Specialist Auditors Research Articles

Processo de auditoria e faturamento de contas em hospital geral privado: um estudo de caso

Mapear, descrever e validar o processo de auditoria e faturamento de contas e recursos de glosas em um hospital geral, de grande porte, privado, foi o objetivo deste estudo. Pesquisa exploratória, descritiva, do tipo estudo de caso. Foram realizados momentos de observação não participante nos Setores de Auditoria Interna e de Recurso de Glosas do hospital visando o mapeamento dos processos objeto de estudo. Os dados obtidos foram validados por especialistas da área de auditoria de contas hospitalares, internos e externos ao hospital. Os processos, descritos e ilustrados na forma de três Fluxogramas, favorecem aos profissionais racionalizar as atividades e o tempo despendido no faturamento hospitalar evitando/minimizando a ocorrência de falhas e gerando resultados financeiros mais eficazes. O mapeamento, a descrição e a validação dos processos de auditoria e faturamento e recurso de glosas propiciaram maior visibilidade e legitimidade às ações desenvolvidas pelos enfermeiros auditores.

Pengaruh Rotasi, Reputasi dan Spesialisasi Auditor terhadap Kualitas Audit (Studi Empiris pada Perusahaan Manufaktur yang Listed di BEI)

The study aimed to empirically examine the effect of auditor rotation, audit reputation, and audit specialization on audit quality. The population of data is the entire manufacturing companies listed on the Indonesia stock Exchange in the period 2012 to 2015. Based on this method, sample of 104 manufacturing firms were obtained from the period 2012-2015. Proxy measurements for audit quality are using earning benchmark. The logistics regression was used to analyse data. The results showed that auditor rotation affecting on audit quality, auditor reputation affecting on audit quality, and auditor specialization affecting on audit quality.Keyword: auditor rotation, auditor reputation, auditor specialization, audit quality.

Fair Value Exposure, Auditor Specialization, and Banks’ Discretionary Use of the Loan Loss Provision

In this study, we examine whether banks’ use of the loan loss provision (LLP) to manage earnings is associated with (a) the extent to which banks hold assets subject to fair value reporting and (b) the use of an industry specialist auditor. We find that banks with a greater proportion of assets subject to fair value reporting (i.e., higher fair value exposure) use less LLP-based earnings management but more transaction-based earnings management (i.e., earnings management achieved by timing the realization of gains/losses). We also find that banks engaging industry specialist auditors use less LLP-based earnings management. Our findings suggest that banks’ use of the LLP to manage earnings is more limited when they have access to alternative earnings management tools and when they engage an auditor with more industry knowledge. Our results should be informative to regulators, members of the banking industry, and academics interested in the earnings management behavior of banks.

Why Do Clients Choose Nonlocal Auditors?

We examine the client’s decision to engage a nonlocal auditor when close quality options are available. Clients seek nonlocal specialist auditors more often, but nonlocal engagements do not appear motivated by better pricing in distant markets. We show that, controlling for client-auditor distance, choosing a nonlocal auditor is associated with more restatements and litigation, suggesting that clients engage nonlocal auditors to avoid oversight. The effect of this choice on audit quality and client litigation hold in the context of a natural experiment where the cost of monitoring the client is decreased exogenously. Nonlocal engagements are ultimately detrimental to shareholder wealth.

감사위원회 재무전문성의 세부구성이 산업전문가 감사인 선임 및 감사보수에 미치는 영향

감사위원회 재무전문성의 세부구성이 산업전문가 감사인 선임 및 감사보수에 미치는 영향

Engagement Auditor Industry Specialization and Stock Price Crash Risk: Evidence from China

We investigate the effects of engagement auditor industry specialization on stock price crash risk. Although research on audit partners has been growing, we are not aware of any prior studies that investigate partner-level specialization and crash risk. Using a large sample of Chinese stocks spanning the period 2003-2015, we find a statistically significant and negative association between auditor industry specialization and stock price crash risk. Our mediation tests suggest that audit partner industry specialization decreases the risk of price crash by mitigating earnings manipulation. We further document that the negative association is more pronounced for firms that switch from non-specialist audit partners to specialist audit partners. We also find some evidence that audit partners’ personal characteristics moderate the association between partner specialization and crash risk. Our results remain robust to alternative measures of partner specialization.

Auditor Selection and Investment Risk

Purpose: This paper investigates the relation between the riskiness of a firm’s investment policies and the firm’s appointment of an external auditor. Design/Methodology/Approach: Using a sample of U.S. publicly listed companies from 2004- 2014, we hypothesize that firms with riskier investment policies are more likely to choose a higher quality auditor to reduce information asymmetry and increase the credibility of financial reports. We use logit regression analysis, applying two measures of auditor quality (Big 4 and industry specialist auditors) and four measures of investment policy risk (research and development expenditure, diversification, capital expenditures, and acquisitions). Findings: We generally find that firms with riskier investment policies choose higher quality auditors. Specifically, firms with higher R&D expenditures and acquisitions are more likely to hire a Big 4 and/or industry specialist auditor, while firms with lower capital expenditures are more likely to select a Big 4 auditor. Practical Implications: Our findings support the notion that management characteristics and policies still may have influence over external auditor selection. This may be of interest to regulators and policymakers. Originality/Value: There is only limited research examining the effect of a firm’s investment policies on that firm’s decision

Austerity, Audit, and Accountability : New Public Management and the Privatisation of Local Audit in England

This paper examines the experience of the local audit reforms in England against the doctrines and principles of New Public Management (NPM). NPM is a term applied to public sector reforms which aim to enhance both performance and accountability by adopting governance and accountability mechanisms from the private sector. The local public audit reforms, which were initiated in England in 2010, abolished the independent specialist Audit Commission, effectively privatising the financial audit function and severely curtailing the extent to which local public bodies are subject to performance audit. As with other state audit bodies, the Audit Commission had acted as both regulator and provider of audit services to local bodies, such as local authorities and local health service organisations. A review of evidence to date shows that short term efficiency gains were made in financial audit and that there is prima facie evidence of greater accountability to local people. However these gains have been made at the cost of : first, a severe reduction in performance audit, a key function of public audit in delivering both democratic and managerial accountability, and second, a longer-term risk to audit quality and thus to the risk of financial mis-statements. In summary, the evidence suggests that the principles of NPM were appropriated to legitimise the reforms, after the decision to abolish the Audit Commission was taken. In contrast, the rhetoric prior to abolition suggests that the reforms were, instead, inspired more by a personal and political agenda than one of rational economic decision making.

고품질 감사인과 이익 지속성 : Big 감사인과 산업전문감사인의 효과를 중심으로

본 연구는 Big 감사인이나 산업전문감사인과 같은 고품질 감사인의 선임이 피감사기업의 이익 지속성에 미치는 영향을 조사한다. 2002년부터 2014년까지의 상장기업-연도 표본을 이용하여 조사한 결과, Big 감사인과 산업전문감사인으로 대용되는 고품질 감사인과 이익 지속성 간에는 유의한 음의 관계가 있었다. 즉, 고품질 감사인의 피감사기업은 낮은 이익 지속성을 보이고 있다. 이러한 결과는 선행연구에서 제시한 것과 같이 고품질 감사인이 재량적발생액을 줄이는 기능이 있다면 이익 유연화 정도가 감소하여 이익의 지속성 역시 감소한 것으로 해석된다. 추가분석 결과, 고품질 감사인과 피감사기업 이익 지속성의 음의 관계는 재량적발생액이 낮은 기업보다는 높은 기업에서 주로 나타났다. 이는 재량적발생액으로 유연화된 이익에 대해 고품질 감사인의 영향이 보다 더 강화되는 것으로 해석할 수 있다. 또한 본 연구의 결과는 유가증권 시장보다 코스닥 시장에 소속된 기업 표본에서 주로 나타났으며, 서로 다른 산업전문감사인 및 이익의 대용치에도 강건하게 나타났다. 해외 선행연구들이 대체로 고품질 감사인과 회계이익의 품질간 양의 관련성을 발견한 것에 비해 국내 연구들은 혼재된 결과를 보이고 있다. 이러한 점에서 본 연구가 고품질 감사인과 이익 지속성의 음의 관계를 보인 것은 의의가 있다. 다른 한편으로는, 이익 지속성의 회계품질로서의 의미에 대한 고찰이 필요함을 제시한다.

Board Gender Diversity, Auditor Fees, and Auditor Choice

AbstractWe examine whether the presence of female directors and female audit committee members affect audit quality in terms of audit effort and auditor choice by using observations from a sample of U.S. firms, spanning the years 2001–2011. We find, after controlling for endogeneity and other board, firm, and industry characteristics, that firms with gender‐diverse boards (audit committees) pay 6 percent (8 percent) higher audit fees and are 6 percent (7 percent) more likely to choose specialist auditors compared to all‐male boards (audit committees). Our findings suggest that boards (audit committees) with female directors (members) are likely to demand higher audit quality, ceteris paribus.

Impact of audit quality on the components of executive cash compensation

PurposeThis paper aims to study the impact of audit quality on the components of executive cash compensation. It is predicted that as audit quality improves, greater emphasis will be placed on the incentive components of cash compensation, and lower emphasis on the salary (fixed) component. Specifically, it is predicted that as audit quality enhances, greater emphasis will be placed on earnings and sales revenues in determining executive cash compensation. Using auditor specialization as a proxy for audit quality, empirical support is provided for all of our predictions.Design/methodology/approachThis paper provides empirical support with agency theoretic predictions.FindingsThis paper developed the following hypotheses:H1– in executive cash compensation, more weight is being placed on earnings-based measures as auditor specialization improves;H2– in executive cash compensation, more weight is also being placed on sales revenues as auditor specialization improves;H3– in executive cash compensation, salary levels decrease as auditor specialization improves; andH4– the impact of auditor specialization on the weight on earnings, sales and the salary levels is lower in the post-Sarbanes–Oxley Act (SOX) period compared to pre-SOX period.Research limitations/implicationsFirst, the article limits itself to cash compensation, while current executive compensation is largely made of equity. Second, the measure of audit quality used, ‘national level auditor specialization’, may not be as effective in the post-SOX era.Practical implicationsCompensation committees should pay attention to audit quality (in whatever way it may be proxied by) in determining executive compensation.Originality/valueThis is the first paper to show that audit quality not only improves the earnings response coefficient in firm valuation but also enhances the weight placed on earnings (and sales revenues) in executive compensation.

Economic Determinants and Consequences of the Proactive Disclosure of Internal Control Weaknesses and Remediation Progress in IPOs

SUMMARYThis study investigates (1) why some IPO firms proactively disclose internal control weaknesses (ICWs) and remediation progress in their prospectuses before going public, despite being exempt from the requirements of Sections 302 and 404 of the Sarbanes-Oxley Act at the time of IPO, and (2) the association of such disclosures with IPO underpricing (i.e., the first-day return). We find that IPO firms that proactively disclose ICWs and remediation progress have higher litigation risk, are audited by industry specialist auditors, and are more likely to have audit committees prior to the IPO, compared with firms that do not disclose such information, after controlling for the ex ante probability of having ICWs. IPO underpricing is lower for firms that disclose ICWs and remediation progress, consistent with the conjecture that the disclosure of ICWs and remediation progress signals extensive premarket due diligence, thus reducing the information asymmetry between informed and uninformed investors.JEL Classifications: G24; K22; M13; M41; M42; M49.

Are Audit-Related Factors Associated with Financial Reporting Quality in Nonprofit Organizations?

SUMMARY We examine the effects of several audit-related factors on nonprofit financial reporting quality (FRQ). Using four different measures of FRQ, we demonstrate that the findings of nonprofit accounting research might be sensitive to the choice of FRQ proxy. Nonetheless, we consistently find that specialist auditors and unexplained audit fees have a significant positive effect on FRQ in nonprofit organizations. Interestingly, we observe changes to FRQ in the period after the Sarbanes-Oxley Act of 2002, despite the fact that the legislation does not apply to nonprofit audits. In fact, the results suggest nonprofits selected less-obvious methods of ratio management post-SOX, compared to pre-SOX. Finally, we do not find that Big N auditors consistently provide the highest quality, a result very different from for-profit studies.

Regulatory Quality and Global Specialist Auditor Fee Premiums

SUMMARYWe first confirm the findings of Carson (2009) that global industry-specialist auditors earn a fee premium using a larger sample and a more extended time period. We then examine the effect of regulatory quality on the association between auditor industry specialization and audit fee premiums. We find that there are larger fee premiums for global specialist auditors in countries with stricter regulatory quality, indicating greater support for the argument that high-quality auditors can act as a complement to higher regulatory quality. We compare and reconcile our findings to prior studies, and show that inferences based on national-level auditor industry specialization differ from those based on examining global-level industry specialization.

The Effect of Auditor Characteristics on the Value of Diversification

SUMMARY This paper examines how auditor characteristics (size, tenure, and industry specialization) affect the valuation of diversification. As expected, we find that diversified firms have lower market value than single-segment firms, and the diversification discount is smaller when firms employ Big N auditors and auditors with longer tenure. We also find that the diversification discount is larger when companies hire auditors with industry specialization and speculate that an industry focus may limit auditors' ability to detect misreporting in diversified firms. Also, diversified firms have higher financial reporting and disclosure quality when they employ Big N auditors and auditors with longer tenure, but lower financial reporting and disclosure quality when they employ industry specialist auditors. Overall, our findings suggest that auditor characteristics matter to investors in diversified firms because they contribute to the quality of financial reporting and disclosure, which can mitigate agency problems and the information asymmetry associated with diversification.

The Auditor's Responsibility for Finding Errors and Fraud from Financial Situations: Case Study

The purpose of this article is to highlight the auditor's responsibility for detecting errors and fraud in the financial statements of an economic entity. The approaches to the concepts of error and fraud are presented through the interpretations of the audit specialists, as well as other considerations regarding the auditor's responsibility in their discovery in the financial statements. The article is accompanied by a detailed case study in which the procedure for auditing the financial situation of an economic entity is performed by going through all stages specific to the auditing process. The article ends with the author's conclusions regarding the findings made and the auditor's responsibility for detecting errors and fraud in the financial statements.

Economic Determinants and Consequences of the Proactive Disclosure of Internal Control Weaknesses and Remediation Progress in IPO

This study investigates (a) why some IPO firms proactively disclose internal control weaknesses (ICWs) and remediation progress in their prospectuses before going public, despite being exempt from the requirements of Sections 302 and 404 of the Sarbanes-Oxley Act at the time of IPO, and (b) the association of such disclosures with IPO underpricing (i.e., the first-day return). We find that IPO firms that proactively disclose ICWs and remediation progress have higher litigation risk, are audited by industry specialist auditors, and are more likely to have audit committees prior to the IPO, compared with firms that do not disclose such information, after controlling for the ex-ante probability of having ICWs. IPO underpricing is lower for firms that disclose ICWs and remediation progress, consistent with the conjecture that the disclosure of ICWs and remediation progress signals extensive premarket due diligence, thus reducing the information asymmetry between informed and uninformed investors.

Are Audit-Related Factors Associated with Financial Reporting Quality in Nonprofit Organizations?

We examine the effects of several audit-related factors on nonprofit financial reporting quality (FRQ). Using four different measures of FRQ, we demonstrate that the findings of nonprofit accounting research might be sensitive to the choice of FRQ proxy. Nonetheless, we consistently find that specialist auditors and unexplained audit fees have a significant positive effect on FRQ in nonprofit organizations. Interestingly, we observe changes to FRQ in the period after the Sarbanes-Oxley Act of 2002, despite the fact the legislation does not apply to nonprofit audits. In fact, the results suggest nonprofits selected less obvious methods of ratio management post-SOX, compared to pre-SOX. Finally, we do not find that Big N auditors consistently provide the highest quality, a result very different from for-profit studies.

Industry Specialist Auditors, SEO Underpricing, and the Global Financial Crisis

This study examines whether auditors’ industry expertise is negatively associated with underpricing of seasoned equity offerings (SEO) and whether the association between auditors’ industry expertise and SEO underpricing changes around the global financial crisis (GFC). Using a sample of 2,028 SEO observations from 2001 to 2013, we document that in the pre-GFC period, auditors’ industry expertise is negatively associated with SEO underpricing, but not during the post-GFC period. Industry specialist auditors are also associated with higher earnings response coefficients in the pre-GFC period, but not in the post-GFC period. These results suggest that the GFC reduced investor confidence in industry specialist auditors in the capital markets.

The impact of labour unions on external auditor selection and audit scope: evidence from the Korean market

ABSTRACTWe examine whether labour unions influence external auditor selection and audit scope. As a major user group of financial information, labour unions likely demand financial information of high quality and thus high-quality audits. As a union’s request for wage increases is likely strong when a firm is performing well, management facing wage negotiations with the labour union has incentives to manipulate earnings downward and may therefore prefer auditors who allow more discretion. Using union data unique to Korea during 2005–2008, we find that firms with a stronger labour union tend to choose higher-quality auditors (i.e. Big N or industry specialist auditors). We also find that unionization is negatively (positively) associated with positive (negative) abnormal audit fees and audit hours, and the effects are more pronounced when the union is stronger and more active. Given that departures from normal audit fees and audit hours in either direction arguably impair audit quality, this finding is consistent with our prediction of unions’ demand for high-quality audits. Overall, our findings suggest that labour unions play an important role in determining audit quality.