Joseph McNellis and published by . This book was released on 2011 with total page 146 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Three Essays on Institutional Conditions that Enable Audit Quality written by Tjibbe Bosman and published by . This book was released on 2024 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Audit partnerships have substantial agency costs, as partner effort and the residual risk from an audit are mostly unobservable, inviting shirking and free riding at the expense of audit quality. I study three institutional conditions in this dissertation that could improve audit quality. In Chapter Two, I research the consequences of introducing the Dutch audit partner clawback. Partners primarily reduce their compensation risk by de-risking and find little evidence of quality improvements. Confronted with clawbacks, partners accept fewer and less risky clients, initially audit longer, and issue more modified audit opinions. Meanwhile, partner income and audit fees increase, and clients switch to less competent auditors. In Chapter Three, my Ph.D. supervisors and I investigate the auditor selection model. Auditors are selected and paid for by the organizations they audit. According to theory and recent findings, this auditor selection model incentivizes auditors to avoid reporting adverse audit outcomes to ensure client retention. We study local subsidiary audits under International Auditing Standards, where audit partners are either assigned to audit subsidiaries or self-selected by the subsidiaries’ management. Our findings suggest that assigned auditors may become too independent of auditees at the cost of client knowledge and their access to audit evidence.Chapter Four, a collaborative effort with my Ph.D. supervisors, addresses the often discussed but little-researched relationship between audit firm culture and audit quality. We find a positive relation, especially for more complex audit settings. We conclude that other than clawbacks and assigning auditors, social controls could provide significant audit quality incentives."--

Download or read book After the Quality Audit written by James P. Russell and published by . This book was released on 1996 with total page 256 pages. Available in PDF, EPUB and Kindle. Book excerpt: