Auditor Characteristics Research Articles

Association between executives’ foreign background and audit fees

PurposeThis study aims to investigate the association between executives with foreign backgrounds and the audit fees paid by the Chinese-listed firms over the period from 2010 to 2020.Design/methodology/approachTo examine the association between executives’ foreign experience and audit fees, this study constructs the following empirical model: Lnfeei,t = β0 + β1Foreign backgroundi,t + ∑βj Controli,t + YearFE + IndFE + εi,t (1).FindingsThis study finds that auditors charge higher fees for firms hiring more executives with foreign backgrounds. The results are robust to a battery of robustness checks, including fixed effects, alternative measures of independent variable, controlling for other characteristics of executives and auditors and entropy balancing method.Originality/valueThis study sheds light on how executives’ foreign backgrounds affect audit fees, enriching the literature on executive heterogeneity and audit fees and providing important implications for audit practitioners.

How do board features and auditor characteristics shape key audit matters disclosures? Evidence from emerging economies

This study examines how corporate board features and auditor characteristics in Bangladesh influence the disclosure of key audit matters (KAM) in annual reports from 2018 to 2021. Using ordinary least squares (OLS) regressions, the study finds that factors such as chair gender, the presence of women on the board, audit committee (AC) size, auditor tenure, and client-auditor relationship significantly affect KAM disclosure. However, AC expertise, family CEO succession, and board political connections do not have significant effects. Notably, having a family member CEO with a long-tenured auditor has a negative association with KAM disclosure, while a politically connected family CEO has a positive association with such disclosures. Additionally, Big-4 auditors of important clients are negatively associated with KAM disclosure.

Does The Characteristics Of The Auditor Effect Audit Quality?

The purpose of this study is to determine the effect of the auditor's characteristics such as spiritual intelligence, competence, experience, independence, and professional skepticism on audit quality. The sample in this study is 108 respondents which come from all auditors in accounting firms in Bali. The analysis technique used in this study is multiple linear regression. The results showed that spiritual intelligence has a positive effect on audit quality. On the other hand, competence, experience, independence, and professional skepticism does not effect audit quality. This study implies that an auditor who has high spiritual intelligence will be able to act and behave ethically in his profession and organization. Spiritual intelligence makes individuals able to distinguish between good and bad actions. In conducting audit examinations, spiritual intelligence will influence the auditor to act following the code of ethics and the accounting profession. Spiritual intelligence is able to avoid actions that can reduce audit quality.

THE EFFECT OF AUDITOR CHARACTERISTICS AND GENDER DIVERSITY ON FRAUD DETECTION

Accounting fraud can occur in any company and must be detected to reduce it. This research aims at empirically investigating the effects of auditor characteristics and gender diversity on fraud detection. The population used mining companies listed on the Indonesia Stock Exchange for 2016-2020 with 205 observation data. The data analysis technique used was the Panel Data Regression Model. The results showed that auditor independence and audit report lag had a positive effect, and audit tenure and gender diversity harmed fraud detection. Additionally, auditor rotation, auditor industry specialization, and audit firm size also had not. The auditor’s independence and adequate audit period would allow the auditor to be more effective in fraud detection.

감사인 특성과 계속감사기간의 감사보수

[Purpose]This paper examines the change of audit fee after the introduction of ‘International Financial Reporting Standards’. Specifically, this paper examines wheter the audit fee after initial audit changes according to the characteristics of auditors.
 [Methodology]Using listed firms in KOSPI market from 2011 to 2018 to examine the relationship between auditor characteristics and audit fee after initial audit engagement. The information of auditors are collected manually from the Financial Supervisory Service’s accounting portal and KIND system.
 [Findings]This paper shows that the audit fee increased even in the case of initial audit engagements since the introduction of the ｢International Financial Reporting Standards｣. Meanwhile, the audit fee in the second and third year after initial audit engagements showed that the audit fee of large audit firms increased, but the higher the average audit experience of their certified public accountants, the lower the audit fee was.
 [Implications]This paper provides the policy implication to the supervisory authorities by presenting the changed audit fee behavior.

Does CSR reduce financial distress? Moderating effect of firm characteristics, auditor characteristics, and covid-19

Purpose This study aims to investigate the relationship between corporate social responsibility (CSR) and financial distress and the moderating effect of firm characteristics, auditor characteristics and the Coronavirus disease 2019 (Covid-19) in China. Design/methodology/approach The research question is empirically examined on the basis of a data set of 1,257 Chinese-listed firms from 2011 to 2021. The dependent variable is financial distress risk, which is measured mainly by Z-score. CSR score is used as a proxy for CSR. Propensity score matching, two-stage least square and generalized method of moments are adopted to mitigate the potential endogeneity issue. Findings This study reveals that CSR can reduce financial distress. Specifically, results show an inverse relationship between CSR and financial distress, more significantly in non-state-owned enterprises, firms with non-BigN auditor and during Covid-19. The results are consistent and robust to endogeneity tests and sensitivity analyses. Originality/value This study enriches the literature on CSR and financial distress, resulting in a more attractive corporate environment, improved financial stability and more crisis-resistant economies in China.

Financial distress, auditors’ going concern modification (GCM) and investors’ reaction in a concentrated ownership environment: new evidence from the Italian stock market

This paper feeds the literature about investors’ reaction to the release of going concern modified audit reports, which is abundant and controversial among scholars. Moving a step beyond the solely detection of abnormal stock returns at and around the event date, as done in the only two previous studies on the Italian setting, we perform an OLS multiple regression to test the informativeness of CARs and the influence of variables as selected firms’ accounts, auditor characteristics, the market capitalization and specific measures of financial distress to gather evidence whether investors react adversely to elements different from going concern modifications (GCMs). Based on our findings, investors react negatively to GCMs attached to qualified opinions and, surprisingly, positively to GCMs attached to clean opinions, reversing the prevailing evidence found out in the literature, especially in the USA. We attribute these results to the rough knowledge of Italian naïve investors of the going concern (GC) issue. The study detects how disclosure features conceived for large equity markets can lead to different investors’ behaviours in small ones on the one hand; on the other hand, it cannot lead to unequivocable generalization, even within similar countries, in light of sub-specific country features. The piece of evidence achieved suggests, for further research, to make an investors categorization to analyse market reactions, which takes more into account three main features stressed by the prevailing literature of small equity markets: high ownership concentration, the higher presence of institutional investors and the poorer reputation of BIG4 auditors.

How do auditor attributes affect bank earnings management? Evidence from Africa

PurposeThis paper aims to examine the impact of the auditor's characteristics on bank's earnings management (EM) through loan loss provisions (LLP) for African banks.Design/methodology/approachThis study is based on 360 bank-year observations from 14 African countries for the period 2011–2016, discretionary LLP is used as proxy for EM. Panel regressions have been conducted.FindingsThe authors' findings reveal that auditor's industry specialization and tenure exert a negative and significant influence on the extent of LLP-based EM. The results also show that total fees paid to the banks' auditors are positively related to the extent of EM. In a further analysis, the authors find that industry specialist auditors are more effective in reducing the incoming-increasing. Similarly, the positive relationship previously found between EM and total fees still holds only for income-increasing. Moreover, auditor tenure negatively impacts both income-increasing and income-decreasing EM. As for auditor change, results reveal differential effect on EM.Originality/valueThe current research extends prior literature and provides an understanding of an important external monitoring mechanism, the external audit, within African banks. To the best of the authors' knowledge, there is a paucity of cross-country studies that has addressed the influence of auditors' attributes on banks' EM in Africa.

The Impact of Client Response Time and Message Processing Fluency on Staff Auditor Judgment

SUMMARY Staff auditors frequently email clients to conduct evidence inquiry. However, little research has examined how characteristics of email communication impact auditors’ assessments of evidence. We experimentally investigate whether two characteristics of email communication, client response time and message processing fluency, influence auditors’ judgments. We find that auditor skepticism is reduced when the client provides a more fluent email response compared with a less fluent response in a moderate response time. In addition, auditor skepticism is reduced when the client provides a more fluent email response in a moderate response time versus in an immediate response time. Our results suggest that if client management takes their time to respond to an auditor’s email, then this may reduce auditor skepticism, especially if the client composes a fluent response. These findings have audit quality implications because the same client information provided via email can be perceived differently depending on other client communication characteristics.

CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE AND VALUE OF LISTED OIL AND GAS COMPANIES IN NIGERIA: THE MODERATING EFFECT OF FOREIGN OWNERSHIP

This study examines the moderating effect of foreign ownership on the relationship between corporate social responsibility disclosure and the value of listed oil and gas companies in Nigeria. This study adopted an explanatory research design to achieve this objective using secondary data collected from annual reports and accounts of the sampled companies for four years (2018-2021). The study employs multiple regression using panel-corrected standard error (PCSE) to analyze data for the study. Findings indicate that corporate social responsibility disclosure has a positive significant impact on firm value. Results also revealed that foreign ownership has a positive but insignificant impact on firm value. Furthermore, on the interaction effect of foreign ownership on the relationship between corporate social responsibility disclosure and firm value, the result indicates that foreign ownership has moderated the relationship between corporate social responsibility disclosure and the value of listed oil and gas companies in Nigeria by strengthening the existing relationship. The findings of this study encourage more investment from foreign investors to increase the disclosure of CSR to enhance the value of listed oil and gas companies in Nigeria. Finally, the study recommends that the management of listed oil and gas companies should diversify to attract more foreign investors to improve the value of their companies.

Does auditor ethnicity matter in determining audit fees? Some empirical evidence from Indonesia

PurposeThis study aims to investigate the presence of the audit partner ethnicity on audit fees within the Indonesian context.Design/methodology/approachThe sample consists of 803 firm-year observations from the Indonesia Stock Exchange during the period of 2014–2018. The study uses fixed-effect regression analysis to examine the relationship between audit partner ethnicity and audit fees.FindingsThis study reveals that firms audited by audit partners from the main ethnic group demonstrate lower audit fees, indicating a more extensive audit business network for this particular group of auditors compared to those from minority ethnic groups. Particularly, the study finds that firms audited by audit partners from the three largest ethnicities, namely, Balinese, Javanese and West Sumatranese, are associated with lower audit fees compared to others. These findings further contribute to the existing narrative and literature that highlight the ethnic background of audit partners as a form of social capital that influences lower audit fees.Research limitations/implicationsThis study provides valuable practical and academic implications regarding the impact of audit partner ethnicity on audit fees. The findings highlight the importance for audit firms to strive for a balanced representation of ethnic diversity in their auditor characteristics, as it can positively influence both governance and marketing strategies. By recognizing and addressing the significance of ethnic diversity among audit partners, firms can enhance their overall effectiveness and success in the auditing profession.Originality/valueThis study makes a unique contribution by providing empirical data on audit pricing theory in Indonesia, specifically focusing on the role of ethnic diversity as a determinant of audit pricing. Previous research has not extensively explored the connection between auditor ethnicity and audit fees, particularly in relation to the business network as a channel mechanism. The theoretical explanations for the fee differentials have also been limited in prior studies. The current study addresses this gap by offering a theoretical basis that highlights the advantage of the dominant ethnic group in establishing an efficient audit market system. Consequently, these auditors are able to charge lower fees to clients without compromising on the quality of their services. This finding aligns with the existing literature on audit fees and underscores the importance of the main ethnic group in fostering an effective audit market, resulting in lower audit fees compared to mixed audit markets.

Readability of auditor reports: does audit market competition matter? Empirical evidence from Iran

PurposeWhile existing research explores the impact of audit market competition on audit fees and audit quality, there is limited investigation into how competition in the audit market influences auditors' writing style. This study examines the relationship between audit market competition and the readability of audit reports in Iran, where competition is particularly intense, especially among private audit firms.Design/methodology/approachThe sample comprises 1,050 firm-year observations in Iran from 2012 to 2018. Readability measures, including the Fog index, Flesch-Reading-Ease (FRE) and Simple Measure of Gobbledygook (SMOG), are employed to assess the readability of auditors' reports. The Herfindahl–Hirschman Index (HHI) is utilized to measure audit market competition, with lower index values indicating higher auditor competition. The concentration measure is multiplied by −1 to obtain the competition measure (AudComp). Alternative readability measures, such as the Flesch–Kincaid (FK) and Automated Readability Index (ARI) are used in additional robustness tests. Data on textual features of audit reports, auditor characteristics and other control variables are manually collected from annual reports of firms listed on the Tehran Stock Exchange (TSE).FindingsThe regression analysis results indicate a significant and positive association between audit market competition and audit report readability. Furthermore, a stronger positive and significant association is observed among private audit firms, where competition is more intense compared to state audit firms. These findings remain robust when using alternative readability measures and other sensitivity checks. Additional analysis reveals that the positive effect of competition on audit report readability is more pronounced in situations where the auditor remains unchanged and the audit market size is small.Originality/valueThis paper expands the existing literature by examining the impact of audit market competition on audit report readability. It focuses on a unique audit market (Iran), where competition among audit firms is more intense than in developed countries due to the liberalization of the Iranian audit market in 2001 and the establishment of numerous private audit firms.

Tax Avoidance: Peran Karakter Auditor Menekan Munculnya Tax Avoidance (Kasus Pada Perusahaan yang Tergabung dalam JII70 Tahun 2021)

<p class="bdabstract"><em><span>The research is intended to test the effect of auditor characteristics (audit specialization, audit tenure, audit opinion and audit fees) on tax avoidance empirically. Testing this research has a fundamental essence, namely testing agency theory in the form of economic rational content in taxation so that it creates motivation to carry out tax avoidance. This research was conducted at companies that are members of the Jakarta Islamic Index (JII70) in 2021. The data is in the form of secondary data collected by documentation procedures. The total population of the study was 81 companies, the number of samples was 44 companies, and the sampling technique used was purposive sampling. To analyze the data using ordinary least squares. The results showed that two of the four hypotheses were accepted: audit specialization and audit fees significantly affected tax avoidance. However, audit tenure and audit opinion have no significant effect on tax avoidance. Observing the results of this hypothesis implies that in accordance with the rules of agency theory, economic rational strength creates tax avoidance motivation to defend the company's interests.</span></em></p>

Auditor characteristics on tax avoidance by non-financial companies: Evidence from the Indonesia Stock Exchange

Tax revenue realization in Indonesia is not inseparable from tax avoidance by business entities. The research was conducted to examine the effect of auditor characteristics as proxied by auditor industry specialization, audit tenure, and audit opinion on tax avoidance by non-financial companies listed on the IDX. This study used a set of panel data that consisted of non-financial companies listed on the IDX operating in the 2017-2020 period. The data were obtained from the companies’ annual report. The result of this study demonstrated that auditor industry specialization had a significant positive effect on tax avoidance, while audit tenure did not affect tax avoidance. There was a positive relationship between audit opinion and tax avoidance. This research has limitations as it was only conducted for a short period. Further research can develop this model by including variables which were excluded from this study and involving more samples and sectors of the research objects.

Intellectual capital and firm performance: the moderating effect of auditor characteristics

PurposeThis study aims to examine the impact of intellectual capital (IC) and its three components (human, structural and relational capital) on corporation performance in the Chinese transportation industry. In addition, this study also investigates auditor characteristics (both Big-N and non-Big-N auditors) as a moderating role to examine the relationship between IC and corporate performance.Design/methodology/approachThe data include 398 firm-year observations of transportation companies listed on the Shanghai and Shenzhen Stock Exchange from 2011 to 2020. Value-added intellectual coefficient (VAIC) model and its modified version (MVAIC) are applied to measure IC efficiency. Finally, the fixed effects regression analysis is used to mitigate the endogeneity issue. To investigate the moderating effect of auditor characteristics, the authors divide the samples based on the clients audited by Big-4 and non-Big-4 firms.FindingsThis study reveals that IC can enhance firm performance in China’s transportation sector. Overall, findings indicate that on the whole, IC has a positive and significant impact on corporation profitability and productivity. Human capital and physical and financial assets (capital employed) play highly important roles, but structural capital has no significant impact. The authors also found that auditor characteristics play an important moderating role in the connection between IC and corporate performance. For example, the positive association between IC and corporate performance is more pronounced when Big-4 auditors audit client firms. At the same time, the authors found a negative relationship between IC and firm performance when non-Big-4 auditors audit client firms.Practical implicationsManagers must understand that several components of IC have a total effect on corporate financial performance. Therefore, managers can dedicate more resources to such components based on the performance outcomes to emphasize their business strategies.Originality/valueThis study is the first empirical analysis of the impact of IC and its components on corporation performance in the transportation sector in China, an emerging market. Previous studies mainly focus on developed countries’ high technology and financial industries sectors but the impact of IC in transportation industry largely remains unknown. Thus, the present findings contribute to IC literature by revealing several underlying mechanisms by which the components of IC help achieve good firm performance.

Are abnormal audit fees informative about audit quality? The moderating role of office resource availability

We contribute to the literature on the relation between client‐level abnormal (excess) audit fees and audit quality by offering a novel perspective. We posit that audit office‐level resource availability moderates the relation between client‐level audit fees and audit quality. This is because office‐level resources (audit partners, staff, technology and administrative support) are generally shared across engagements and can augment those engagements that are resource constrained. We first provide evidence that office‐level resource availability is informative about audit quality incremental to client‐level abnormal fees and several other client and auditor characteristics, including office size. More importantly, we find that client‐level abnormal fees are informative about audit quality only for audit offices that are resource‐constrained but not for offices that are not resource‐constrained.

Effect of Auditor Specialization, Auditor Characteristics, Board Independence on Audit Quality through intellectual capital : Study on service companies

This study aims to examine the effect of auditor specialization, auditor characteristics, and board independence on audit quality through intellectual capital in service companies in West Java. The research was conducted using a quantitative approach with a sample of 384 service companies in West Java. Data were analyzed using Partial Least Square-Structural Equation Modeling (PLS-SEM) with SmartPLS 4.0 software. The results of this study showed that auditor specialization, auditor experience, and board independence had a positive and significant effect on audit quality. Meanwhile, intellectual capital has a significant mediating effect on the relationship between auditor specialization, auditor experience, and board independence on audit quality. The findings of this study provide important insights into the factors that contribute to the enhancement of audit quality in service companies. This study suggests that service companies in West Java should consider hiring specialized auditors, experienced auditors, and independent boards to improve audit quality. Additionally, companies should also focus on the development of intellectual capital, which plays an important role in enhancing audit quality.

The Effect of Red Flags and Internal Bank Auditor Professional Skepticism on Fraud Detection in Denpasar

Aims: This study was conducted to examine the effect of red flags and auditor's professional skepticism on the ability of internal auditors to detect fraud.
 Study Design: Quantitative method with survey method.
 Place and Duration of Study: Internal Auditors who work at Rural Credit Banks throughout the City of Denpasar, between October 2022 to December 2022.
 Methodology: This study uses a survey method by adopting the previous research variable measurement scale, namely red flags, professional skepticism and fraud detection. The red flags construct is measured by 4 items, professional skepticism is measured by 3 items and the fraud detection construct is measured by 3 items. A five-point Likert scale was used to measure all study constructs, where "5=strongly agree" and "1=strongly disagree". Data collection was carried out through a questionnaire survey using the saturated sampling method, with 42 respondents to the BPR Bank internal auditor research throughout Denpasar City where all respondents were able to participate well. 65% of respondents are male, and 35% are female. More than 55% of respondents have an undergraduate degree or more.
 Results: The ability of internal auditors in BPR offices throughout Denpasar City can be improved by optimizing the detection signal (red flag) and expecting the auditor to always be critical through professional skepticism towards the audit evidence presented.
 Conclusion: This study has limitations that the sample in this study is still relatively small and only limited to internal auditors who work at Rural Banks throughout the city of Denpasar, so this research suggests for further research by adding and expanding the area, number of samples and using the variable characteristics of internal auditors. Others such as personality, work experience, motivation and knowledge of the auditor as any factors that can influence fraud detection.

Wave after wave: unboxing 40 years of auditing ethics research

Purpose To the best of the authors' knowledge, this is the first study that aims to present a comprehensive view of the auditing ethics literature by unboxing 40 years of efforts in the field. Design/methodology/approach This study combined bibliometric, social network and content analysis by analyzing 114 articles published in accounting and top business ethics journals on the Web of Science database from 1980 to 2021. Findings The results show a rising interest in this topic and reveal auditors’ ethical decision-making and moral reasoning as the most discussed topics in the literature. The work also clusters the literature according to keywords and scopes, identifying literature gaps and suggesting new avenues for future research. Practical implications The research results assist provide an overarching image of the auditing ethics field. In addition, these results draw possible future avenues to bridge the void in the current auditing ethics literature by presenting indispensable directions for potential research. For example, future research could pay more attention to whistleblowing, fraud, personal auditor characteristics, auditor ethical sensitivity, auditor ethical conflict, ethical climate and underreporting of time. Moreover, the rapidly changing business environment necessitates the auditing ethics research to move to more practical implications to mitigate previous mistakes and avoid any future risks. Originality/value All crises are an ideal breeding ground to motivate fraud and audit failures. In fact, auditing ethics research has been subordinated to the different economic crises. However, despite increasing awareness of the topic’s relevance, no comprehensive study focuses on auditing ethics literature. Now, the devastating effects of the COVID-19 crisis are producing a new wave of financial distresses and avoiding former mistakes is timelier than ever. With this novel and integrated approach, this work goes one step forward, developing a comprehensive picture of the auditing ethics literature.

적자회피 기업에서 감사노력과 회계투명성의 관련성

This study confirms whether the effect of lowering accounting transparency was mitigated when the audit effort of the avoid losses firms was high. Firms in the avoid losses section may have lower accounting transparency, but the purpose is to confirm that the moderating effect on the auditor's characteristics(audit time, audit fee) can alleviate the effect of lowering accounting transparency. As a result of the analysis, we confirm that accounting transparency was alleviated as the audit effort (audit fee, audit time) of the avoid losses firms increased. This can be interpreted as an increase in audit efforts of the avoid losses firms alleviated the decrease in accounting transparency by complying with accounting and audit standards by fully exercising their monitoring and supervisory functions. In addition, it can be seen that the same result was found when the deficit avoidance section was analyzed as a company from a narrow section to a wide section as part of robustness. This results imply that accounting transparency varies depending on the audit efforts of the avoid losses firms. Through this, it is contributing to the verification that the impact of the avoid losses firms on accounting transparency acts differently depending on audit time and audit fees. These results suggest changes in the audit environment in Korea to improve the accounting transparency of firms in the crisis of deficit.