Dana R. Hermanson, Patrick J. Hurley, Kara M. Obermire
SUMMARY Audit committees (ACs) are a topic of significant research interest, with numerous studies published each year. We synthesize AC findings from articles published between 2010 and 2020 to develop a conceptual framework encompassing AC inputs, processes, and outputs. We then provide new insights related to AC characteristics, AC relationships, the AC environment, and AC oversight processes. We encourage future research addressing underexamined AC characteristics (e.g., diversity, busyness, and tenure); AC relationships, environment, and processes; and outcomes related to internal audit and internal controls. We also encourage researchers to focus on four contemporary AC issues (remote work; new technologies and cybersecurity; environmental, social, and governance (ESG) and climate; and AC workload) and to embrace diverse research methods and theories. We provide numerous specific research questions to guide future research toward advancing our understanding of ACs and their impact on corporate governance.
{"title":"Audit Committee Research: Where Do We Stand, and Where Do We Go from Here?","authors":"Dana R. Hermanson, Patrick J. Hurley, Kara M. Obermire","doi":"10.2308/ajpt-2023-057","DOIUrl":"https://doi.org/10.2308/ajpt-2023-057","url":null,"abstract":"SUMMARY Audit committees (ACs) are a topic of significant research interest, with numerous studies published each year. We synthesize AC findings from articles published between 2010 and 2020 to develop a conceptual framework encompassing AC inputs, processes, and outputs. We then provide new insights related to AC characteristics, AC relationships, the AC environment, and AC oversight processes. We encourage future research addressing underexamined AC characteristics (e.g., diversity, busyness, and tenure); AC relationships, environment, and processes; and outcomes related to internal audit and internal controls. We also encourage researchers to focus on four contemporary AC issues (remote work; new technologies and cybersecurity; environmental, social, and governance (ESG) and climate; and AC workload) and to embrace diverse research methods and theories. We provide numerous specific research questions to guide future research toward advancing our understanding of ACs and their impact on corporate governance.","PeriodicalId":48142,"journal":{"name":"Auditing-A Journal of Practice & Theory","volume":"12 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136127303","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Douglas R. Ayres, Tyler J. Kleppe, Jonathan E. Shipman, Jason W. Stanfield
SUMMARY Economic theory suggests that demand uncertainty should influence producer behavior. In this study, we empirically examine the impact of demand uncertainty on the production of audit services. Auditors must make resource allocation decisions in advance of exact demand being known, and because a large portion of auditors’ capacity-related commitments are fixed and therefore difficult to adjust in the short run, uncertainty in client demand outcomes likely imposes costs on auditors. Consistent with auditors being compensated for these costs, our results indicate that both audit price and audit production timing are affected by a client’s uncertainty in demand for audit services. We also find that these compensation mechanisms act as substitutes used by auditors to alleviate the costs imposed by demand uncertainty. Our study contributes to the growing literature on the underlying economics of the audit market and answers recent calls for analysis of demand-side factors that influence the audit industry. Data Availability: Data are available from the sources cited in the text. JEL Classifications: M40; M41; M42.
{"title":"Demand Uncertainty and the Production of Audit Services","authors":"Douglas R. Ayres, Tyler J. Kleppe, Jonathan E. Shipman, Jason W. Stanfield","doi":"10.2308/ajpt-2021-066","DOIUrl":"https://doi.org/10.2308/ajpt-2021-066","url":null,"abstract":"SUMMARY Economic theory suggests that demand uncertainty should influence producer behavior. In this study, we empirically examine the impact of demand uncertainty on the production of audit services. Auditors must make resource allocation decisions in advance of exact demand being known, and because a large portion of auditors’ capacity-related commitments are fixed and therefore difficult to adjust in the short run, uncertainty in client demand outcomes likely imposes costs on auditors. Consistent with auditors being compensated for these costs, our results indicate that both audit price and audit production timing are affected by a client’s uncertainty in demand for audit services. We also find that these compensation mechanisms act as substitutes used by auditors to alleviate the costs imposed by demand uncertainty. Our study contributes to the growing literature on the underlying economics of the audit market and answers recent calls for analysis of demand-side factors that influence the audit industry. Data Availability: Data are available from the sources cited in the text. JEL Classifications: M40; M41; M42.","PeriodicalId":48142,"journal":{"name":"Auditing-A Journal of Practice & Theory","volume":"77 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135962832","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Kenneth L. Bills, Michelle K. Harding, Timothy A. Seidel, J. Mike Truelson
SUMMARY We explore the impact of turnover within top executive teams, with particular emphasis on executives other than the CEO and chief financial officer (CFO), on auditors’ perceptions of financial reporting risk. Consistent with upper echelon theory, we find that non-CEO/non-CFO executive team turnover increases perceptions of financial reporting risk even with continuity of the CEO and CFO. Additionally, we find that the effect of CEO and CFO turnover on perceptions of risk is primarily driven by concurrent turnover with other top executive team members. Further, the effect of other top executive turnover is more pronounced among firms that had higher-ability managers and that face greater constraints in replacing top talent. This effect is partially mitigated when the firm has an effective financial reporting environment and when the CEO who remains in place has greater operational involvement. These findings highlight the importance of other top executive turnover in risk assessments. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G30; M12; M41; M42.
{"title":"The Influence of Turnover among Other Top Executives on Financial Reporting Risk","authors":"Kenneth L. Bills, Michelle K. Harding, Timothy A. Seidel, J. Mike Truelson","doi":"10.2308/ajpt-2022-125","DOIUrl":"https://doi.org/10.2308/ajpt-2022-125","url":null,"abstract":"SUMMARY We explore the impact of turnover within top executive teams, with particular emphasis on executives other than the CEO and chief financial officer (CFO), on auditors’ perceptions of financial reporting risk. Consistent with upper echelon theory, we find that non-CEO/non-CFO executive team turnover increases perceptions of financial reporting risk even with continuity of the CEO and CFO. Additionally, we find that the effect of CEO and CFO turnover on perceptions of risk is primarily driven by concurrent turnover with other top executive team members. Further, the effect of other top executive turnover is more pronounced among firms that had higher-ability managers and that face greater constraints in replacing top talent. This effect is partially mitigated when the firm has an effective financial reporting environment and when the CEO who remains in place has greater operational involvement. These findings highlight the importance of other top executive turnover in risk assessments. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G30; M12; M41; M42.","PeriodicalId":48142,"journal":{"name":"Auditing-A Journal of Practice & Theory","volume":"26 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-09-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136238365","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
SUMMARY This study investigates whether audit clients’ blockchain activities (including crypto-related activities) affect audit risk by examining the association between blockchain disclosures in 10-K filings and audit fees. Focusing on U.S. firms between 2013 and 2020, we empirically show that audit fees are higher for companies disclosing blockchain activities in 10-K filings. We further find that this positive association is more pronounced for companies disclosing current blockchain implementation than for companies with plans for blockchain activities. The results indicate that clients’ blockchain activities influence audit risk as assessed by external auditors. As blockchain technology and its applications are emerging, our findings have implications that should be considered by auditors, regulators, and top management.
{"title":"Opportunities or Challenges? Audit Risk and Blockchain Disclosures in 10-K Filings","authors":"Feiqi Huang, Tawei Wang, Ju-Chun Yen","doi":"10.2308/ajpt-2021-045","DOIUrl":"https://doi.org/10.2308/ajpt-2021-045","url":null,"abstract":"SUMMARY This study investigates whether audit clients’ blockchain activities (including crypto-related activities) affect audit risk by examining the association between blockchain disclosures in 10-K filings and audit fees. Focusing on U.S. firms between 2013 and 2020, we empirically show that audit fees are higher for companies disclosing blockchain activities in 10-K filings. We further find that this positive association is more pronounced for companies disclosing current blockchain implementation than for companies with plans for blockchain activities. The results indicate that clients’ blockchain activities influence audit risk as assessed by external auditors. As blockchain technology and its applications are emerging, our findings have implications that should be considered by auditors, regulators, and top management.","PeriodicalId":48142,"journal":{"name":"Auditing-A Journal of Practice & Theory","volume":"370 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135253553","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Christian Friedrich, W. Robert Knechel, Amin S. Sofla, Victor S. Zuiddam
SUMMARY We investigate whether client employee training facilitates a more efficient audit. Our hypothesis is that training improves the ability of the client personnel to process transactions accurately, improve internal control, and contribute to evidence gathering and information sharing in the conduct of the audit. Using a large sample of Belgian private firms with data on employee training, we find that a one standard deviation increase in clients’ training cost (hours) reduces audit fees by approximately 3.4 percent (1.7 percent). The effect is stronger for clients with highly educated employees. Using the Belgian labor status reform of 2014 as a natural experiment, we show that improving job security also reduces audit fees and enhances the negative association between training and audit fees. Consistent with higher audit efficiency, we also find a negative association between training and report lags. However, we find no association between training and audit quality.
{"title":"Client Employee Training and Audit Efficiency","authors":"Christian Friedrich, W. Robert Knechel, Amin S. Sofla, Victor S. Zuiddam","doi":"10.2308/ajpt-2022-012","DOIUrl":"https://doi.org/10.2308/ajpt-2022-012","url":null,"abstract":"SUMMARY We investigate whether client employee training facilitates a more efficient audit. Our hypothesis is that training improves the ability of the client personnel to process transactions accurately, improve internal control, and contribute to evidence gathering and information sharing in the conduct of the audit. Using a large sample of Belgian private firms with data on employee training, we find that a one standard deviation increase in clients’ training cost (hours) reduces audit fees by approximately 3.4 percent (1.7 percent). The effect is stronger for clients with highly educated employees. Using the Belgian labor status reform of 2014 as a natural experiment, we show that improving job security also reduces audit fees and enhances the negative association between training and audit fees. Consistent with higher audit efficiency, we also find a negative association between training and report lags. However, we find no association between training and audit quality.","PeriodicalId":48142,"journal":{"name":"Auditing-A Journal of Practice & Theory","volume":"80 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136310104","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
SUMMARY We examine whether audit engagements where the client has never switched auditors (original auditors) are associated with different audit fee and audit quality outcomes, relative to engagements that have experienced an auditor change. We document that clients with original auditors accrue nontrivial audit fee savings. Further, we find original auditor engagements are associated with lower levels of discretionary accruals and lower likelihood of misstatements, implying higher audit quality. We also find that investors appear to recognize the audit fee and quality benefits, as these auditors receive fewer votes from investors against their ratification. These results are consistent with a reduction in information asymmetry from greater client specific knowledge with original auditors, leading to more efficient and effective audits. Finally, we document that the audit fee and audit quality benefits diminish for engagements that exceed 40 years, providing some support for the benefit of an eventual fresh look in the audit. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G18; H83; M4.
{"title":"Till Death Do Us Part: An Examination of the Impact of Unbroken Auditor-Client Relationships on Audit Efficiency and Audit Quality","authors":"Dahlia Robinson, Thomas Smith, Stephanie Walton","doi":"10.2308/ajpt-2021-022","DOIUrl":"https://doi.org/10.2308/ajpt-2021-022","url":null,"abstract":"SUMMARY We examine whether audit engagements where the client has never switched auditors (original auditors) are associated with different audit fee and audit quality outcomes, relative to engagements that have experienced an auditor change. We document that clients with original auditors accrue nontrivial audit fee savings. Further, we find original auditor engagements are associated with lower levels of discretionary accruals and lower likelihood of misstatements, implying higher audit quality. We also find that investors appear to recognize the audit fee and quality benefits, as these auditors receive fewer votes from investors against their ratification. These results are consistent with a reduction in information asymmetry from greater client specific knowledge with original auditors, leading to more efficient and effective audits. Finally, we document that the audit fee and audit quality benefits diminish for engagements that exceed 40 years, providing some support for the benefit of an eventual fresh look in the audit. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G18; H83; M4.","PeriodicalId":48142,"journal":{"name":"Auditing-A Journal of Practice & Theory","volume":"40 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135200612","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Ferdinand A. Gul, Bin Lin, Zhifeng Yang, Min Zhang, Haoran Zhu
SUMMARY This study draws on human capital theory to measure the quality of accounting personnel based on their education level and investigate whether the education level of the client firm’s accounting personnel affects auditors’ assessment of audit risk by examining audit outcomes. It shows that auditors charge higher fees and are more likely to make audit adjustments for companies whose accounting personnel have a lower level of education. The relationship between the education level of accounting personnel and audit fees (audit adjustments) is robust to an instrumental variable model, an entropy balancing approach, and a difference-in-differences analysis. Audit firms strategically assign more experienced partners to audit companies whose accounting personnel’s average education levels are relatively low. Taken together, these findings suggest that the education level of clients’ accounting personnel affects auditors’ assessment of audit risk and audit outcomes. JEL Classifications: M40; M42; J01; J24.
{"title":"Accounting Personnel Quality, Audit Risk, and Auditor Responses","authors":"Ferdinand A. Gul, Bin Lin, Zhifeng Yang, Min Zhang, Haoran Zhu","doi":"10.2308/ajpt-2020-119","DOIUrl":"https://doi.org/10.2308/ajpt-2020-119","url":null,"abstract":"SUMMARY This study draws on human capital theory to measure the quality of accounting personnel based on their education level and investigate whether the education level of the client firm’s accounting personnel affects auditors’ assessment of audit risk by examining audit outcomes. It shows that auditors charge higher fees and are more likely to make audit adjustments for companies whose accounting personnel have a lower level of education. The relationship between the education level of accounting personnel and audit fees (audit adjustments) is robust to an instrumental variable model, an entropy balancing approach, and a difference-in-differences analysis. Audit firms strategically assign more experienced partners to audit companies whose accounting personnel’s average education levels are relatively low. Taken together, these findings suggest that the education level of clients’ accounting personnel affects auditors’ assessment of audit risk and audit outcomes. JEL Classifications: M40; M42; J01; J24.","PeriodicalId":48142,"journal":{"name":"Auditing-A Journal of Practice & Theory","volume":"41 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136115849","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Xianjie He, Jeffrey Pittman, Sarah E. Stein, Huifang Yin
SUMMARY We examine whether firms undertaking an initial public offering (IPO) exhibit less earnings management when individual investment bankers have prior experience in public accounting. Although auditors are primarily responsible for providing external monitoring of the financial reporting process, individual bankers also have strong incentives to improve accounting quality in firms going public. We predict a negative relation between public accounting experience and IPO firms’ earnings management because working in public practice fosters individual bankers’ accounting expertise and conservative personalities. In exploiting unique disclosures of investment bankers’ identities and characteristics in China, our analysis indicates that bankers with early-career public accounting experience constrain IPO firms’ accrual-based earnings management. Consistent with expectations, we find that this evidence is more pronounced if the accounting firm that employed the future investment banker is larger, is permitted to audit listed companies, and was previously subject to a regulatory sanction. Data Availability: Most data are publicly available from the sources identified in the paper. Hand-collected data from the Securities Association of China (SAC) can be made available upon request. JEL Classifications: G24; M41; M42.
{"title":"Does Investment Bankers’ Prior Experience in Public Accounting Reduce Earnings Management in IPO Firms?","authors":"Xianjie He, Jeffrey Pittman, Sarah E. Stein, Huifang Yin","doi":"10.2308/ajpt-2021-005","DOIUrl":"https://doi.org/10.2308/ajpt-2021-005","url":null,"abstract":"SUMMARY We examine whether firms undertaking an initial public offering (IPO) exhibit less earnings management when individual investment bankers have prior experience in public accounting. Although auditors are primarily responsible for providing external monitoring of the financial reporting process, individual bankers also have strong incentives to improve accounting quality in firms going public. We predict a negative relation between public accounting experience and IPO firms’ earnings management because working in public practice fosters individual bankers’ accounting expertise and conservative personalities. In exploiting unique disclosures of investment bankers’ identities and characteristics in China, our analysis indicates that bankers with early-career public accounting experience constrain IPO firms’ accrual-based earnings management. Consistent with expectations, we find that this evidence is more pronounced if the accounting firm that employed the future investment banker is larger, is permitted to audit listed companies, and was previously subject to a regulatory sanction. Data Availability: Most data are publicly available from the sources identified in the paper. Hand-collected data from the Securities Association of China (SAC) can be made available upon request. JEL Classifications: G24; M41; M42.","PeriodicalId":48142,"journal":{"name":"Auditing-A Journal of Practice & Theory","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135255097","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
SUMMARY This study examines whether the presence of high-quality auditors (Big 4 or industry specialist auditors [ISAs]) in an industry facilitates accounting information transfer among industry peers and enhances investment decisions of firms not audited by high-quality auditors (non-Big 4-ISA client firms). Consistent with the prediction of informational influence theories, we find that non-Big 4-ISA client firms that belong to an industry with a greater presence of high-quality auditors are associated with lower investment inefficiency. The effect is more pronounced for firms with less precise private information. Path analysis shows that the association between high-quality auditor presence and learning firms’ investment inefficiency is explained via a direct path of source credibility and an indirect path mediated by peer firms’ accounting information quality. Finally, we find that firms in industries with larger reductions in Big 4 presence following the Sarbanes-Oxley Act of 2002 incur more investment inefficiency. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M40; M41; M42.
{"title":"High-Quality Auditor Presence and Informational Influence: Evidence from Firm Investment Decisions","authors":"Xudong Li, Lili Sun","doi":"10.2308/ajpt-2022-056","DOIUrl":"https://doi.org/10.2308/ajpt-2022-056","url":null,"abstract":"SUMMARY This study examines whether the presence of high-quality auditors (Big 4 or industry specialist auditors [ISAs]) in an industry facilitates accounting information transfer among industry peers and enhances investment decisions of firms not audited by high-quality auditors (non-Big 4-ISA client firms). Consistent with the prediction of informational influence theories, we find that non-Big 4-ISA client firms that belong to an industry with a greater presence of high-quality auditors are associated with lower investment inefficiency. The effect is more pronounced for firms with less precise private information. Path analysis shows that the association between high-quality auditor presence and learning firms’ investment inefficiency is explained via a direct path of source credibility and an indirect path mediated by peer firms’ accounting information quality. Finally, we find that firms in industries with larger reductions in Big 4 presence following the Sarbanes-Oxley Act of 2002 incur more investment inefficiency. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M40; M41; M42.","PeriodicalId":48142,"journal":{"name":"Auditing-A Journal of Practice & Theory","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135348381","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Anwer S. Ahmed, Bilal Al-Dah, Moataz El-Helaly, Krzysztof Fleszar
SUMMARY We provide evidence on the efficacy of Auditing Standard No. 18 (AS18) for auditing-related party transactions (RPTs). We measure audit quality using general restatements and RPT-related restatements. Using a sample of S&P 1500 firms from 2011 through 2018, we find that RPT firms are significantly less likely to report a general restatement compared with non-RPT firms after AS18. We also classify RPTs into business RPTs and nonbusiness RPTs based on the type of transactions and the transacting party. We find that business RPT firms are (1) less likely to have general restatements after AS18 relative to non-RPT firms and (2) less likely to have RPT-related restatements relative to nonbusiness RPT firms. AS18 does not have any effects on nonbusiness RPTs. Our results are driven by S&P MidCap 400 and S&P SmallCap 600 firms. Overall, our findings suggest that AS18 has enhanced the quality of business RPT auditing. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M41; M42.
{"title":"Related Party Transactions and Audit Quality: Evidence on the Efficacy of Auditing Standard No. 18","authors":"Anwer S. Ahmed, Bilal Al-Dah, Moataz El-Helaly, Krzysztof Fleszar","doi":"10.2308/ajpt-2021-157","DOIUrl":"https://doi.org/10.2308/ajpt-2021-157","url":null,"abstract":"SUMMARY We provide evidence on the efficacy of Auditing Standard No. 18 (AS18) for auditing-related party transactions (RPTs). We measure audit quality using general restatements and RPT-related restatements. Using a sample of S&P 1500 firms from 2011 through 2018, we find that RPT firms are significantly less likely to report a general restatement compared with non-RPT firms after AS18. We also classify RPTs into business RPTs and nonbusiness RPTs based on the type of transactions and the transacting party. We find that business RPT firms are (1) less likely to have general restatements after AS18 relative to non-RPT firms and (2) less likely to have RPT-related restatements relative to nonbusiness RPT firms. AS18 does not have any effects on nonbusiness RPTs. Our results are driven by S&P MidCap 400 and S&P SmallCap 600 firms. Overall, our findings suggest that AS18 has enhanced the quality of business RPT auditing. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M41; M42.","PeriodicalId":48142,"journal":{"name":"Auditing-A Journal of Practice & Theory","volume":"103 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136310102","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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