Auditor Industry Research Articles

Intelligent manufacturing, auditor selection and audit quality

PurposeThe purpose of this paper is to examine the influence of intelligent manufacturing on audit quality and its underlying mechanism as well as the variation in this influence across different types of organizations.Design/methodology/approachThis research utilizes a difference-in-differences (DID) method to examine how enterprises that apply intelligent manufacturing choose auditors and impact their audit work. The study is based on 15,228 observations of Chinese-listed A-shares from 2011 to 2020.Findings(1) There is a strong correlation between intelligent manufacturing and audit quality. (2) This positive correlation is statistically significant only in state-owned enterprises (SOEs), those that have steady institutional investors and where the roles of the CEO and chairman are distinct. (3) Enterprises that have implemented intelligent manufacturing are more inclined to employ auditors who possess extensive industry expertise. The auditor's industry expertise plays a crucial role in ensuring audit quality. (4) The adoption of intelligent manufacturing also leads to higher audit fees and longer audit delay periods.Practical implicationsThis paper validates the beneficial impact of intelligent manufacturing on improving corporate governance. In addition, it is recommended that managers prioritize the involvement of skilled auditors with specialized knowledge in the industry to ensure the high audit quality and the transparency of information in intelligent manufacturing enterprises.Originality/valueThis study builds upon previous research that has shown the importance of artificial intelligence in enhancing audit procedures. It contributes to the existing body of knowledge by examining how enterprise intelligent manufacturing systems (IMS) enhance audit quality. Additionally, this study provides valuable information on how to improve audit quality in the field of intelligent manufacturing by strategically selecting auditors based on resource dependency theory.

Public Accounting Firm's Quality Control Standard In Risk-Based Perspective: Is It Important?

Pandemic Covid 19 has impacted every business operation worldwide and increased business risk. Auditors' responsibility to provide audit quality has become more prevalent. This study aims to get empirical evidence of auditor experience, auditor industry specialisation, and audit risk on audit quality during the COVID-19 pandemic. The research methods used quantitative with a survey approach; data gathered by a survey of Auditor. The result finds that during turbulent economic situations, the need for auditor experience and auditor's industry specialists has increased to mitigate the audit risk. Auditor experience and auditor industry specialists were needed to promote audit quality with low audit risk. The study has proved that auditor experience, industry specialisation, and audit risk impact audit quality. Assessing the auditor and public accounting firm using quality control standards from risk-based perspectives is urgently required. Other studies may investigate the issues using qualitative methods to get a deeper understanding.

Research on the Application of AI Technology in Auditing

With the rapid development of AI technology, the application in the field of auditing has become an important means to improve the efficiency and quality of auditing. AI technology has significantly improved the efficiency and quality of audit work by automating data analysis, risk assessment, and audit processes. However, as technology evolves, so do challenges such as data privacy, security, algorithmic transparency, and lack of talent. In order to address these issues, it is recommended to strengthen data protection, improve the accuracy and transparency of algorithms, formulate unified AI audit standards, and focus on cultivating audit talents with AI skills. In the future, the audit industry needs to actively manage and control risks while enjoying the convenience brought by AI, ensure the quality and credibility of audit work, and promote the development of audit services in a more efficient and intelligent direction.

The Influence of Audit Characteristics and Company Characteristics on Audit Report Lag

This study investigates the impact of audit characteristics, including Audit Opinion, Audit Industry Specialization, and Audit Reputation, along with company characteristics such as Company Age and Financial Distress, on Audit Report Lag in non-primary consumer sector companies listed on the Indonesian Stock Exchange from 2011 to 2022. Analyzing data from 61 companies over 12 years with 732 observations, the research employs multiple linear regression analysis in EViews12. Findings reveal that collectively, audit opinion, industry specialization, audit reputation, company age, and financial distress significantly influence Audit Report Lag. Specifically, audit opinion, industry specialization, audit reputation, and financial distress exhibit a negative impact on Audit Report Lag, while company age has a positive effect. The study recommends future research to explore other sectors and include internal company variables like independent commissioners and institutional ownership for a more comprehensive analysis. The focus solely on auditor-related variables suggests avenues for broader investigations into internal company dynamic

An Exploration of Technological Innovations in the Audit Industry: Disruption Theory Applied to a Regulated Industry*

ABSTRACTTechnological innovation is increasing throughout the audit industry. Although prior research has explored how specific technological innovations have influenced the audit product and the profitability of the audit, the strategic implications of technological innovation for the audit industry have yet to be examined. To address this issue, we adopt Christensen's seminal theory of technological innovation (introduced in his 1997 book The Innovator's Dilemma) to gain insight into the results of 27 semistructured interviews with auditors and audit technical specialists. Consistent with Christensen's sustaining and efficiency strategic responses, our findings suggest that, at this time, technology is primarily being used by the audit industry to strengthen the audit industry's ability to serve mainstream clients by providing a “higher‐quality” and lower‐cost audit to replace menial tasks that historically have been done by junior auditors. We find that industry‐disruptive new market entry is currently prevented by regulatory and professional barriers; however, strategic disruption to the audit industry appears inevitable as technology is already being used in audits of nonregulated markets by new entrants. Strategically, the audit industry will survive in its current recognizable form only if self‐disruption occurs before the regulatory barriers are dropped, which requires significant upskilling in the industry to ensure that firms have the skills to be first movers whenever technological innovations are introduced.

The Use of Shared Service Centers in the Audit Industry and the Impact on Financial Analyst Perceptions

ABSTRACT Audit firms are increasingly using shared service centers (SSCs). There are arguments suggesting an improvement or a deterioration in audit quality due to their use. We provide experimental evidence regarding the effects of SSCs on audit quality, as perceived by financial analysts. Based on survey responses from 205 financial analysts, we investigate whether using SSCs effects perceived audit quality and whether the SSC’s location and task complexity matter. We find that SSC involvement negatively impacts perceived audit quality, and the additional outsourcing of complex tasks exacerbates this effect. We demonstrate that the SSC’s location does not have a significant effect on perceived audit quality. Finally, when outsourcing additional high-complexity tasks, the interaction between location and task complexity leads to a significant negative impact on perceived audit quality.

Factors Affecting Audit Report Lag in Property And Real Estate Companies On The IDX 2017-2021

Issuers listed on the stock exchange are mandated by Regulation No. 29/PJOKK.04/2016, issued by the Financial Services Authority (OJK), to submit their annual reports by the conclusion of the fourth month following the end of the financial year. However, there remains a deficiency in awareness regarding this obligation among entities, particularly concerning the reporting of audited financial statements. As reported by www.kontan.co.id (2023) the Indonesian Stock Exchange (BEI) revealed recently that sixty-one listed companies have not submitted audited financial reports by December 31, 2022, as required by law. As a result, they were fined IDR 50,000,000 for the delay and issued a level II written warning. Twelve of these businesses are involved in the real estate and property industry. The purpose of this study is to look at the elements that affect this industry's audit report delays. With the help of purposive sampling, 15 companies were chosen as research samples for the study, which focuses on real estate and property companies listed on the IDX. Multiple linear regression analysis was used to assess hypotheses after secondary data analysis. The findings suggest that although the age of the company and profitability influence audit report delays, the complexity of the company's operations and debt do not have a significant impact on these delays.

Hispanic worker attitudes toward pig euthanasia on U.S. farms.

On-farm pig euthanasia considers aspects of animal welfare and industry economics. Guidelines are available about the euthanasia process, but the agricultural workforce is highly diverse and guidelines do not consider cultural barriers. Euthanasia requires the ability to identify compromised pigs, technical skills, and willingness to euthanize pigs. In addition, timely euthanasia is part of the Common Swine Industry Audit (CSIA) and, thus, can lead to failed audits if not performed as required by the audit standards. The United States (US) swine industry employs a high percentage of Latin American workers, some US residents/citizens, and others through non-immigrant North American Free Trade Agreement (NAFTA) visas. These workers vary in their level of education and swine industry experience. Proper training of this workforce and identification of the barriers associated with performing timely euthanasia are critical to promote improved welfare practices. The objectives of this study were to: (1) develop a survey instrument to identify Hispanic caretaker attitudes toward pig euthanasia, (2) assess and describe swine caretakers' attitudes toward pig euthanasia using the developed survey instrument, and (3) determine the demographic and psychological barriers associated with performing pig euthanasia. Participants (n = 163) were surveyed from 16 farms across the State of Iowa. The on-farm survey was administered for two days in a period of 60 min per day. The results for demographics and the swine management survey data indicated that employees with less time working on the farm showed less knowledge of the CSIA, lower perceived ability to identify compromised pigs that needed to be euthanized, lower willingness to pecrform euthanasia on their own, and preferred not to have the responsibility of telling others when to euthanize pigs (p < 0.001). Secondary traumatic stress and transgressions were significantly correlated scales, associated with burnout, betrayals, and worker satisfaction (p = 0.022). Furthermore, individuals identifying as female had higher secondary traumatic stress scores (p = 0.026) and lower compassion satisfaction scores (p = 0.015). This data suggest that there are demographic, psychometric, and training-related factors correlated with Hispanic caretakers' feelings about pig euthanasia. The results of this study could be used to further improve and develop targeted training programs for Hispanic caretakers for early identification of compromised pigs and timely euthanasia, which could benefit human well-being, animal welfare, and the swine industry audit performance.

Research and Prospect of Big Data Audit Technology

In the era of big data, technology is constantly innovated. For the audit industry, the combination of big data technology and audit should be the development trend of The Times. The joint application and combination of various technologies will promote the further development of audit. This paper mainly expounds some basic technologies of big data audit, explores and discusses the problems and corresponding solutions in the development process of big data audit in today’s society, and looks forward to the trend of big data audit in the future.

Leverage, earnings management and audit industry specialization: the case of Palestinian-listed companies

PurposeThis study explores the relationship between leverage and earnings management in the context of Palestinian-listed companies, while also investigating whether audit industry specialization influences this relationship.Design/methodology/approachThe data used in this study are extracted from public financial reports of 39 firms listed on Palestine Stock Exchange (PEX), spread across the service, insurance, industry and investment sectors, for the time period 2011–2022. A model is developed to test 4 hypotheses about the relationships between long-term and short-term debts, and earnings management, and then to examine the influence of audit industry specialization on these relationships.FindingsThe results depict a significant, negative relationship between long-term debt and earnings management. Whereas the association between short-term debt and earnings management is insignificant. Audit industry specialization is proven to have no influence on the relationships between the independent and the dependent variables. Results are robust for firms that changed their accounting policies and using different audit industry specialization proxies.Originality/valueThe association between leverage and earnings management is a significant research topic, given that previous research identifies credit ratings and debt covenant violations as key factors which motivate earnings management. This paper fills a substantial research gap by examining the relationship between the two variables in the context of Palestinian-listed firms, while emphasizing the distinction between long-term and short-term debts. It also highlights key relationships that have been neglected in this particular context, which adds to the body of literature. Furthermore, the research's findings provide a solid information base that is of great interest to accounting and auditing experts and that may be seriously evaluated to support and advance the PEX sector.

ДІЯЛЬНІСТЬ АУДИТОРСЬКИХ ФІРМ В УМОВАХ ВОЄННОГО СТАНУ – ОНЛАЙН-АУДИТИ

The issue of audit development under martial law and post-war reconstruction is currently extremely relevant and plays an important role for both business and the state, which influenced the choice of the topic, stated goal, objectives, subject and structure of the research. As a result of the hostilities and mass migration, the audit industry has suffered serious negative consequences. The legislator has taken significant measures to stabilize the situation and restore the activities of audit entities. A whole range of regulations was adopted to ensure the effective operation of audit firms. In particular, scholars have paid great attention to the issue of online audits. Prominent international organizations of auditors and professional accountants have developed the Guidelines for Ukrainian auditors taking into account the conditions of the military conflict. It turned out to be urgent because business entities that continue to operate in the conflict zone need constant support and advice. The article analyzes the state of audit activity in the context of the military conflict, identifies the main problems and suggests the ways to solve them. The authors also identified the main directions of development of audit entities with a view to achieving European integration, including their regulatory framework. The general scientific and general theoretical methods were used in the work: system analysis - to determine the main research criteria; abstract and logical - to make theoretical generalizations and conclusions about the problems and challenges of audit activity in war conditions; induction - at the stage of collecting, systematizing and processing information for research; deduction - in the process of studying the theoretical problem. The article analyzes the current state and prospects of audit activity and online audit in the context of modern business. The main problems faced by auditors are considered, and the main challenges facing audit firms are identified. Among other things, the positive aspects and future opportunities of online audit were highlighted, and the services that can be provided through this form of audit were considered. The authors found that the issues related to audit activity under martial law were regulated at the legislative level, and the main areas of support for auditors in the post-war period were identified. Prospects for further research consist in the fact that Ukrainian audit firms can achieve further development and recovery in the post-war period with the help of smart management decisions, legislative support, and the introduction of online audits. The priority goal of the audit system should be to increase trust in the audit process and the auditor. This will increase the investment attractiveness of enterprises. Given the uncertainty and riskiness of financial statement users in the current economic environment, the introduction of online audits is a flexible mechanism that will allow receiving audit reports and will influence positive movements in the recovery of the Ukrainian economy, which is why further research is needed.

Enterprise Audits and Blockchain Technology

Blockchain technology has become more common in the audit industry, posing new problems for traditional audit work. Researchers have been studying the effect of customers’ use of blockchain technology on audits, especially on audit risk and audit methods. This paper examines audit cases of Chinese enterprises that use blockchain technology. It analyzes the effect of the use of blockchain technology on the audit and the new audit problems. It also examines an Australian blockchain audit case using a questionnaire. This case study showed that the application of new technologies to the audit industry may lead to increased inherent risks and control risks. The audit methodology is uncertain and there are two possible approaches: (1) a combination of direct, indirect, account-level, and entity-level evidence and (2) an increase in indirect and entity-level evidence. This paper puts forward the reference case of the Australian blockchain audit experience and suggestions for developing blockchain audits in China.

Demand Uncertainty and the Production of Audit Services

SUMMARY Economic theory suggests that demand uncertainty should influence producer behavior. In this study, we empirically examine the impact of demand uncertainty on the production of audit services. Auditors must make resource allocation decisions in advance of exact demand being known, and because a large portion of auditors’ capacity-related commitments are fixed and therefore difficult to adjust in the short run, uncertainty in client demand outcomes likely imposes costs on auditors. Consistent with auditors being compensated for these costs, our results indicate that both audit price and audit production timing are affected by a client’s uncertainty in demand for audit services. We also find that these compensation mechanisms act as substitutes used by auditors to alleviate the costs imposed by demand uncertainty. Our study contributes to the growing literature on the underlying economics of the audit market and answers recent calls for analysis of demand-side factors that influence the audit industry. Data Availability: Data are available from the sources cited in the text. JEL Classifications: M40; M41; M42.

Changes of Civil Liability Risks of Audit Institutions under the Special Representative Litigation System——Take the Kangmei fraud case as an example

The new Securities Law proposes the concept of a special representative litigation system, increasing the efforts to protect the legitimate rights and interests of investors who are infringed upon, and the civil legal liability risks of audit institutions increase accordingly. To promote the healthy and orderly development of securities market and audit industry, this paper will take the Kangmei’s fraud case, the first case in which the special representative litigation system is applied, as the starting point, and analyze the civil legal liability of the audit institution in the case, so as to explore the changes of the civil legal liability of the audit institution under the special representative litigation system, and then put forward enlightenment and suggestions for the audit institution to achieve risk reduction.

Implementasi Pengendalian Intern Standar Sarbanes-Oxley Act (SOA) Pada Perusahaan Telekomunikasi

The Sarbaness-Oxley Act (SOA) was issued to protect the interests of investors by creating good corporate governance and accountability within the company. SOA, especially sections 302 and 404, require an annual management report regarding the company's internal control over financial reporting and the management report is the subject to be audited. This study describes the implementation of SOA at PT Telkom, Tbk, because PT Telkom, Tbk is one of the Indonesian companies listed on the stock exchange in the United States (NYSE) so that PT Telkom must comply with SOA as required by the SEC. The research was conducted by comparing SOA theory or standards with SOA practices that occurred at PT Telkom, Tbk. The results of the research show that PT Telkom has implemented SOA provisions. And from the results of research conducted in the Finance Section of PT. Telkom Yogyakarta shows that increased transparency and regulation of the audit industry that encourages the effectiveness and independence of auditors is needed to maintain and increase investor confidence in the capital market. SOA Implementation at PT. Telkom, especially concerning section 302 (Corporate responsibility for financial reports) and section 404 (Management assessment of internal controls) is expected to provide benefits to the company in realizing Good Corporate Governance (GCG). With Good Corporate Governance, the transparency of PT. Telkom as a public company will be even more real

Effect of Management Ownership, Industry Auditor Specialization, Audit Complexity and Auditor Switching on Timeliness of Financial Reporting

This study aims to determine the effect of managerial ownership, auditor industry specialization, complexity audit, and auditor switching on the timeliness of submitting financial reports to Energy sector companies listed on the Indonesia Stock Exchange in 2017-2021. The method in this research is a quantitative research method. The population in this study are energy sector companies listed on the Indonesia Stock Exchange during 2017-2020. The sampling technique in this study used a purposive sampling technique with 41 research samples within five years so that a total of 205 research data were obtained. Data analysis used descriptive statistical analysis method and logistic regression analysis using SPSS 26 software. The results showed that managerial ownership, auditor industry specialization, audit complexity had a positive effect on the timeliness of financial reporting, while switching auditors did not affect on the timeliness of financial reporting. The accuracy of submitting financial statements to companies tends to be influenced by factors such as high levels of managerial ownership, auditor industry specialization, and audit complexity, but the presence of switching auditors in the company does not affect the time of submission of financial statements.

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.

VIABILITY OF EXTERNAL SHARIAH AUDIT PRACTICE:

The current trend in Shariah governance and assurance has now gone beyond internal Shariah audit to external Shariah audit (ESA). At the international level, the move towards enhancing Shariah governance in Islamic financial institutions (IFIs) were made by mandating ESA function by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) in its auditing standards in year 2019. Then, in year 2023 Islamic Financial Services Board (IFSB) jointly collaborate with AAOIFI on issuing an exposure draft on Shariah governance framework which suggested as best practice for ESA to be conducted not just for IFIs but also for Islamic capital market. As there is increasing number of institutions offering Shariah compliant products and services, there is also the need for ESA to provide assurance in sectors beyond IFIs. Besides big audit firms, the supply of ESA can be offered by small and medium audit practitioners (SMPs) as well. A focus group discussion was held to study this issue with 17 SMPs on the viability to venture into the Shariah audit industry. The findings indicate challenges to SMPs as there is no regulatory requirement for the conduct of ESA in Malaysia; there is debate on the audit scope and a need for human capital development to develop required skillset for external Shariah auditors that includes knowledge in Shariah principles, Shariah compliant contracts, Shariah risk management and Islamic capital market related products and services.

Assessing the impact of audit software on audit quality: Auditors' perceptions

The study aimed to examine the impact of audit software on audit quality in Saudi Arabia and explore auditors' opinions on this topic. The research methodology used was a survey research design, which allowed for collecting large amounts of data from a broad range of participants. The findings indicated that audit software positively impacted audit quality, and auditor expertise moderated the relationship between audit software usage and audit quality. The study highlights the importance of auditor training in effectively using audit software, and the results have significant implications for audit practice in Saudi Arabia. The study's practical implications suggest that audit firms should invest in technology, particularly advanced audit software, to enhance audit quality and meet the demands of clients seeking more efficient and effective audit services. As the business environment becomes increasingly complex and dynamic, auditors must keep pace with emerging technologies to deliver high-quality audit services. The results of this study provide valuable insights into the factors that influence the adoption of technology in the audit industry in Saudi Arabia and highlight the importance of integrating technology into audit processes to improve audit quality. However, it should be noted that the study's findings are based on the auditors' subjective perceptions, and future research should use more objective measures to assess audit quality.

Board informal hierarchy and audit quality: evidence from China

PurposeImproving audit quality is an important research area of managerial accounting. This study focuses on the informal institutions within organizations and their impact on audit quality. Specifically, this study aims to examine the impact of the informal hierarchy among directors on audit quality.Design/methodology/approachThe authors examine Chinese companies with listed shares from 2008 to 2020. The authors proxy for audit quality using discretionary accruals and small profits, and use ordinary least squares regression to test their hypotheses.FindingsThe results demonstrate that the informal hierarchy of the board improves audit quality. The results are robust to a battery of sensitivity analyses. Additionally, there is weak evidence that the effect of the board’s informal hierarchy on audit quality is weaker in state-owned enterprises. Moreover, the mechanism tests indicate that the board’s informal hierarchy improves audit quality through the improvement of internal controls. In addition, the impact of the informal hierarchy among directors on audit quality further improves firm performance. However, audit fees are not reduced further because the board’s informal hierarchy demands higher audit quality by choosing industry audit experts.Originality/valueThis study not only enriches the research on the economic consequences of the board’s informal hierarchy but also expands on studies on antecedents of audit quality.