Audit Market Research Articles

The Impact of Emotional Intelligence on Audit Quality through Job Stress: Evidence from Vietnamese Independent Auditors

Introduction: This study was conducted to examine how emotional intelligence can affect audit quality through its impact on job stress. Objectives: The aim of the study is to determine whether higher levels of emotional intelligence can reduce job stress and improve audit quality, taking into account the pressures that auditors face in Vietnam, such as tight deadlines and complex regulatory requirements. Methods: Using quantitative research methods, using a structured survey to collect data from 327 auditors, audit team leaders, audit department heads and directors of 125 independent auditing companies in Vietnam and using the SEM structure model on SPSS and AMOS 20 software to test hypotheses. Results: The results show that all dimensions of emotional intelligence (Assessing one's own emotions, Assessing others' emotions, Using Emotions, and Regulating Emotions) significantly reduce work stress and work stress, which in turn negatively affect audit quality. Conclusions: These findings are significant because they highlight the importance of emotional intelligence training and stress management interventions in improving auditor health and improving audit quality. By addressing work stress, audit firms can ensure better performance and higher audit standards in a fiercely competitive market like Vietnam, where Big4 audit firms account for 70% of the audit market share

The Effect of Pricing Strategies on Client Retention Rates for Small to Medium-Sized Auditing Firms

The study aims to identify which pricing strategies are most effective in retaining clients, with the purpose of providing practical guidance for audit firms in Vietnam to enhance their competitiveness and sustainability. The study used quantitative methods, using survey data collected from 257 experts in 132 small and medium-sized auditing companies (with an annual revenue of less than VND 300 billion) in the Vietnamese auditing industry. Hypotheses were tested using structural equation modeling to analyze the relationships between pricing strategies and client retention rates. The results reveal that Value-based pricing (VBP) and Dynamic pricing (DYP) strategies have a positive and statistically significant impact on client retention, while Cost-plus pricing (CPP) and Competition-based pricing (CBP) do not show significant effects. These findings are significant as they highlight the evolving nature of the Vietnamese audit market, emphasizing the growing importance of value communication and pricing flexibility. The implications suggest that small and medium-sized audit firms in Vietnam should focus on developing more sophisticated, value-oriented pricing strategies to improve client retention and strengthen their market position. This research contributes to both theoretical understanding and practical application in the field of audit pricing in emerging markets.

Pricing Efficiency of Audit Fees Given Audit Risk: Comparison between Pre- and Post-New ISA Periods in the Korean Audit Market*

Pricing Efficiency of Audit Fees Given Audit Risk: Comparison between Pre- and Post-New ISA Periods in the Korean Audit Market*

Competition and Certification: Theory and Evidence from the Audit Market

Abstract We study how financial certifier competition influences loan contracting in the context of financial auditing. Exploiting the unexpected demise of Arthur Andersen that exogenously decreased auditor competition, we find a greater decrease in loan spread for borrowers in markets in which certifier competition declined more. Additional analyses suggest the result stems from enhanced audit quality and reduced credit risk. The effect of certifier competition is stronger for borrowers with weaker external monitoring and those generating significant revenue for their auditors. Our evidence highlights negative consequences of financial certifier competition. (JEL D43, G21, M42, M49)

Switching Costs and Market Power in Auditing: Evidence from a Structural Approach

ABSTRACT This study provides novel evidence on the magnitude of switching costs in auditing. Using a discrete choice approach, we infer switching costs from clients’ audit firm choices. The demand estimation reveals that switching costs are significant and vary by direction, with the highest costs associated with switching from non-Big 4 to Big 4 audit firms. Counterfactual analyses of forced switches suggest that switching costs are substantial, ranging from 0.7 billion U.S. dollars (14.2 percent of audit fees) to 1.2 billion U.S. dollars (24.0 percent of audit fees) when aggregated across all clients. Counterfactual analyses of voluntary switching show that the audit market would become highly dynamic and more concentrated if switching costs were removed. Additionally, clients would gain consumer surplus of up to 306 million U.S. dollars (5.4 percent of audit fees) in such a scenario. Overall, our study documents the importance of switching costs for understanding audit market dynamics. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M42; M48; L11; L84.

Are Client Importance and Auditor Expertise Associated with How Material Misstatement Corrections Are Disclosed?

SUMMARY Management is often motivated to correct misstatements discreetly. Using misstatement corrections disclosed in annual reports from 2007 through 2020, I find that important clients are less likely to disclose material misstatements correctly and that auditor specialization does not seem to impact whether material misstatements are disclosed correctly. Additionally, I find that important clients disclose material misstatement corrections more discreetly when misstatements are negative, when the audit office recently lost clients, when audit market competition is high, and when the restatement auditor is the same as the misstatement period auditor. For immaterial misstatements, client importance is not associated with disclosure accuracy, but specialist auditors increase accuracy. These findings suggest that auditors may allow more discreet misstatement corrections when pressured by important clients. Moreover, specialist auditors exhibit higher quality only when correcting immaterial misstatements. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M41; M42; M48.

Legal infrastructure construction and audit opinion: Evidence from the implementation of China's new securities law

Based on the background of the implementation of China's New Securities Law (NSL) and the data of Chinese listed enterprises from 2016 to 2023, this paper investigates the influence of the new-updated legal infrastructure construction on auditors’ behavior of issuing audit opinion. The findings depict that the implementation of NSL can significantly improve the possibility of issuing non-standard audit opinion by auditors. Mechanism tests confirm that reducing audit market concentration and increasing disciplinary risks are core mechanism approaches. Further discussion reveals that the incentive effect of NSL implementation on the possibility of issuing non-standard audit opinion is more prominent under the synergy of both the stock exchange inquiry and the scrutiny action of the CICPA interview. This paper makes practical implications for standardizing auditors’ behavior, improving the quality of audit verification responsibility, and consequently protecting the legitimate rights of investors.

Leader versus lagger: How the timing of financial reports affects audit quality and investment efficiency

AbstractThis paper examines how relative timing affects the quality of financial reports in a staggered reporting system in which some firms report earlier than others. We show that the audit quality of the leading firm exceeds that of the lagger. Investment efficiency also differs systematically across firms, depending on the relative reporting timing as well as the audit market structure. Audit regulations mitigate the misalignment of interests between auditors and investors but limit the effect of information spillovers. We characterize the socially optimal auditing standards and show how and why imposing minimum audit quality requirements complements and/or substitutes for adjusting auditors' legal liability. Overall, we show that a staggered reporting system dominates a simultaneous reporting system in enhancing audit quality and investment efficiency through regulation.

Why do female lead auditors charge a fee premium? evidence from the UK audit market

Existing research documents a fee premium for audits led by female partners (Ittonen & Peni, 2012; Hardies et al., 2015; Burke et al., 2019; Lee et al., 2019; Hardies et al., 2021). We take this work forward by investigating a possible justification for the observed premium by examining how auditor gender is related to audit report lag and whether the female partner audit fee premium is driven by audit report lag. We find that United Kingdom companies audited by a female lead auditor have a significantly shorter audit report lag but pay a significantly higher audit fee. In further analysis, we find that the fee premium for female partner–led audits is higher for clients receiving a more timely audit opinion. Our findings are consistent with female lead auditors delivering more timely audits and with audit clients being prepared to pay a premium for such timeliness. Our study extends our understanding of the importance of gender in the auditing process and the value clients see in audits led by female auditors. Given the relatively low proportion of female lead auditors, our findings should also encourage audit firms to appreciate the economic value of female lead auditors and to actively facilitate their progression to senior roles.

Do Audit Efforts Reduce Stock Price Crash Risk? The Role of Corporate Governance

AbstractThis study investigates the Korean audit market, revealing that increased audit efforts correlate with reduced stock price crash risk, suggesting audits bridge the information gap between managers and investors, deterring negative news hoarding. The study also finds that this relationship is stronger in firms with more external directors, institutional investor presence, and financial analyst oversight, highlighting the importance of robust corporate governance. The research implies that in emerging markets, comprehensive audits and strong governance are crucial to protect investors from the adverse effects of stock price crashes.

Can a Viral Blunder Damage Auditor Brand Name Reputation? Evidence From Envelopegate

“Envelopegate” is a term used to describe PricewaterhouseCoopers’ (PwC)’s service failure that occurred during the 2017 Academy Awards ceremony (“the Oscars”). For PwC, the error resulted in immediate and unprecedented negative publicity, which was driven by a viral response on social media and other online media platforms. Thus, Envelopegate offers a unique opportunity to observe the potential spillover effects of negative viral events on the brand name reputation of an audit firm. Using intraday and daily client stock returns, we find a significant negative market response for PwC audit clients within the first minute of trading on the day following Envelopegate. The negative market effect is driven by clients with higher demand for auditor reputation, but we find no evidence that results are driven by any specific audit market region. Thus, our research underscores the susceptibility of an audit firm’s brand value to negative viral events, even when the event is unrelated to audit services. The findings of this study should be of interest to scholars exploring how audit firms form and maintain reputations as well as to professional service firms that engage in highly visible client services as part of their strategic efforts to enhance brand value.

Characteristics of the Market for Audit and Consulting Services

Characteristics of the Market for Audit and Consulting Services

Auditor-Firm Conflict: Theoretical Concepts Application and Analysis of the Power Dynamics Involved

This study undertakes a theoretical analysis of the auditor-firm conflict. It relied on the review of literature methodology contextualized on auditor’s appointment , firm economic pressure , management bargaining power, auditor’s fear of losing a firm, firm’s management economic power over the auditor, auditor’s personal attributes and moral reasoning, auditor’s tenure, audit fees, audit market competitiveness, non-audit services, audit firm size and the firm’s financial condition. The study relied on Goldman and Barlev model, exchange and dependency theories to explain the likely power positions in the auditor-firm relationship. Deductively the study based on the contexts indicated the presence of an asymmetry power structure where the auditor and firm have low and high power positions. The study however, proffered resolution measures such as reputational and litigation costs; strengthening of audit committees; control over auditor’s appointment and remuneration; effective discipline of firms and auditors and strong enforcement of standards. The measures can curtail the auditor’s and firm actions in reducing violation of auditing standards; improving auditor’s independence, reduce the firm’s pressure on the auditor and bring about balance of power positions. The paper has implications for understanding the auditor-firm conflict situation and provides opportunities for strengthening audit policy and audit standards development.

Competitive Strategies for Small Audit Firms

Synopsis The research problem We examine whether small audit firms adopt niche strategies to compete in the public company audit market. To that end, we focus on auditors servicing clients from one industry only (which we label as a nationwide single-industry focus) and test its association with audit quality and pricing. Motivation Prior research on auditor competition has mainly focused on the large (mainly Big Four) audit firms. While large and small audit firm markets are two distinct markets, little is known about competitive strategies of small audit firms in the public company audit market. The test hypotheses Our first hypothesis is that small audit firms adopting a single-industry focused strategy supply higher audit quality compared with audit firms that do not adopt a single-industry focused strategy or a simple industry specialization strategy, ceteris paribus. Our second hypothesis is that small audit firms adopting a single-industry focused strategy engage in discount pricing compared with audit firms that do not adopt a single-industry focused strategy or a simple industry specialization strategy, ceteris paribus. Target population The U.S. commercial banking sector covering the period 2004–2020. Adopted methodology Multivariate analyses adopting linear and probit models. Analyses To test our first hypothesis, we run a bank audit quality model using loan loss provisions as the dependent variable for our main analyses. Subsequent analyses adopt restatement, going concern, and internal control weaknesses models. To test our second hypothesis, we rely on a bank audit fee model. All models include relevant controls established in previous research and those for self-selection. Findings The evidence suggests that small audit firms adopting a nationwide single-industry focus are able to provide higher audit quality (compared with other rivals, even industry specialists) while at the same time charging lower audit fees implying cost efficiencies that are passed on to the client due to their focused expertise.

Effects of the 2014 European reform on audit activity, the audit outcome and the audit market: the auditors’ view

PurposeThis paper aims to examine the effects of the 2014 European regulatory reform on auditors’ activity, the audit outcome and the audit market, with a focus on the Spanish market.Design/methodology/approachThe research is based on in-depth, semistructured interviews with partners of the main audit firms operating in the Spanish market. This qualitative approach provides a precise identification of the cause-effect relationships of the new measures introduced by the European audit regulation.FindingsThe findings indicate that, based on auditors’ opinions, the costs of the main regulatory changes outweigh the benefits. The European Union (EU) Audit Regulation imposes more demanding provisions, such as an extended auditor’s report, mandatory audit firm rotation, more banned nonaudit services and stricter quality controls, resulting in substantial side effects on audit activity and the audit market. This could undermine the objective of enhancing the quality of audit services.Originality/valueTo the best of the authors’ knowledge, this is the first study to analyze the effect of the 2014 EU regulatory reform on audit activity, audit market and audit outcome based on auditors’ perceptions. The findings may be of interest to academics, professionals and regulators alike, as they offer valuable insights for assessing the effectiveness of the new audit provisions. Additionally, the qualitative methodology used facilitates a causal analysis of the key elements introduced by the regulations, potentially paving the way for future research avenues.

Audit Market Concentration for Listed Entities in Romania and the Impact Following the Latest EU Audit Reform

Abstract The concentration of the audit market has been of interest for several years as the dominance of a few companies has always been an issue of debate. The need or not to address this situation, the reasons that cause it, any possible risks assessed and solutions to reduce them have been addressed by a wide range of studies. Our research seeks to examine the structure of the Romanian Audit Market for listed entities, both before and following the recently adopted European Union Audit Reform. The main purpose is to understand the market structure, identify some of the main factors that influence auditor choice and if there was any impact following the new directive. The analyses focused on 74 listed companies, for the period from 2013 to 2022, for which we collected the relevant data in order to analyze the audit market structure, its evolution following the new audit directive and, using linear regressions models, test the influence that size, share class category, existence of long-term debt, shareholder type, evidence of shareholder direct involvement and auditor office location has on choosing one of the Big 4 auditors or not. Our analysis showed that Big4 auditors ecreased in market share especially after 2016, the date the new audit reform came into effect, from 49% to 41% and that the number of auditor changes increased significantly after this date. We also found that the number of cases where another Big4 auditor was selected decreased from 64%, in the period from 2013-2016, to only 28%, in the period from 2017-2022. These findings support therefore the assumed existence of an impact in the market following the latest European Union audit directive. The linear regression analysis performed showed no significant influence for the variables analyzed, when it comes to choosing a Big4 Auditor, the highest coming from the share class variable (26%) and size (12%). Even though our paper offers some light regarding the audit market for listed companies in Romania and the evolution following the new directive further research is needed to better understand client behavior and what influences auditor choice.

SUPERVISION OF FINANCIAL AUDIT ACTIVITY IN THE REPUBLIC OF MOLDOVA - REFORMS AND OPPORTUNITIES FOR MODERNIZATION

At present, financial auditing in the Republic of Moldova is supported by a legislative framework in line with international best practices and the EU acquis. However, the changing nature of services in the domestic audit market and the current challenges of meeting new quality management requirements are of interest for scientific research in this field. This paper aims to investigate the opportunities for modernization of the profession in the context of the attested reforms regarding the supervision of audit activity in the Republic of Moldova. The aim of the investigation is to highlight the importance of legislative reforms in order to increase the prestige and recognition of the professionalism of financial audit activities in the Republic of Moldova. In addition, this paper includes a study of professional qualifications in auditing and an analysis of the activities carried out by audit entities in recent years of monitoring the audit market by the supervisory authority. The issue of reforming the regulatory framework for the audit of financial statements in line with international good professional practice is considered. The investigation used the qualitative research method and the observation technique based on the analysis of national and international normative acts. The results indicate a good harmonization of the regulatory framework of the financial audit activity in the Republic of Moldova with the international practices in this field, which will contribute to the development of the domestic process of regulating the profession and at the same time will provide opportunities for modernization of the system of supervision of the quality of audit activity in the country.

Effect of Audit Market Concentration on Pricing and Audit Quality. Evidence from an Emerging Economy

Effect of Audit Market Concentration on Pricing and Audit Quality. Evidence from an Emerging Economy

A structured literature review of empirical research on mandatory auditor rotation

This study reviews 128 empirical studies on mandatory auditor rotation (MAR) in light of the long-standing debate on the effectiveness of MAR and the different regulatory choices made worldwide over time. A structured literature review was conducted to address three research questions. How has empirical research on MAR developed from 2000 to 2022? What is the focus and critique of the empirical research on MAR? What is the future of MAR empirical research? The findings reveal growing empirical evidence on MAR. However, this evidence is fragmented and country-based. Scholars have primarily focused on audit firm rotation rather than audit partner rotation. While quantitative research based on archival data predominates, survey questionnaires prevail in a few regions. Evidence on how MAR impacts auditor independence, the auditor–client relationship, and audit market concentration is scant, whereas audit quality is the most investigated research question. Nonetheless, assessing whether MAR benefits audit quality remains challenging because the research outcomes depend on the research question, rotation type, research method, and regulations enforced in the empirical setting. Based on this comprehensive and rigorous overview of worldwide MAR empirical research, knowledge gaps are underlined, avenues for future research are suggested, and warnings are issued to shareholders and policymakers.

Audit market concentration in an emerging economy

The aimed of this study is to ascertain the relationship between audit attributes and audit quality in an emerging economy. The study deliberately cover the post-Enron era and postaudit reforms era decipher the activities of audit after the demise of Enron. This study used selected quoted firms in Nigeria for a period of sixteen (16) years, 2006 – 2021. The models were built based on a study of extant literature, GOA and audit reforms. Ordinary least square econometric technique was employed to analyze data extracted from a secondary source. The outcomes of this study revealed that Audit client size has positive relationship with audit quality. The result further revealed that audit client complexity has negative relationship with audit quality. Finally, the result revealed that audit client business risk has no significant relationship with taudit quality. This study recommended that Alternative appointment processes for auditors, e.g. involving shareholder panels, or appointment by regulator.