Purpose This study aims to examine whether auditors are sensitive to their clients’ compliance with environmental regulations. Under current auditing standards, auditors’ responsibilities with respect to the detection and reporting of violations of environmental regulations by their clients are limited and quite vague. However, a client’s noncompliance with environmental regulations potentially increases audit risk and audit task complexity. This study aims to shed light on how compliance with environmental regulations may affect audit risk and auditor effort. Design/methodology/approach The authors develop proxies for environmental compliance risk using actual US pollution-related data in three areas: (1) the toxic chemicals released to the environment, (2) Superfund liabilities identified in the National Priority List of Superfund Sites and (3) compliance costs for environmental-related violations, including fines, penalties and court-ordered spending for future remediation measures. The authors examine the impact of environmental risk on audit fees from each compliance area. The authors also construct a proxy of complexity in environmental regulations to investigate the aggregated compliance risk on audit fees. The analysis controls for client firm size, operational complexity and the riskiness of the audit engagement. Findings Using a longitudinal sample from 2000 to 2012, the authors find that audit fees are higher for clients with environmental compliance risk. Further analysis indicates that the complexity in corporate environmental regulations has a more direct impact on audit fees than the magnitude of individual environmental risks. The findings are consistent with auditors charging higher fees when auditing clients with environmental compliance issues. This study contributes to environmental accounting research and the auditing literature concerning the impact of environmental risk on audit task complexity. Originality/value There is broad literature that links auditor effort with the audit client’s operational or business risk. It is unknown whether audit engagements encompass environmental risks, specifically audit client’s compliance with the applicable environmental regulations. This study extends the existing audit literature by explicitly exploring the impact of audit clients’ compliance with environmental regulations on audit fees. The findings of the study shed light on whether auditors consider environmental compliance proactively in audit engagements.

Purpose This study aims to investigate whether critical accounting estimate (CAE) disclosures by managers are affected by critical audit matter (CAM) disclosures by auditors. These two types of disclosures may overlap, as they both involve estimates and judgments with uncertainties in financial reporting. Design/methodology/approach The authors manually collect the CAEs disclosed in the 10-K and match them with CAM disclosure based on the same topic. Then, the authors empirically examine the influence of CAM on CAE tones (i.e., negative and uncertain tones) and test how financial information quality is affected when two disclosures are similar in tones. Findings The negative and uncertain tones of CAEs are more salient when auditors disclose the same topic as CAMs and when CAM also emphasizes negative and uncertain tones. CAE-CAM tone consistency helps to improve financial information quality, especially when the firm has an effective audit committee and is audited by industry specialist auditors. Originality/value It shows that improved communication between auditors and managers through CAM disclosures enables managers to better understand the sources of uncertainties embedded in the financial information processing, and thereby contribute to improve the quality of financial information.

Purpose The purpose of this study is to investigate how Confucian culture influences the selection of higher-quality auditor selection in Chinese listed companies. Design/methodology/approach Using data from Chinese listed companies from 2003 to 2020, this study examines the relationship between Confucian culture and auditor selection. This study explores mechanisms such as social trust and moral self-discipline, information disclosure quality and mitigation of Type II agency problems (i.e. tunnelling). The authors conduct cross-sectional analyses to assess the moderating roles of corporate governance and international cultural influences. Findings Confucian culture significantly influences the selection of high-quality auditors, with this effect mediated by social trust, moral self-discipline, better information disclosure and less Type II agency problems (i.e. tunnelling). The association is stronger in firms with robust corporate governance and interacts positively with foreign cultural factors to enhance high-quality auditor selection. When firms do not choose Big 10 auditors, firms guided by Confucian ethics strategically prioritize industry specialists to maintain audit quality. Originality/value This study contributes to the literature by applying imprinting theory, agency theory and signaling theory to explain how Confucian culture, as an informal institution, influences corporate governance decisions. This study highlights the multiple channels through which cultural values shape auditor selection. By examining how informal institutions complement formal governance practices, the findings of this study provide practical insights for corporate leaders, auditors and policymakers, emphasizing the significance of cultural values in enhancing audit quality and ethical business standards.

Purpose This paper aims to investigate the influence of the exogenous event of A-share inclusion in the Morgan Stanley Capital International (MSCI) index on auditors’ risk response behavior. Additionally, it explores variations in this impact across different stages of the enterprise life cycle. Design/methodology/approach This study treats the official incorporation of Chinese A-shares into the MSCI as a quasi-natural experiment. Using data from A-share listed companies from 2010 to 2020, it applies a double difference model to rigorously analyze the effect of capital market internationalization on auditor risk response behavior. Findings The results indicate that following capital market internationalization, auditors of listed companies exhibit reduced audit input and lower audit fees. This suppressive effect is primarily observed in the mature phase of the enterprise life cycle. Further analysis reveals that the influence of capital market internationalization is achieved mainly by easing financing constraints for listed companies and enhancing the optimism conveyed through management’s language. This effect is more pronounced among enterprises characterized by higher levels of management myopia and superior internal control quality. Economic consequence tests demonstrate that reducing auditors’ audit input and fees after A-share inclusion in the MSCI index contributes to decreasing enterprise risk-taking and the likelihood of senior management changes. Originality/value This study advances our understanding of the factors influencing auditor risk-taking behavior and clarifies the role and significance of capital market internationalization in corporate governance.

Emerald Publishing is committed to the realization of a research and publishing environment built upon transparency, accessibility, and integrity.Accordingly, we have signed the Declaration to #DefendResearch, which aligns with our core values and long-standing mission to contribute to positive change in research and society more broadly. Support for academic freedomDuring this time of geopolitical instability, research and higher education face unprecedented challenges.In the United States, recent executive orders are disrupting research, education, and library programs, removing federally funded initiatives that support diversity, equity, and inclusion as well as green energy, climate, health, and other research domains.These measures have led to the termination of critical research grants and created uncertainty for researchers, faculty, librarians, and others who carry out and rely upon the benefits of research itself.#DefendResearch takes a stand against the defunding and censorship of academic research, advocating for the free exchange of ideas and the safeguarding of scholarly work from undue restrictions.This resonates deeply with our commitments to support authors in disseminating their work without fear of suppression.

Purpose The purpose of this study is to examine the relationship between Silent critical audit matters (CAMs) and corporate financial misconduct. Auditing Standard 3101 (AS 3101) mandates US auditors to disclose CAMs in audit reports, thereby enhancing transparency regarding material and high-risk accounts. However, in accordance with AS 3101, auditors have the discretion to declare the absence of identified CAMs, termed “Silent CAMs” herein. These reports are labeled as such because they essentially remain “silent” on CAMs, offering no additional information. We direct our focus toward Silent CAMs due to the limited research available on them, and their implications remain uncertain. Design/methodology/approach Utilizing data from US public companies spanning 2019–2021, we assess corporate financial misconduct with Benford Score (Amiram et al., 2015) and address endogeneity concerns through robustness tests employing entropy balancing, extended postpandemic sample period and propensity score matching. Findings The analyses reveal a significant positive association between Silent CAMs and a client firm’s likelihood of engaging in corporate financial misconduct, particularly evident in cases of prolonged audit firm tenure. Although a large portion of Silent CAMs were issued by non-Big 4 auditors, the relationship between Silent CAMs and corporate financial misconduct is consistent across all firms. Originality/value This research sheds light on the inherent risks associated with an auditor’s assertion of no CAMs and answers the call for further research on CAMs (Klevak et al., 2023). It provides financial statement users with valuable insights into risks potentially overlooked by auditors. Furthermore, it draws regulators’ attention to the issuance of Silent CAMs in their reviews of audits, providing an additional investigation criterion. Moreover, this study contributes to the literature by underscoring a potential drawback of extended auditor tenure.

Purpose This study aims to investigate the effects of International Financial Reporting Standards (IFRS) convergence on forward-looking disclosures in a developing market setting. In addition, the research explores the moderating role of external auditor quality in shaping the association between IFRS convergence and forward-looking disclosures. The research aims to offer insights into audit behaviour corresponding to disclosure of prospective information. Design/methodology/approach This study uses a textual analysis approach to estimate the quantity of forward-looking information in the annual report. The empirical analysis uses firm-fixed effect regression models based on a comprehensive dataset consisting of 143 firms and 1,253 firm-year observations spanning the period 2012–2021. Findings The empirical analysis reveals that the firms reporting under IFRS exhibit a substantial increase in the quantity of forward-looking information reported in the annual report. Specifically, firms audited by low-quality auditors appear to have experienced a greater increase in quantity of forward disclosures relative to firms with high-quality auditors. This study argues that these results are due to the accounting uncertainty associated with reporting forward-looking information, which particularly affects the behaviour of highly qualified auditors. In addition, the results show that increase in forward-looking disclosure has led to higher audit fees in the post-IFRS period. Originality/value To the best of the authors’ knowledge, this study is the first to empirically demonstrate the effects of IFRS convergence on forward-looking disclosures and the evidence of the moderating role of audit quality. This study provides evidence of the discouragement effect, suggesting that Big 4 auditors could either discourage extensive forward-looking reporting or that auditors in general could charge higher fees to reflect the increased risk and complexity associated with these disclosures. Accordingly, this study gauges the audit behaviour with respect to mandatory forward looking information disclosure.

Purpose The purpose of this study is to investigate how communication mode and message reprocessibility influence managers’ intentions to share knowledge with an internal auditor. The authors investigate three modes (e-mail, videoconference and face-to-face) and two levels of message reprocessibility (recorded and not recorded). Design/methodology/approach The study uses an experiment with a 2 × 2 + 1 design with communication mode and message reprocessibility variables randomly assigned to 243 participants. The study also includes an open-ended question on how communication mode and message reprocessibility affect knowledge sharing with an internal auditor. Findings Results from the experiment identify that managers are more likely to share knowledge with internal auditors when the communication mode is high in media richness (face-to-face or videoconference) than low in media richness (e-mail). Message reprocessibility does not significantly influence managers’ intentions to share knowledge. Additionally, responses to an open-ended question identify that managers have differing views on how message reprocessibility and communication mode influence knowledge sharing, which provides an avenue for future research. Originality/value This study examines the communication mode of the manager (not the auditor) on knowledge sharing. In addition, the investigation of message reprocessibility within an audit setting is unique to this study. Our results inform internal auditors’ selection of communication mode and decision to record communications.

Purpose This study aims to examine year-to-year changes in the number of audit committee (AC) directors’ multiple AC directorships to understand what factors determine the number of their AC directorships each year and their gain and loss of AC appointments from one year to the next. Moreover, this study investigates whether AC directors with these factors are demanded more by firms with high monitoring demands. Design/methodology/approach Using a longitudinal dataset of AC director-year observations in the USA from 2004 to 2017, this study uses Poisson and ordinary least squares (OLS) regression to examine whether the “governance expertise” of an AC director is associated with the number of AC directorships. Also, logistic and conditional logistic regressions are estimated to examine whether the governance expertise of an AC director is associated with a net increase or net decrease in the number of AC directorships. In an additional analysis using firm-year observations for the same period, OLS regression is estimated to examine whether firms with a high monitoring demand are positively associated with the percentage of AC directors with multiple AC directorships, as well as those who further possess strong governance expertise. Findings Directors’ governance expertise is positively associated with the total number and a net increase in the number of AC directorships, and negatively associated with a net decrease in the number of AC directorships. Additional analysis reveals that firms with high monitoring demands are positively associated with a greater percentage of AC directors with multiple AC directorships, and those who further possess strong governance expertise. Originality/value This study contributes to the literature by utilizing director-year level data rather than firm-year level data typically used in prior studies, providing a more granular understanding of the dynamics influencing AC directorships. The findings provide policy-relevant insights, highlighting the importance of evaluating AC directors’ governance expertise. These results could guide the refinement of existing disclosure requirements regarding multiple AC directorships, encouraging a nuanced approach to ensure effective oversight.

Purpose The criteria related to the usage of Generalized Audit Software (GAS) are not well covered in the context of emerging economies; thus, this paper aims to examine the factors that influence GAS usage by external auditors in Ghana. Design/methodology/approach It uses a cross-sectional survey, descriptive statistics and SEM factor analysis with the modified IT Audit Quality model to analyze data from 156 auditors. Findings It finds that GAS is used by the majority of non-Big 4 auditors in Ghana. Top management support and adequate staff training on the wheels of anticipated advantages of using GAS and the present digitalization of the Ghanaian economy are important factors driving GAS adoption, while lack of audit methodology, inability of GAS to influence professional audit judgment, costs and difficulty in GAS operationalization are notable factors hindering the usage of GAS among auditors in Ghana. Research limitations/implications Although the authors’ focus on non-Big 4 audit firms is unique, the technological gap between the Big 4 and non-Big 4 audit firms presents a limitation. Practical implications The successful deployment of GAS requires policies that highlight positive benefits and economic backing for Ghana’s digitalization agenda. The ICAG, as a regulatory body, needs to install financial and technical supports that facilitate GAS implementation among small auditing firms. Non-Big 4 auditors need proper IT training to achieve system mastery for GAS to work effectively. Originality/value The study provides insights on how auditors, especially small and medium practice firms, respond to the massive development of businesses in the application of ICT to their accounting systems.