Continuing professional education in non-Big 4 auditors: implications for audit quality

This study examines the effect of continuing professional education (CPE) for audit partners on audit quality. In Korea, as in many other countries, certified public accountants are required to attend at least 40 hours of CPE annually to perform external audits. However, the effect of CPE on audit quality is not clear and we are not aware of any prior studies that directly investigate such an effect. Using a unique dataset on the annual CPE hours of audit partners from 2006 to 2015, we fail to find evidence that greater CPE is significantly related to improved audit quality. Through several cross-sectional analyses, we fail to identify any specific circumstances in which greater CPE improves audit quality. Despite important empirical limitations, this study provides practical implications on the role of CPE in determining audit quality. The findings suggest that regulators, professional bodies, and academics need to pay attention to the issue and develop ways to improve the effectiveness of the CPE.

The study’s objective is to analyze how audit quality impacts the effectiveness of corporate governance mechanisms, the role of auditors in aligning the interests of shareholders and managers, and the reduction of the level of agency conflicts. The problem being that agency dynamics encompass the complex interactions and potential conflicts of interest that emerge when managers, acting as agents, make decisions on behalf of shareholders, who are the ultimate principals. 198 questionnaire responses were collected from accountants, auditors, finance managers and general managers of food and retail, banking, manufacturing, education and construction companies in Erbil city were analyzed using a single regression analysis approach. The results of the study demonstrated that improvements in audit quality significantly enhance the effectiveness of corporate governance mechanisms and the role of auditors in aligning the interests of shareholders and managers. Audit quality’s impact on the reduction of the level of agency conflicts was found to be insignificant. The study revealed positive effects spanning from audit quality, corporate governance mechanisms, auditors’ roles to improved agency dynamics in Kurdistan-based companies. Auditors and auditing firms should prioritize continuous improvement in audit quality, investing in professional development and adherence to international auditing standards. Moreover, companies in Kurdistan should adopt and promote robust corporate governance practices that align the interests of shareholders and managers. Regulatory bodies in Kurdistan should consider reviewing and updating the regulatory framework governing audit quality and corporate governance to ensure alignment with best practices and international standards

PurposeThis study examines the association between accruals quality and gender of the firm's audit engagement partner in Indonesia. Specifically, prior studies provide evidence that gender-based difference in diligence, conservatism and risk tolerance, it is plausible that female auditors may improve audit quality. Indonesia provides a valuable research setting to investigate the issue, as it is mandatory to disclose the identity of the audit partners in the audit reports.Design/methodology/approachThis study employs multivariate regression model to test the hypothesis, which examines the association between accruals quality and audit partners gender. Using a sample of Indonesian publicly listed firms, we run a panel of regression of audit quality measure proxied by abnormal accruals on female auditor variable and firm-specific controls. To triangulate the results, we also conduct sensitivity analysis using high and low category of abnormal accruals, an alternative measure of accruals quality (i.e. Beneish's M score) and propensity score matching (PSM).FindingsWe find that firms with female audit engagement partners are not associated with smaller abnormal accruals, thereby implying that female auditors may not constrain effects on earnings management. In other words, gender is not an important predictor for audit quality in Indonesia.Research limitations/implicationsWe are not able to use broader measures of audit quality such as GAAP violations/restatement, litigation or audit fee. This is because the Indonesian setting somewhat limits us to collect them due to lack of regulatory actions and/or database availability.Practical implicationsThis study will contribute to the regulators (such as Financial Service Authorities/OJK) and professionals, on the effectiveness of female audit partners in improving audit quality. The study can be used as an evidence to support the gender equality in the accounting and audit industry.Social implicationsOur findings suggest that auditor gender does not lead to the improvement of accruals quality in Indonesia. Given the fact that only 14% of firms in our sample audited by female audit partners, it is plausible that the positive traits of female top managers may not transmit to the overall audit process. As such, it is important to encourage more female involvement in top position of auditing and accounting industry is required to advance the profession and its positive impact to the society.Originality/valueThere are no prior studies in Indonesia examining the effect of audit partner gender on accruals quality using archival data. As such, this research will be the first to document such evidence and therefore can improve our understanding on the role of auditor characteristic on audit quality. We also respond to the call from DeFond and Zhang (2014) to push analysis of audit quality to the individual auditor level by examining the gender of audit partner.

Purpose: This study aims to examine how the restructuring of human capital management in audit firms under advanced digital technologies affects audit quality and auditors’ professional judgment. It addresses the accelerating changes in the auditing environment and the growing reliance on digital and analytical solutions within the profession. Methodology: The research adopts an analytical–interpretive approach supported by an integrated theoretical framework that combines human capital theory, dynamic capabilities theory, and the digital transformation perspective in the auditing profession. Design and Approach: A conceptual model is developed to illustrate the relationships between digitally enabled human capital management practices—such as skill development, continuous learning, human analytics, and professional decision support—and both audit quality and professional judgment. The model is empirically tested using a quantitative approach based on field data collected from audit firms, employing appropriate statistical models to test the research hypotheses. Findings: The findings reveal a positive and statistically significant impact of digitally driven human capital management restructuring on both audit quality and the level of professional judgment. The strength of this impact varies according to the degree of digital maturity across audit firms. Originality and Value: This study makes an original contribution by directly linking the digital transformation of human capital management to audit outcomes, a relationship that remains underexplored in international auditing literature, particularly within the context of emerging economies. Theoretical, Practical, and Social Implications: Theoretically, the study enhances understanding of the role of digital human capital in advancing the auditing profession. Practically, it provides guidance for audit firms and regulatory bodies in developing policies for capability building and professional development. Socially, it contributes to strengthening confidence in audit outcomes and protecting stakeholders’ interests.

China's overall weak legal system environment and clear regional legal system differences existing side by side provides the research background for us to study the relationship between accounting firm scale, legal environment and audit quality. In this paper, using the data of 2014, under China's unique legal environment background, classify according to accounting firm scale and background, take manageable accrued profit instead of actual audit quality, empirically testify the relationship between legal environment, firm size and audit quality. With the development of market economy and particularity of certified public accountants work, audit quality directly relates to healthy development of capital market. The scale of accounting firms must, therefore, improve information quality as the premise, and large-scale development must also be on the basis of ensured audit quality. In our country, whether there is a difference between large and small audit quality, whether it relates to law environment, whether there are other influence factors, the academia has not yet been determined. And discuss the accounting problems in China shall consider China's national conditions. In general, the rule of law environment is weak in our country. From the angle of region, local legal environment development is not balanced. Will legal system differences in different areas, then, affect different size firm's audit quality? I. ACCOUNTING FIRM SCALE MEASURE In the study of accounting firm scale and audit quality, accounting firm can be divided into N big and not N big dichotomy, which is widely used in the literature at home and abroad. Especially in western developed countries, the division of N big and not N big is very stable. A. Research design 1. Research methods We choose to have clustering analysis with a strong objectivity to test classification results significantly and can comprehensively consider certified public accountants’ indicators to analyze 2014 accounting firm situation. 2. Data collection (1)Data selection indicators In this paper also uses multiple indicators measure in the course of study. (2) Data source Data are from Shanghai stock exchange, Shenzhen stock exchange website as well as Accountants Accounting Firm Comprehensive Information Evaluation in 2014 certified by Chinese Institute of Certified Public Accountants. (3) Descriptive statistics and correlation analysis According to the data in Table 1.1, there is a big difference between accounting firms. Accounting firms’ average market share is only 1.56%, and of all the indicators, in addition to customers and firms accountant number two indicators, the other four indicators are more than the average. Second, we can see that different statistical index system gets obvious accounting firm market share difference. This shows that there is large difference between the sizes of customers, and if the same accounting firm scales measure in accordance with different indicators, there are bigger differences. International Conference on Applied Science and Engineering Innovation (ASEI 2015) © 2015. The authors Published by Atlantis Press 608 Table 1.1 Accounting firm size proportion index information N minimum maximum average standard deviation customer number 64 .064 6.877 1.5625 1.2467 Customer's main business income 64 .013 20.584 1.5625 3.7551 Customer total assets 64 .004 25.072 1.5625 5.2672 Customer equity 64 .010 27.894 1.5625 4.4068 The firm's total revenue 64 .133 17.652 1.5625 3.6029 Accountant office number 64 .622 7.586 1.5625 1.2259 Effective N (list state) 64 Table 1.2 Correlation coefficient of accounting firm scale indicators Client quantity Client business income Total client property Client sharehoder interests Total office income Office accounta nt quantity

Purpose: (i) Analyze and test the effect of auditor independence and complexity on audit quality; (ii) Analyze and test the effect of auditor reputation in mediating independence and audit quality. Methodology: This study uses descriptive analysis, a type of quantitative research, which, when viewed from the data analysis method used, uses a Likert scale measurement. This study uses primary data sources. The survey method is distributing questionnaires to auditors who work at BPK RI Representatives of South Sumatra. Findings: Audit independence has a positive and significant effect on audit quality. the increasing independence of auditors will improve audit quality, audit independence has a positive and significant effect on the reputation of the institution. This is with increasing auditor independence will improve the reputation of the institution, the complexity of the audit has a positive and significant effect on audit quality means that every increase in audit complexity will improve audit quality, audit complexity has a positive and significant impact on the reputation of the institution. This condition means that every increase in audit complexity will increase the reputation of the institution. , Audit quality has a positive and significant effect on the reputation of the institution. The condition means that every increase in audit quality will improve the reputation of the institution Originality/Value: This study is to improve the quality of the financial auditing agency in the South Sumatra region in terms of contributions regarding the independence and complexity of auditors on audit quality and their impact on the reputation of the auditor institution where it is necessary to increase audit complexity in connection with improving audit quality in addition to audit complexity. in accordance with the hypothesis, therefore the formulation of further research for. The recommendations are expected to be why audit complexity is proven to provide an increase in audit quality and not the other way around. As for the variables of independence and audit quality, it is proven to have a positive effect on the reputation of the institution, thus recommendations to the agency to improve the reputation of the institution in terms of independence and audit quality.

How does establishing a branch office affect audit quality? Evidence from China

PurposeThis paper aims to examine the perspectives of auditors, regulators and financial report preparers on the effects of key audit matters (KAMs) reporting on audit effort, fees, quality and report transparency.Design/methodology/approachThe authors conducted 21 semi-structured interviews with stakeholders (13 Audit Partners, 5 Chief Financial Officers and 3 regulators) and thematically analysed the interviews. They use the frame of “Paradox of Transparency” to explain the findings.FindingsAuditors perceive that the overall quality control of their audits has improved both in the planning and execution stages, and such improvement can mostly be attributed to the coercive pressures from professional bodies and regulators. Nevertheless, audit fee remains unchanged. Auditors disclose industry generic items and descriptions of KAMs, sometimes masking the real problem areas of the clients. Even after improving the performative audit quality, transparency of audit reporting has not improved. Issues that warrant going concern qualifications or audit report modifications are now reported as KAMs. Hence, KAMs reporting might make the audit report less transparent.Practical implicationsLocalised audit environments and institutions affect the transparency of KAMs reporting. Without attention to corporate governance and auditors’ independence issues, paradoxically, performative improvement in audit quality (due to the KAMs reporting requirement) does not enhance the transparency of audit reports.Originality/valueTo the best of the authors’ knowledge, this study is the first to provide field-level evidence in Bangladesh and other developing countries about the perceptions of auditors, financial report preparers and regulators on the effects of KAMs reporting on audit efforts, fees, quality and report transparency.

Public accounting profession is a profession of public trust, as a public accountant is responsible for raising the level of reliability of the financial statements of the company, so that the public obtain information reliable financial reporting as a basis for decision making. With the financial case that afflicts many participating companies involving public accountants, public accountants must consider making audit quality it produces. Because of the good quality audit audited report will be produced which is able to present the findings and report the truth about the financial condition of its clients. Audit quality, can be influenced by several factors, both internal factors and external factors. Factors very important role in determining the quality of the audit including the competence, independence, time budget pressure, and audit fees. Therefore, the issues examined in this study is whether there is influence of competence, independence, time budget pressure, and audit fees on audit quality on Public Accounting Firm (KAP) in Surabaya, because public accounting firm in Surabaya is very much based on the determination of the sample all population size of 81 auditors. For the method of data collection was conducted by questionnaire. Data were analyzed with descriptive analysis techniques and statistical analysis. Based on the results of this study concluded that the competence, independence, time budget pressure, and the audit fee effect on audit quality. The effect is positive. Therefore both the auditor and the Public Accounting Firm (KAP) is expected to improve audit quality. To improve the quality of audit is necessary to increase the competence of the auditors with training services as well as to the auditors are given the opportunity to attend courses or an increase in the education profession. To improve the independence, auditor is in charge of his client sought a truly independent, not under pressure from the client and not have the feeling shy with her clients so that in carrying out its audit duties completely objective and can produce a quality audit. In addition, the auditor is expected to complete its work in accordance with the specified time as to avoid the pressure of time that may affect the quality of the audit and the size of the audit fee received is not expected to affect the auditor in performing their duties which will affect the quality of the resulting audit. Keywords: Competence, Independence, Time Budget Pressure, Audit Fee, and Audit Quality

Auditing report conveys useful information about the financial condition of a firm to the public and is costly to the firm. In Taiwan, the passing rate of the certified public accountant (CPA) exam is quite low before 1988. However, the Examination Yuan in Taiwan raises the passing rate of CPA exam since 1988. Due to the increase of the passing rate, the auditing market is full of CPAs and the market becomes more competitive. This paper examines the effect of the passing rate of CPA exam on the industrial structure of accounting firms and the earnings of CPA firms. Basically, we find that the earnings of CPA firms is positively related to the market share, on-job training costs, labor costs and lawsuit risk. Moreover, the earnings of CPA firms decline after the increase of the passing rate due to a more competitive market. We also find that the on-job training becomes more significant after the increase of the passing rate but the market share becomes less significant. Obviously, the increase of the CPA passing rate induces the accounting firms to spend more education expenditure in raising the quality of their practicing CPA and thus the audit quality. However, the market share of accounting firms is less significant because the market is more competitive after the increase of the passing rate of the CPA exam. Our results are consistent with the theoretical arguments on the agency costs and the monopoly power of the market.

PurposeIn this study the authors examine the nature and contents of key audit matters (KAMs), and the consequences of KAMs reporting on audit quality in the context of a developing country, Bangladesh. The authors’ proxies of audit qualities are discretionary accruals, small positive earnings surprise, audit report lag, earnings management via below the line items and audit fees.Design/methodology/approachThe authors use content analysis of the KAMs for the period 2018–2021 to understand the nature and extent of KAMs reported by auditors in Bangladesh. The authors then use multivariate regression analysis to examine the effect of the number and content characteristics of KAMs on audit quality by using multivariate regression analysis.FindingsAuditors in Bangladesh disclose a higher number of KAMs compared to other countries, disclose short descriptions of KAMs and industry generic KAMs. The authors document significant cross-sectional variations in the number and content characteristics of KAMs reported by auditors in Bangladesh. The authors’ pre-post analysis suggest that audit quality has improved after the adoption of KAMs. Cross-sectional analysis suggests that KAMs number and content characteristics are related to audit quality.Practical implicationsThe authors’ findings imply that the KAMs reporting has the potential to play significant monitoring role in reducing the opportunistic behavior of managers. Hence, KAMs reporting can play a significant role in reducing the agency problem. For regulators, shareholders and corporate managers, the authors’ findings imply that if the audit quality is to be increased, the audit effort should be supported by an appropriate amount of audit fee.Social implicationsThe content characteristics of KAMs significantly influence managerial reporting behavior and affect the level of audit efforts.Originality/valueUnlike developed countries (Gutierrez et al., 2018; Lennox et al. 2022), this study supports that KAMs reporting improves audit quality and control opportunistic behavior of managers in developing countries. The authors show that even though the KAMs disclosure quality is poor, it has the potential to improve financial reporting quality.

We investigate the establishment of public audit oversight bodies (POBs) worldwide. We present descriptive evidence on POBs’ characteristics and factors influencing the timing of their establishment, finding that countries with stronger institutions, civil law traditions, and higher media attention to audit quality adopt POBs faster. While countries may choose similar POB design features, these choices do not align with the factors driving adoption speed. We also explore whether the finding of a positive impact on audit quality of the U.S. PCAOB generalizes to other countries. A difference‐in‐differences analysis over 20 years provides some evidence that POB establishment and their characteristics improve audit quality. However, the results appear sensitive to audit quality measures and research design. Our study offers the first broad‐based investigation of POB adoption and provides important nuance on the relation between POBs and audit quality.

PurposeThe study examines the changes in audit market concentration, auditor choice and audit quality in Russia following International Financial Reporting Standards (IFRS) adoption. Scholars have called for further examination of the effects of IFRS adoption on auditors, with an emphasis on the importance of analyzing emerging markets that are characterized by enforcement challenges and lack of proper infrastructure. It focuses on a unique feature of Russian companies – dual audits under Russian Accounting Standards (RAS) and IFRS – and investigates changes in audit concentration and audit quality for the two audit markets.Design/methodology/approachThe authors rely on the audited financial statements of Russian public companies and perform pre-/post-IFRS adoption estimation using a logit regression to ascertain whether public firms change auditors from local firms with limited IFRS expertise to those with global reputation, namely Big 4 audit firms. Further, they examine whether the change in audit market concentration post-2012 affects audit quality as proxied by companies' propensity to receive a modified audit opinion and discretionary accruals. Auditor attributes were hand-collected from audited financial statements and matched with financial variables from Datastream.FindingsThe IFRS audit market was dominated by the Big 4 audit firms prior to 2012, and there is strong evidence that audit market share (concentration) increases for IFRS reports but not for RAS reports. In addition, companies are more likely to choose a Big 4 audit firm for an RAS audit, conditional upon a Big 4 firm conducting the IFRS audit. The authors do not find evidence of decrease in the probability of audit firms issuing a modified audit opinion under either RAS or IFRS, indicating that, in the Russian setting, increased auditor concentration post-IFRS adoption does not lead to enhanced risk or decline in audit quality. Moreover, they find that discretionary accruals decline post-2012. Overall, the findings indicate that the concern of global regulators regarding audit market concentration is not justified.Research limitations/implicationsThe Russian reporting environment is unique and generally characterized by significant agency problems, and the study’s estimation sample is not large, compared to prior studies conducted predominantly in Western jurisdictions. Nevertheless, the authors shed light on the audit concentration phenomenon within emerging markets, for which empirical evidence is scarce. Future research could explore the impact of other capital market events and exogenous shocks, not limited to IFRS adoption, on the characteristics of Russia's audit market.Practical implicationsThe IFRS reporting regime is commonly associated with enhanced reporting quality and improved information transparency among public companies. Yet, impairment of audit quality as a result of IFRS-driven increase in audit market share of Big 4 can potentially negate these capital market effects. This study shows that the concerns of global regulators are not valid and that audit quality does not change with increased share of Big 4 post-IFRS adoption.Originality/valueDual audits, whereby companies must prepare two sets of financial statements per the IFRS mandate, are not unique to Russia, and the evidence of IFRS reporting on the structural changes in the audit market and implications for audit quality under a dual regime is scarce. Accordingly, the study's findings are important and timely and are expected to aid regulators of countries that have announced or are contemplating the adoption of IFRS for public reporting purposes.

In this study, we examine the benefits of membership in an accounting firm association, network, or alliance (collectively referred to as “an association”). Associations provide member accounting firms with numerous benefits, including access to the expertise of professionals from other independent member firms, joint conferences and technical trainings, assistance in dealing with staffing and geographic limitations, and the ability to use the association name in marketing materials. We expect these benefits to result in higher-quality audits and higher audit fees (or audit fee premiums). Using hand-collected data on association membership, we find that association member firms conduct higher-quality audits than nonmember firms, where audit quality is proxied for by fewer Public Company Accounting Oversight Board (PCAOB) inspection deficiencies and fewer financial statement misstatements, as well as less extreme absolute discretionary accruals and lower positive discretionary accruals. We also find that audit fees are higher for clients of member firms than for clients of nonmember firms, suggesting that clients are willing to pay an audit fee premium to engage association member audit firms. Finally, we find that member firm audits are of similar quality to a size-matched sample of Big 4 audits, but member firm clients pay lower fee premiums than do Big 4 clients. Our inferences are robust to the use of company size-matched control samples, audit firm size-matched control samples, propensity score matching, two-stage least squares regression, and to analyses that consider changes in association membership. Our findings should be of interest to regulators because they suggest that association membership assists small audit firms in overcoming barriers to auditing larger audit clients. In addition, our findings should be informative to audit committees when making auditor selection decisions, and to investors and accounting researchers interested in the relation between audit firm type and audit quality.

This research aims to find out how the level of formal education, work experience, level of professional qualifications and counting professional development affect audit quality at the Bengkulu Province Inspectorate. The problem discussed in this thesis is the quality of audits at the Bengkulu Province Inspectorate. The population of this research is the auditors of the Bengkulu Province Inspectorate which consists of 95 auditors in the Bengkulu Province Inspectorate. The sample used in this research was all of the population, namely 95 Bengkulu Province Inspectorate auditors. The research method used is descriptive qualitative. The data collection method uses a questionnaire using multiple linear regression analysis. The results of this research show that, (1) the level of formal education has an effect on audit quality, (2) work experience has an effect on audit quality, (3) the level of professional qualifications has no effect on audit quality, (4) continuous professional development has an effect on audit quality, ( 5) level of formal education, work experience, level of professional qualifications, and continuous professional development together influence audit quality. Keywords: Formal Education Level, Work Experience, Professional Qualification Level, Continuous Professional Development, Audit Quality