International Journal of Auditing最新文献

Our study investigates the causal relationship between managerial litigation risk and auditor choice decisions. Exploiting the staggered adoption of universal demand (UD) laws at the state level in the United States, we use a stacked regression approach and find a lower propensity for affected firms to switch to higher-quality auditors after the exogenous reduction of managerial litigation risk. This result supports the managerial entrenchment hypothesis that lower litigation risk leads to more managerial entrenchment, which allows managers to be opaque in order to enjoy private benefits. This negative effect is mitigated for firms with more audit committee industry expertise and for firms that are more reliant on external finance. Our study contributes to our understanding of how regulatory changes that have an impact on agency problems affect firms' demand for auditing.

This study examines the impact of key audit matters (KAMs) on the quality of analysts' earnings forecasts in the emerging Chinese market. The nature of KAMs is auditors' interpretations of the risk of material misstatements. Based on a quasi-natural experimental environment created by the phased adoption of communicating KAMs in the emerging Chinese market, we find that communicating KAMs can improve the quality of analysts' earnings forecasts by increasing forecast accuracy and decreasing dispersion. We also find that the extent of auditors' interpretations of the risk of material misstatements is positively related to the quality of analysts' earnings forecasts. The positive relationship between the extent of auditors' interpretations of the risk of material misstatements and the quality of analysts' earnings forecasts is more pronounced for firms with less information transparency and less skilled analysts.

Exploiting the staggered adoption of three key regulations that implemented distinct engagement partner identification (EPI) formats for separate groups of Canadian firms over a 10-year period, we investigate the association between eight audit quality proxies and three EPI formats: two indirect (auditor permit number in the report, Form AP) and one direct (partner name in the report). This unique setting not only enables us to examine the short-term association between three different EPI formats and audit quality but also to investigate the long-term association for one EPI format (auditor permit number). In the main analysis, out of 32 results of interest, only three are significant and indicate a positive association. Hence, our results show no widespread effect of EPI on audit quality, suggesting that the inconsistent results reported in prior studies may not be driven by the different formats explored or the short window investigated.

This real-world inspired case describes an ethical dilemma for a recently hired auditor and new Certified Public Accountant (CPA)/Associate Chartered Accountant (ACA) who must choose between cheating on a mandatory firm audit training and exam and suffering the possibility of negatively affecting her advancement with the firm and future compensation. The purpose of this case is to provide students the opportunity to identify an ethical dilemma, apply accounting ethics codes to evaluate potential responses and recommend an ethical course of action. Students completing this case will (1) understand the common pressures and complexities associated with an ethical dilemma; (2) be exposed to the American Institute of Certified Public Accountants' (AICPA Code) Code of Professional Conduct and the International Ethics Standards Board (IESBA Code) International Code of Ethics for Professional Accountants; (3) apply knowledge of the AICPA Ethics Decision Tree to a real-world inspired ethical dilemma; (4) evaluate and analyse the various courses of action to an ethical dilemma; and (5) demonstrate the impact tone at the top and organizational culture have on employees and the firm. The case was very effective in exposing and enhancing student's overall knowledge 4.28 (σ = 0.57) and application 4.28 (σ = 0.65) of the AICPA Code.

We investigate whether the experience gap between signing auditors affects investors' and creditors' perceptions of risk assessment, as measured by the cost of capital. Our argument is that the experience gap between signing auditors could lower the information risk and improve audit quality, leading to a decreased cost of capital. Using unique data from China, where the information of the signing auditors can be obtained from audit reports, we find that a higher experience gap between signing auditors is linked to a lower cost of capital. Further analysis reveals that the effect is stronger for firms with higher information asymmetry, lower audit quality and weaker financial environments. Our results suggest that the higher experience gap between signing auditors can reduce information asymmetry by enhancing audit quality, and external investors incorporate this factor into pricing strategy, thereby, resulting in a lower cost of capital.

Using the lens of relational contracting, we examine internal auditors' efforts in building a relationship of trust with management within the context of operational audits. We gain insights into the day-to-day practices of internal auditors by interviewing 28 chief audit executives of internal audit departments across Australia and find that internal auditors undertake numerous measures to demonstrate credibility and provide clarity on their intentions in an attempt to gain managements' respect and confidence. However, we also find that some of the measures auditors undertake in a defensive corporate culture support the notion of ‘trust begets trust’. Consequently, such measures may not only assist in establishing a relational contract with management but also highlight the potential risks to internal auditor independence.

Recent literature suggests that compared to non-local CEOs, local CEOs care more about reputation capital and hence exhibit a longer-term orientation. Building on this literature, we address the audit pricing of CEO locality. Our empirical analyses reveal that audit fees for firms with local CEOs are lower than those for firms without local CEOs, suggesting a lower audit risk associated with local CEO clients. Seeking the underlying reasons, we indeed find that both client business risk and misreporting risk are lower for firms with local CEOs. Our results are robust to using the matched sample, controlling for potentially correlated variables, change analyses and other alternative specifications. We add to a maturing stream of auditing literature that CEOs' individual traits affect audit pricing.

Smaller organizations are less likely than larger organizations to engage a high-quality auditor to signal credibility to potential donors, but they may still have incentives to engage a high-quality auditor (for instance, to protect themselves from a potential reputational loss). In this context, we find that fundraising voluntary organizations, which are particularly likely to be exposed to reputational concerns, because a poor reputation may have a direct negative impact on fundraising, are more likely to engage a high-quality auditor than are other voluntary organizations. Additional analysis reveals that fundraisers are more likely to engage a Big 4 auditor than an industry specialist; this suggests that the motivation for engaging a high-quality auditor may be to use the auditor as a scapegoat rather than to ensure superior knowledge and advice. We find that debt ratio, organizational complexity, size and financial health are also drivers of auditor choice in small, voluntary organizations.

We contribute to the literature on the relation between client-level abnormal (excess) audit fees and audit quality by offering a novel perspective. We posit that audit office-level resource availability moderates the relation between client-level audit fees and audit quality. This is because office-level resources (audit partners, staff, technology and administrative support) are generally shared across engagements and can augment those engagements that are resource constrained. We first provide evidence that office-level resource availability is informative about audit quality incremental to client-level abnormal fees and several other client and auditor characteristics, including office size. More importantly, we find that client-level abnormal fees are informative about audit quality only for audit offices that are resource-constrained but not for offices that are not resource-constrained.

Using a random sample of 500 Australian small charities, we first identified the determinants for the 56 charities disclosing audit/review reports (53 audits and three reviews) from the 110 voluntarily lodging annual reports. Sequential logistic regression showed that lodging charities are larger, rely more on government grants and use accrual accounting, while factors explaining the disclosure of audit/review reports are charities' deductible gift recipient status, organizational age, and again the use of accrual accounting. Second, for the 53 audit engagements identified, we examined audit quality using five measures and identified significant concerns, including only 34% fully complying with the reporting requirements of Australian/International Auditing Standard 700. Third, tracing the 500 charities from 2014 to 2018, plus 100 more of the largest public-interest small charities, little change was identified in provision of audits versus reviews. The implications of our findings for charities, audit firms, regulators and standard-setters were considered.