Specialist Auditors Research Articles

Audit Quality, Auditor Specialization, and Sustainability Reporting: Their Impact on Cost of Capital Moderated by Company Size of the Kompas 100 Index in the Indonesia Stock Exchange Market

The capital market has become an attractive instrument for both local and foreign investors. This study aims to analyze and provide empirical evidence regarding the influence of audit quality, auditor specialization, and sustainability reporting on the cost of capital. Additionally, it investigates how company size moderates the relationship between these variables and the cost of capital. The study focuses on companies listed in the Kompas 100 Index on the Indonesia Stock Exchange (IDX) from 2018 to 2022. A quantitative approach is employed, utilizing secondary data available from the IDX (www.idx.go.id), specifically from company annual reports. Data collection involved recording relevant information from the annual reports of each company. The population of the study comprises companies included in the Kompas 100 Index, with a sample selected through non-probability sampling (purposive) with the criteria of being listed in the Kompas 100 Index for the consecutive periods of 2018 to 2022, sample resulted 54 companies. The data analysis method applied is Moderated Regression Analysis (MRA). The results reveal that audit quality has a negative effect on the cost of capital, while auditor specialization shows no significant effect. Furthermore, sustainability reporting also has a negative effect on the cost of capital. As for the moderating variable, company size successfully moderates the relationship between audit quality and the cost of capital, but it does not moderate the effect of auditor specialization or sustainability reporting on the cost of capital.

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.

The Influence Of Audit Fee, Audit Rotation, Audit Tenure, Company Size, Auditor Specialization And Auditor Reputation On Audit Quality In Manufacturing Companies Listed On The Indonesian Stock Exchange In 2020-2022

The aim of this research is to determine the influence of Audit Fees, Audit Rotation, Audit Tenure, Company Size, Auditor Specialization and Auditor Reputation on Audit Quality in manufacturing companies listed on the Indonesia Stock Exchange in 2020-2022. The method used in this research is quantitative associative method, using secondary data. Based on the research results, it shows that Audit Fees, Audit Tenure and Auditor Specialization partially have no effect on Audit Quality. This shows that audit fees are low and competitive for auditors without reducing auditor quality standards. Audit quality is maintained even though there are changes in the Audit Tenure period. Auditor specialization is reduced, but there is increased training, application of audit standards and use of technology in maintaining effective Audit Quality. Company size partially has a positive and significant effect on Audit Quality. This shows that the auditor has sufficient expertise to handle the high complexity of a large company size, thus providing support for increasing audit quality. Audit Rotation and Auditor Reputation partially have a negative and significant effect on Audit Quality. This shows that a decrease in the frequency of Auditor Rotation can result in a decrease in their objectivity and independence, but auditors have a high perspective and long-term relationship to improve Audit Quality. A decline in auditor reputation can reduce public trust and auditor credibility, but implementing audit standards, strengthening policies and procedures and effective supervision can play a transparent role in maintaining integrity and professionalism by assessing and improving high audit quality standards. Audit Fees, Audit Rotation, Audit Tenure, Company Size, Auditor Specialization and Auditor Reputation simultaneously have a positive and significant effect on Audit Quality. This shows that Audit Fees can ensure auditors work well, Audit Rotation can reduce the risk of fraud, Optimal Audit Tenure does not lose objectivity, Company Size provides resources for comprehensive audits, Auditor Specialization adds value with special skills, Auditor Reputation adds trust and contribute to improving Audit Quality in Manufacturing Companies listed on the Indonesia Stock Exchange in 2020–2022.

CEO inside debt and industry specialist auditor

PurposeThis paper aims to examine the effect of executive compensation incentives, specifically CEO inside debt holdings, on the choice of industry specialist auditor.Design/methodology/approachHigh inside debt holdings are expected to constrain excessive managerial risk-taking and align the interests of managers and outside debtholders. The authors hypothesize that reduced debtholders’ expropriation concerns will decrease the demand for high audit quality, measured by industry specialization. The authors investigate a sample of US firms from 2006 to 2018 using OLS regression and use CEO relative leverage to proxy for CEO inside debt holdings. The authors conduct an additional two-stage least squares regression analysis to address potential endogeneity issues.FindingsThe paper finds that firms with higher levels of CEO inside debt tend not to appoint an auditor with industry specialization. This result is consistent with the notion that inside debt mitigates agency conflicts between managers and debtholders, reducing the demand for high-quality audits as a monitoring mechanism. The paper also finds that among firms which are excessively leveraged, those with higher levels of CEO inside debt tend to appoint an industry specialist auditor.Originality/valueThe findings contribute to the literature on agency cost and auditor choice by demonstrating that CEO inside debt has both substitutive and complementary effects on demand for industry specialist auditors.

Modelling the impact of turbulent economic conditions on non-audit services provision and audit quality during the global financial crisis

PurposeMotivated by concerns and the ongoing debate regarding auditors’ independence and impartiality, this paper aims to examine the impact of the financial crisis on non-audit services (NAS) provision and audit quality (main and robust variables) in the four largest Eurozone countries together during the global financial crisis (GFC).Design/methodology/approachThe authors used a time trend OLS model with a dummy variable as well as a baseline model with a dummy and control variables accounting for multicollinearity, considering the characteristics of the GFC.FindingsIt documented a positive (negative) relationship between NAS provision (audit quality) and crisis in four Eurozone countries, Germany, France, Italy and Spain, in the context of a baseline approach, supporting the hypotheses that there are higher non-audit fees and a lower audit quality. Moreover, it is revealed that NAS provision and audit quality behave similarly, using a time trend approach, during the GFC. Considering the role of the auditor specialization or not (Big4 vs non-Big4) in companies, a significant effect from crisis on non-audit fees and audit quality for the four countries under the baseline approach is found. In general, the findings persist for NAS provision and audit quality using the robust methods of the time trend and panel OLS approaches. Multicollinearity was not found to affect the findings of the regressions.Practical implicationsThe study provides important implications for firm managers, auditors and regulatory authorities.Originality/valueTo the best of the author’s knowledge, it is the first time that the impact of the crisis on non-audit fees and audit quality is investigated during the GFC with two sets of OLS models (a time trend OLS with a dummy and a panel OLS with a dummy and control variables) in four largest Eurozone countries together.

The governance role of R&D specialist auditors: Evidence from discretionary R&D expenditure

PurposeThis study aims to examine whether auditors who specialize in research and development (R&D) activities help reduce managers’ opportunistic adjustment of R&D expenditure for real earnings management (REM).Design/methodology/approachUsing a sample of US firms during the 2001–2017 period, the authors identify auditors’ R&D specialization as their prior experience of auditing R&D expenses spent by each client’s peers. The authors measure R&D-based REM as the negative deviation from the predicted level of R&D expenditure.FindingsThe authors find that clients of R&D specialist auditors are less likely to engage in REM through a discretionary reduction of R&D expenditure. This effect is more pronounced when clients face higher competition, have larger investment opportunities and entail higher audit risks.Practical implicationsThis study shows that auditors’ specialized knowledge can facilitate stronger monitoring of clients’ real decisions, providing implications for auditors’ knowledge acquisition and transfer in specific types of transactions.Originality/valueThis study contributes to the literature by documenting the governance role played by R&D specialist auditors in clients’ real economic decisions. Moreover, the study identifies R&D as a distinct area of auditor specialization.

Investigating Factors Affecting the Investors� Intention to Accept Cryptocurrency Investment in Malaysia

Incidents where external auditors do not issue a going concern audit opinion (GC opinion) to companies having severe financial problems have been reported globally. This issue motivated this study – (i) to investigate the effect of selected auditor characteristics in terms of specialization, tenure, and fee on GC opinion issuance and (ii) to examine the moderating effect of management’s, family’s, and institution’s influence on the relationship between auditor characteristics and GC opinion issuance. The study involves 644 Malaysian financially distressed listed companies in the period 2006 to 2012. The results of a panel logistic regression analysis show that auditor characteristics have no relationship with GC opinion issuance. Influential management - measured as the level of their ownership - can dampen the positive relationship between auditor specialization and auditor tenure with GC opinion issuance. The presence of an influential family, on the other hand, can strengthen the positive relationship between auditor tenure and GC opinion. No evidence about an influential institution’s impact on the GC opinion process could be found. In conclusion, while auditor characteristics do not affect the possibility of a GC opinion issuance, pressure imposed by influential management and family on the auditor during the audit opinion decision process does have an impact

경제 불확실성이 감사보고서의 발행을 지연시키는가?

[Purpose]This study examines the relationship between macro－uncertainty and audit report lag. Also, it analyzes whether this relationship manifests differentially when considering audit hours by rank and auditor characteristics. [Methodology]For analysis, we use a sample of listed firms for the period from 2014 to 2019. Audit report lag was proxied by the number of days from the fiscal year－end to the audit report date. Macro－uncertainty was measured using the volatility index VKOSPI provided by KRX. [Findings]The analysis yields the following results. Firstly, it confirms an increase in audit report lag under high uncertainty. This could be interpreted as auditors increasing audit efforts in response to a rise in audit workload under uncertainty. Secondly, the relation between uncertainty and audit report lag becomes more pronounced in subsamples where audit hours put into by junior and senior staff are high. Thirdly, the relationship between uncertainty and audit report is stronger for Big4 and industry specialist auditors. This could be interpreted as auditors with higher reputation risk or litigation risk allocating relatively more audit effort in response to increased audit risks under uncertainty. [Implications]Despite previous research indicating that uncertainty reduces audit fees and audit hours, this study’s results suggest that reduced audit fees or audit hours does not necessarily imply a decrease in audit effort. Our results provide insight to investors and auditors in providing evidence that increased audit report lag may be due to external environmental factors rather than an increase in firm－specific risk factors.

전문성이 필요한 산업에 속한 피감사기업을 감사하는 산업전문감사인의 감사행태

[Purpose] This study aims to examine the behavior of industry specialist auditors according to industry characteristics. Specifically, this study aims to provide evidence on the audit efficiency of industry specialist auditors by analyzing whether the audit hours and audit fees of industry specialist auditors are differentiated for industries requiring industry specialization designated by the Financial Supervisory Service.
 [Methodology] We used a sample of 19,115 firms and years for Korean listed companies from 2008 to 2020. For the industries requiring specialization, we used the industry groups selected by the Financial Supervisory Service in November 2023 based on the opinions of listed companies and accounting firms.
 [Findings] The results show that, first, industry specialist auditors are associated with higher audit fees and more audit hours on average, but these fees and audit hours are significantly lower for industries designated as requiring industry specialty, which can be interpreted as an audit efficiency. Second, the above association does not appear in the analysis using hourly audit fees, explaining the process by which efficiency gains are passed on to client firms. Third, the relations does not appear in analyses of audit quality measured by the absolute value of performance－matched discretionary accruals, providing further evidence of the efficiency with which audit quality is maintained at lower levels of audit time. These results can be interpreted as indicating that industry specialist auditors perform the audit process efficiently in industries where specialization is essential, and that the benefits of reduced audit efforts are fully passed on to the clients through this efficient audit process.
 [Implications] The contribution of this study is that it provides evidence on the audit efficiency of industry specialist auditors through data that directly manifests the need for specialization while reflecting the perspectives of both audited companies as consumers and accounting firms as suppliers of industry specialization.

Does Internal Competition among Audit Partners Affect Audit Pricing Decisions?

SUMMARY This study examines whether competitive pressure from peers within a local office (i.e., internal competition) affects audit partners’ audit pricing decisions. Using U.S. audit partner data from 2016 to 2022, we find that audit partners respond to internal competition by charging their clients lower audit fees. The effect is more pronounced for initial audit engagements, in more competitive local audit markets, and when peers share similar personal attributes, such as sex and experience. However, the effect is weaker for industry specialist audit partners. We also find evidence that internal competition is negatively associated with audit quality for non-Big 4 clients. Overall, this study provides initial evidence of the effect of internal competition among audit partners on audit outcomes.

Pengaruh Audit Tenure, Ukuran KAP, dan Struktur Kepemilikan Perusahaan terhadap Kualitas Audit dengan Spesialisasi Auditor sebagai Variabel Moderating

The Effect of Audit Tenure, KAP Size, and Company Ownership Structure on Audit Quality with Auditor Specialization as a Moderating Variable. Thesis, Jakarta: Faculty of Economics, State University of Jakarta, 2023. This study aims to This study aims to determine the effect of audit tenure, hood size, and company ownership structure on audit quality with auditor specialization as a moderating variable. In this study, the population used was companies in the transportation & logistics sector listed on the IDX during the 2018-2020 period. The results of this study indicate that the significant value of the audit tenure variable is 0.165 and with these results showing a value greater than the significance value used in this study, namely 0.05, so that based on the results of these findings it can be concluded that audit tenure has no effect on audit quality.

Pengaruh Board Size dan Faktor Lainnya terhadap Audit Quality

The purpose of this research is to get empirical evidence from the seven variables used in the research. This study examines seven independent variables, namely audit fee, audit tenure, auditor’s reputation, audit rotation, auditor specialization, board size and audit committee on the dependent variable, namely audit quality.The population in this study were companies in the consumer cyclicals and consumer non-cyclicals sector that were listed in Indonesia Stock Exchange (IDX) on 2016-2022 with the secondary data collection method using purposive sampling method. The Sample used in this study were 144 samples consists of 48 companies.The research finding can be summarized as follows. One variable has an effect on audit quality, auditor specialization, meanwhile the others such as, audit fee, audit tenure, auditor’s reputation, audit rotation, board size and audit committee do not have any effect on audit quality.

Do alumni relationships between executive directors and auditors matter for financial reporting quality?

ABSTRACT This paper examines the impact of executive director-auditor Guanxi on Chinese listed firms’ financial reporting quality from 2009 to 2019. We identify Guanxi-connected auditors as those who attend the same university as the client firm directors. Using a fixed-effect model, we provide consistent evidence that alumni ties between auditors and executive directors are positively related to corporate earnings management, indicating that auditors are more willing to trust clients and less likely to challenge their financial reporting decisions. Subsequently, client firms have more incentives to manipulate earnings, and financial reporting quality is reduced. Our study also finds that the positive impact of director-auditor ties on earnings management is greater among non-state-owned enterprises, firms that do not recruit big-four auditors, and those with fewer industry specialist auditors. Our study sheds new light on the impact of Guanxi-connected auditors on financial reporting quality, enhancing our understanding on the role of social ties. Highlights Alumni ties between auditors and executive directors are positively related to earnings management. Such a positive relationship is greater among non-state-owned enterprises. Such a positive relationship is more pronounced for firms that do not recruit big-four auditors. Such a positive relationship is more pronounced for firms with fewer industry specialist auditors.

Pengaruh Fee Audit, Audit Tenure, Spesialisasi Auditor, Dan Ukuran Perusahaan Terhadap Kualitas Audit

This study aims to determine the effect of audit fee, audit tenure, auditor specialization, and size firm on audit quality in companies listed the Kompas 100 index on Bursa Efek Indonesia in 2020-2022 either partially or simultaneously. The type of data in this study is quantitative with secondary data. The sample used in this study was 76 companies with 228 financial statements. The sampling technique uses purposive sampling technique. The analysis methods used in this study are logistic linear regression analysis and descriptive analysis. The results showed that audit fee has a positive effect on audit quality, audit tenure has a negative effect on audit quality, while auditor specialization did not has negative effect on audit quality, and size firm did not has negative effect on audit quality.

Audit committee-auditor interlocking and audit fees: evidence from China

ABSTRACT This paper examines the effect of audit committee-auditor interlocking on the audit fees in a sample of listed Chinese companies from 2005 to 2018. It is found that audit committee-auditor interlocking significantly increases the audit fees, and this positive relationship is more significant in better external governance environments, as measured by the marketization level, legal environment, regulatory intensity, and analyst attention. Further analyses show that the interlocking has a greater positive impact on audit fees when it is caused by the audit committee chair, audit partner, and industry specialist auditor, and when the interlocking companies are operating in the same industry. The interlocking relationship also increases audit quality and reduces the stock price crash risk in which the audit fees play the mediating role. The results suggest that it’s the reputation mechanism that motivates audit committee directors and auditors in interlocking relationships to increase audit fees and audit quality. We provide practical implications for auditors, listed companies, investors, and regulators in aspects of increasing audit fees and audit quality, protecting investors’ interests, and improving the external governance environments.

Tempering Financial Reporting Risk through Board Risk Management

Recent corporate governance failures have heightened stakeholder expectations that the board of directors engage in robust oversight of the firm’s risk management processes. This expectation is in line with widely embraced enterprise risk management frameworks, which assert that strong board risk management is a key component of an entity’s risk management process. We use a hand-coded measure of board engagement in risk management from the recent literature to measure the robustness of that oversight for a sample of large, publicly traded U.S. firms and examine the relationship between robust board risk management (board risk management) and firm-wide strategies for mitigating financial reporting risk. While controlling for board composition-related characteristics, we found a positive association between robust board risk management processes and two avenues for mitigating financial reporting risk (i.e., more effective internal control over financial reporting and the selection of industry specialist auditors). Our results indicate that firms with more robust board risk management are associated with fewer actual instances of materially misstated financial statements and less earnings management.

Training of control and audit Specialists in the field of digital Public administration

The article deals with the problems of a multilevel system of training and education in universities and training centers. The purpose of the study is to identify the key skills and competencies necessary for representatives of control and accounting bodies — auditors and audit supervisors to improve the efficiency of their activities in the context of digital transformation. In the course of the work, the following tasks were solved: the need to build a system of training and education of these specialists in the formation of individual trajectories of mastering fundamental digital skills and competencies was identified; the expediency of using modern digital methods to perform an audit is reasoned; the features of the implementation of the control policy are considered on the example of Ogarev Mordovia State University; the importance of professional development programs for supervisors and auditors is assessed. The authors of the work outlined the priorities of the university’s personnel policy in the field of management for the period up to 2030, which determine the key performance indicators of employees of the financial control department; identified the importance of organizing professional development programs for auditors in order to master both digital and skills related to creative, flexible and unbiased thinking. In the course of the research, methods of synthesis, analysis, classification, detailing and comparison were used. The practical experience can be useful for the formation of competent specialists and managers.

The Effects of Industry Specialist Engagement Signing Auditors and Review Signing Auditors on Audit Fees and Audit Quality: Evidence from China

ABSTRACT This study examines whether and how individual-level auditor industry expertise affects audit pricing and audit quality. Using 11,650 firm-year observations from China, where an audit report must be signed by two auditors, we examine the industry expertise of both signing auditors and find that expert signing auditors charge higher audit fees and provide higher quality audits. We also explore the role of fee premiums on the expertise-quality association and find that the positive expertise-quality association is moderated by fee premiums charged by specialist auditors. Finally, we find that engagement auditor expertise, either alone or in conjunction with review auditor expertise, is positively associated with audit fees and audit quality. Data Availability: Data used in this study are publicly available from the sources described herein. JEL Classifications: M4; M42.

Impact of Audit Tenure, Fee and Auditor Specialist on Audit Quality

ABSTRACTProblems related to low audit quality are significant problems and require careful consideration, because they can hinder the preparation of accurate audit reports. This concern is not only limited to Public Accounting Firms but also extends to Public Accounting Firms that have high credibility, such as the Big Four. Several examples of low audit quality within the Big Four were highlighted in recent announcements by the PCAOB (Public Company Accounting Oversight Board) in 2016 and 2017, which resulted in sanctions against several of these companies. This situation requires research to assess the impact of auditor specialization, audit tenure and audit fees on audit quality in manufacturing companies audited by the Big Four Public Accounting Firms. This research used purposive sampling to obtain a total sample of 172 companies. The data analysis technique used in this research is multiple regression analysis using SPSS 23. The research results show that audit tenure, audit fees and auditor specialization influence audit quality.

The Moderating Effect of Institutional Shareholders on the Relationship between Board Attributes and Auditor Selection among Listed Financial Service Firms in Nigeria

The study examines the moderating effect of institutional ownership on the relationship between board attributes and auditor selection among listed financial service firms in Nigeria. It investigated whether institutional shareholding moderate the relationship between board size, board independence, board gender diversity, board meeting attendance and auditor selection among listed financial firms in Nigeria. The study used secondary data extracted from the published financial statements of the sampled firms for the period 2007 to 2020. The population of the study consists of 53 listed financial service firms in Nigeria. The study adopts correlational research design using logistic regression as a tool of analysis. This study presents evidence that higher levels of institutional ownership strengthen the effect of board attributes (gender diversity and board meeting attendance) on auditor selection. Hence, the result implies that managers may face stringent monitoring when institutional investors, board gender diversity and board meeting attendance interacts. Such superior monitoring may compel managers to consider hiring an industry specialist auditor to audit the firm which leads to boosting the firm’ value. The finding of this investigation has an important policy implication on enhancing sound corporate governance practices, particularly for firms operating in developing countries where the market for corporate control is ineffective.