Auditor Industry Research Articles

Internal Factors, External Factors and Earnings Management: Moderating Effects of Auditor Industry Specialization

Purpose - Earnings management is one of the agency problems in a company. Furthermore, it illustrates the opportunistic behavior of company managers and can be a bad signal for company stakeholders. This research was conducted with the aim of testing the auditor industry specialization as a moderator in the effect of financial distress, tax planning, ownership structure, and audit quality on earnings management.
 Research Method - This research uses 288 data from 36 manufacturing companies listed on the Indonesia Stock Exchange from 2012 to 2019, using a purposive sampling method. The model used in this research was analyzed using multiple linear regression and moderation test (sub-group analysis and ANOVA test).
 Findings - According to the findings, managerial ownership and audit quality have a negative effect on earnings management. On the other hand, financial distress, tax planning, and institutional ownership are not significant to earnings management. Meanwhile, by taking into account firm size, profitability, and leverage, auditor industry specialization can be found to moderate the relationship between financial distress, tax planning, managerial ownership, and institutional ownership with earnings management. However, specialization in the audit industry has no effect on the on the effect of audit quality on earnings management.
 Implication - The presence of managerial ownership and external auditors can serve as a de-confliction mechanism. Companies can consider giving managers the opportunity to own company shares and use the Big Four KAP auditors in order to create better oversight. In addition, companies can consider using auditors from KAPs who have a lot of experience in certain industries.

Learning from Masters: Engagement Partners’ Co-Signing Relationships with Non-Engagement Industry Specialist Partners and Audit Quality

This paper examines a specific mechanism, partner co-signing relationships, through which knowledge sharing in an audit team may influence audit quality. Specifically, we examine whether an engagement partner’s co-signing relationships with non-engagement industry specialist partners are associated with audit quality. Using a unique setting in which co-signing relationships for each audit engagement is available, we find that audit quality is higher when the engagement partner for the focal client has co-signing relationships with non-engagement partners who are specialists in the focal client’s industry and that the positive association is more likely driven by a learning effect than a consultation effect. Further evidence suggests that attributes of co-signing relationships such as continuity matter and that co-signing relationships with industry specialist partners are more likely to be utilized when engagement partners have limited industry knowledge, clients operate in homogeneous industries, and engagement partners are from large audit firms. Overall, our results suggest that interactions with industry specialist partners facilitate knowledge sharing and hence improve audit quality.

Corporate Fraud and Accounting Firm Involvement: Evidence from China

In some cases, accounting firms and individual auditors will be punished by the China Securities Regulatory Commission (CSRC) for involvement in the violations of their client companies. Taking the enforcement actions against listed companies and accounting firms of the CSRC from 2006 to 2019 as a research sample, this paper manually sorted out the specific characteristics of corporate fraud and empirically examined the regulatory authorities’ supervision tendency to auditors. The results show that accounting firms are more likely to be involved when their client companies’ fraudulent practices affect financial statements, occur during the IPO process, and continue for a longer period of time. Income statement manipulation and higher fraud amounts also increase the probability of accounting firms being sanctioned. Further analyses show that regulators’ supervision intensity is increasing over time, and they impose penalties on auditors based on the severity of corporate fraud; however, the intensity and differentiation of the sanctions are still insufficient. This study expands relevant research on accounting firm sanctions and provides empirical evidence for further improvement of audit industry supervision in an emerging market.

Опыт проведения аудита промышленной безопасности на примере ООО «ЗапСибНефтехим»

The results of the industrial safety audit of hazardous production facilities of ZapSibNeftekhim LLC with the involvement of an independent specialized organization — CJSC Scientific technical center of industrial safety problems research are presented. Brief information about ZapSibNeftekhim LLC is given, where the main emphasis is placed on the technological features of hazardous production facilities subject to audit. The audit planning procedure is described, including the formation of a group of direct executors and their distribution among the visited objects. The principles of formation of criteria for compliance with which it was carried out are outlined. The description of the course of the audit, including its preliminary and cameral parts, is presented. Attention is focused on the tools for conducting an audit. The obtained results are analyzed. All the identified results of observations are related to the specific hazardous production facilities, recommendations were developed for each of them. The formulated recommendations are divided into two main groups: actions aimed at eliminating the identified observations, and actions aimed at eliminating the causes of their occurrence. The parallel is drawn between the obtained results and modern views on management in the field of ensuring industrial safety. The involvement is noted concerning the wide range of technical specialists of ZapSibNeftekhim LLC in the process of analyzing the results of observations and developing follow-up actions. In conclusion, the evidence of effective implementation of the requirements for conducting an industrial safety audit of hazardous production facilities with the involvement of an independent specialized organization is presented. Parallels are drawn between the methodology underlying the work done and the basics of industrial safety audit, laid down in the draft law On Industrial Safety. The problems that need to be solved for the successful implementation of a new element of industrial safety regulation are outlined.

Redressing the fundamental conflict of interest in public company audits

The goal of various audit industry reforms is to better align the interests of the auditor with external stakeholders. These proposed reforms ignore the fundamental conflict of interest—‘the client’ hires, fires and determines the compensation for the auditor. This problem is fundamental in that ‘the client’ is normally the management or board of the firm who, on occasion, have reason to want to take advantage of the inherent imprecision in accounting for their benefit and subtlety pressure the auditor to achieve this. My evidence‐based proposal takes advantage of the well‐known aversion of managers and boards to government intervention. It incentivizes management and boards to demand rigorous audits by requiring regulatory bodies impose their choice of auditor on public companies that meet well‐specified criteria that indicate poor‐quality reporting (e.g., restatement of financial statements). This proposed reform retains the ‘on average’ benefits that extant research shows the current system of private sector auditing provides while stimulating greater managerial and director self‐interest in high‐quality financial reporting.

Analysis of effects of Earnings Management on Corporate Social Responsibility Disclosures and role of Audit Quality on the IDX

This study aims to examine and analyze empirically the effect of earnings management on Corporate Social Responsibility disclosure and the role of audit quality as proxied by the size of the accounting firm and auditor industry specialization in moderating the relations between earnings management and CSR disclosure. This study uses secondary data with samples of 69 manufacturing companies in the basic industry and chemical sectors listed on the Indonesia Stock Exchange from 2017 to 2019 which were obtained using purposive sampling method. The independent variable in this study is earnings management with Discretionary Accruals as proxy which measured using Modified Jones Model. While the dependent variable in this study is the disclosure of Corporate Social Responsibility, which is proxied by CSR disclosure index (CSRI) measured based on indicators of GRI-G4 disclosure. The moderating variable in this study, there is audit quality as proxied by the size of the accounting firm and auditor industry specialization which is measured using dummy variables, the value of 1 is for The Big Four KAP and auditor industry specialization, while the value of 0 is for Non The Big Four KAP and unspecialized industry auditors. The analysis of data in this study is using a simple linear regression model and Moderated Regression Analysis (MRA) to decide the hypothesis. The value of 1 is for The Big Four KAP and auditor industry specialization, while the value of 0 is for Non The Big Four KAP and unspecialized industry auditors. The analysis of data in this study is using a simple linear regression model and Moderated Regression Analysis (MRA) to decide the hypothesis. The value of 1 is for The Big Four KAP and auditor industry specialization, while the value of 0 is for Non the Big Four KAP and unspecialized industry auditors. The analysis of data in this study is using a simple linear regression model and Moderated Regression Analysis (MRA) to decide the hypothesis. The results of this study reveal that earnings management has a positive and significant effect on Corporate Social Responsibility (CSR) disclosure and the size of the accounting firm (KAP) variable can be a moderating in the relations between earnings management and CSR disclosure. Meanwhile, the auditor industry specialist variable can't moderate the relations between earnings management and CSR disclosure.

Відродження і розвиток промисловості та підприємств України: концепція, методологічний аспект

Proceeding from the premise that the dominant factor in the progress of society, economy, industry, business entities is spirituality, values, the triad of development factors (Universal Reason – Humanity – Nature) and their dialectical connections are considered. It is proved that the development of society takes place according to the concept of three forces of development, trialectics, and man, society are spiritual-bio-social subjects by their nature and in social sciences, in economic sciences they are both subjects and objects of research. The capitalist spiritual-social-economic formation (DSEF) is considered based on the modern level of development of social sciences. Its positive sides, shortcomings, integration tendencies of the spiritual-social-economic formation of capitalism relative to previous and modern formations are noted. The directions of the development of economic science, the degree of its objectivity, theories and models of the development of economic science and the real economy are shown. It has been proven that economic science performs two functions: diagnostic and predictive; their dependence on the state of the ruling classes, elites, and clans. The author's assessment of current models of the development of the economy, industry, business entities, economic science is provided. The expediency of the development of the domestic economy according to the convergent model of "people's capitalism", "people's economy" is substantiated. Proposals for the revival of the country's industry, business entities, which are based on the indicators and data of the industry audit of the base year, the road map, investment financing entities, sources of financing, and implementation mechanisms are outlined. A number of provisions are debatable and require further research.

ОПТИМІЗАЦІЯ АУДИТОРСЬКИХ МЕХАНІЗМІВ У ТВАРИННИЦЬКІЙ ГАЛУЗІ

The activity of enterprises in the field of livestock industry differs from other presence of various natural factors, the impact of which must be taken into account during the accounting process. In the process of their functioning they carry out economic operations, most of which are connected with the reflection of biological assets. For each enterprise they are unique accounting objects, and the efficiency of their use and management depends on the volume of animal products, results of activity, level of capital use. The process of accounting and audit of the availability and movement of such assets is rather complicated, because they are constantly changing, have an exceptional character, acquire age-old maturity, etc. Lack of effective experience in livestock industry audit, the lack of a normative base for carrying out audit activities in the field of livestock industry, the low level of audit activity in this sphere is a prerequisite for the introduction of rational auditing mechanisms in the livestock industry. The complexity and non-transparent approaches to the accounting registers of economic operations in the livestock industry determine the difficulty of carrying out audit in the livestock industry. Today, the problem of consolidation of efforts of specialists in the livestock industry, accountants and auditors in the direction of effective auditing in this sphere needs to be solved. During the analysis of scientific researches we have come to a conclusion, that the main emphasis is placed on revealing in the course of audit of economic entities in the sphere of livestock industry possible violations in the accounting of biological assets, carrying out of economic operations, display of movement and replenishment of biological assets, but little attention is paid to developing universal methods and mechanisms of organization of effective audit in the livestock industry. That is why our research has set a goal to theoretically justify the methodology of optimization of auditing mechanisms in the livestock industry. Carrying out of audit at the enterprises of livestock industry is not only a way of thorough anaysis and evaluation of their activity, identification of shortcomings, but also a means of creating image positions of the business entity on the market. We propose to follow the principles of professional approach, objectivity, to organize the audit procedure according to certain stages. It is advisable to take into account the substantiation of the accounting of biological assets when carrying out an audit in cattle breeding, their value statements, movements of biological assets within different technological groups, harmonization of data, received in the course of inventory, and information on zoning accounting, expert opinion of experts working in the livestock industry.

2021 International Conference on Computer Auditing in Tokyo

Due to COVID-19, it is assumed that companies may allow special measures such as emergency response and unprecedented response that cannot be handled by conventional internal control, and there is risks of fraud and errors. It can be said that the opportunities of occurring risks and errors are increasing. For this reason, auditors are required to perform higher quality audits than ever before, and technology-based auditing methods are attracting attention in remote environments. However, there are many futuristic contents such as AI audits which can be seen on the Web etc., and there is very few specific information that can be provided such as how to utilize technology for audits at this time.<br /> In addition, it is difficult to collect the directions that regulators and research institutes are thinking in a timely manner, and I thought that there might be needs to know more about ""what I should do now"". In order to meet the needs, I aimed to create an opportunity that 2021 International Conference on Computer Audit was held for the purpose of gathering and discussing people from four positions, an audit industry (Certified Public Accountant), regulators (FSA, UK FRC), business world (internal auditor), research institutions (universities / graduate schools). I aimed to create an opportunity that think about ""what I should do now"" by having people from each position give a lecture on ""What is data analysis in auditing and how will it be developed in the future?"" We would be happy if we could provide such an opportunity to everyone who watched it.

AUDIT SERVICES MARKET: THE EXPERIENCE OF UKRAINE

The purpose of the paper is to study the current state of the audit services market in Ukraine, identifying problems and making suggestions for its improvement in terms of European integration. Methodology. General scientific economic and mathematical methods (analysis, synthesis, abstraction, concretization) as well as special methods (comparison, tabular) were used. Results. Audit is one of the important types of services and is becoming increasingly important. It is established that nowadays audit has a number of contradictions and problems. Imperfect regulation of audit market in Ukraine led to problems in confirming the quality and reliability of financial reporting, which increases the risk of bankruptcy of enterprises and banks and reduces the level of confidence in them from potential investors and the public, and also creates obstacles to attract investment in the national economy as a whole. Analysis of audit services market in Ukraine shows a significant differentiation in the number of auditing entities and the cost of their services. There is a decrease in the number of subjects of audit activities, while the cost of services increases. The influence of the regional factor is significant, which led to the greatest concentration of the audit services market in certain regions. In general, the trends of audit development can be described as diversification of audit services with a gradual increase in their volume and value. Practical implications. As a result of the study the priority directions of development of the domestic market of audit services have been identified. Improving the chances of financial success of the subjects of audit activities is provided primarily by improving the quality of audit services performed by professional staff and expanding their range using specialized audit software, as well as the development of industry audit techniques. Provision of audit services to the client, taking into account the requirements of international standards, EU legislation, the application of best practices in the field of auditing, the specifics of the client will increase interest in the audit.

Research on the Control of Audit Risk of Asset Reorganization

The risk of asset reorganization audit refers to the possibility of the failure of asset reorganization or the decision failure of information users caused by the auditors' inappropriate audit opinions on the financial statements of the underlying assets. It has the characteristics of universality, complexity and dynamics. This paper argues that the main causes of the audit risk of asset restructuring are the opportunistic behavior of asset restructuring, the high uncertainty of profit forecast report, the incomplete and unreliable non-accounting information disclosure and the lack of professional competence and professional ethics of auditors. Considering the institutional environment in China, it is considered that the joint efforts of accounting firms, relevant accounting policy formulation agencies and regulatory agencies are needed to effectively reduce the audit risk of asset restructuring. Among them, auditors should make clear the importance of strategic analysis, and on this basis, determine the audit focus according to the value driving factors and key operational risks, and at the same time emphasize the importance of the auditor's industry expertise and professional ethics construction.

Strategic entry deterrence in the audit industry: Evidence from the merger of professional accounting bodies

AbstractStudies show that incumbents reduce prices in response to higher entry threats in consumer industries. We provide new insights on the importance of an incumbent firm's reputation to the limit‐pricing decision by examining a professional service industry where the supplier's reputation serves as an existing barrier. The recent staggered passage of mergers of three Canadian accounting certification bodies exogenously increases the probability of future entry to incumbent audit firms. Employing difference‐in‐differences analyses and a strict fixed‐effects structure (client‐firm, audit‐firm, province and year‐month fixed effects), we find that incumbent audit firms reduce audit fees in response to a higher entry threat induced by the merger. The microstructure of the audit industry provides further insights—non‐Big‐4 audit firms reduce fees after the merger, while Big‐4 audit firms can withstand higher entry threats and do not adjust fees.

Research on the Application Of Blockchain Technology in Financial Statement Auditing

The audit of financial statements is an important content of business management, improve the quality of financial statements audit work can understand the business status of enterprises, combined with the actual financial status of enterprises to develop in line with the enterprise’s own development of enterprise planning. This paper firstly explains the deficiencies of financial statement auditing and the concept and advantages of blockchain technology, and at the same time puts forward countermeasures and suggestions for the development of audit industry under blockchain technology for the reference of readers.

Does Industry Specialist Auditor Provide More Insights in Their audit report? An Empirical Study of Key Audit Matters Section

Abstract In 2015, International Auditing and Assurance Standards Board (IAASB) released new International Standards on Auditing 701 and required auditors to disclose key audit matters (KAM) in the audit report. Similar standards were also released in the United States in 2017 and the United Kingdom and Ireland Financial Reporting Council (FRC) in 2014. As KAM are expected to inform on matters of the greatest significance during an audit, before exploring the question regarding whether investors will obtain useful information from additional matter disclosures, the anterior consideration may be in regard to how audit quality affects the disclosure quality of KAM. This study use hand-collected data of the KAM disclosed in the audit reports of Taiwanese listed companies in 2016 to explore the association between auditor industry specialization and audit quality by the disclosure of KAM in new audit reports. The empirical results show that the association between the industrial specialist audit partner and the measurement of KAM quality is significantly positively related. The findings support our hypothesis that specialist auditors’ KAM are more informative than those issued by non-specialist auditors, and provide new evidence supporting prior studies about the superior auditing ability and disclosure quality of auditor industry specialist. Keywords: Key Audit Matters, KAM, International Standards on Auditing 701, International Auditing and Assurance Standards Board.

Теоретичні аспекти нічного аудиту на готельному підприємстві

Introduction. Hotels are luggage and service enterprises. To make the right management decisions and increase profits hospitality enterprises must have accurate, timely, and truthful information on the issues of commercial activities. The most effective way to obtain this information is possible when conducting a regular external audit. It is the quality of the current audit that determines the financial position of the state enterprise. Night audit is one of the areas of internal audit of hotel enterprises, aimed at ensuring the safety of assets, verifying the reliability of accounting information, improving the efficiency of operations, and their compliance with enterprise policy. Night audit is of particular importance for managers and owners of hotel enterprises, as it helps to assess the implementation of the objectives of production and economic activity. Purpose. The purpose of the article is to study the theoretical aspects of night auditing in the hotel industry. Methodology of research. The achievement of this goal was carried out with the help of general scientific and applied research methods, in particular: methods of scientific abstraction - to substantiate the essence and significance of night audit as an aspect of internal control in the hotel industry; methods of logical generalization - to determine the main tasks of the night audit; methods of systematization, detailing and grouping - to consider the methods and basic functions of night auditing. Results. Analyzing and systematizing the scientific works of many scientists, the essence, purpose, and tasks of night audit were determined, the technology and methods of night audit of the hotel were considered, the main competencies of night auditor in the process of control operations were clarified. Conclusions. The practical significance of the obtained results is to determine the need to introduce the practice of night audit as a full-fledged type of control. The scientific novelty of the research results is the deepening of the theoretical foundations of night audit technology to improve the accounting and control support of the management system of the hotel industry. Further research will focus on the detailed implementation of night audit automation in hotel activity.

An Independent Audit Oversight System in a Developing Country

Audit Oversight Board (AOB) was established in Malaysia to regulate the auditors of public listed companies and instil the trust and confidence of the public on the quality of audit services provided by them. This study aims to explore the impact of AOB establishment on external auditors. Interviews were conducted with twenty audit seniors and managers in Big four and non-Big four firms in Klang Valley. The interviews revealed that more works were done and more documentation was compiled after AOB establishment. The results also indicated that more informal meetings were conducted to get more information and clarification from the clients to solve audit issues. However, the auditors claimed that their reliance on the internal auditors was not affected by AOB establishment. The findings also suggested that audit fee was not directly affected by the establishment of AOB. The results of the study contribute to the literature and understanding of AOB establishment in Malaysian audit industry.

Post-industrial energy audit decision-making process: an Argentine case study

ABSTRACT Industrial energy audit is one of the main strategies to improve energy efficiency. Usually, as an energy audit output, several improvement alternatives are provided. Choosing the best alternative has been detected as one of the main barriers in adopting energy efficiency projects. This work contributes to this decision-making process with a case study from an Argentine industrial plant. The project includes the installation of a micro-turbine within the steam system to generate electricity. To address the decision-making process, the historical records of steam system flows associated with energy consumption and costs were analysed. The project allows to reduce the annual energy consumption of the whole industrial plant by 6%. Furthermore, the investment needed for the project is recovered in around 4 years, and after a 10-year period, the project will refund more than 240,000$ plus the discount rate. The project reduces CO2 emissions by over 1000 tons per year.

The report of the audit expectation gap and audit market

<p>After the collapse of Carillion Plc, the big four audit firms received criticisms. This report focuses on the audit expectation gap and the audit market to explain this phenomenon and solve it. The audit expectation gap indicates the gap between what the audit report users expect the auditors to do and what they have done. The audit market contains the competition in the audit industry, and the breaking up of the big four can increase the competition in the audit market. Thus, the public’s trust in audit firms can be increased.</p>

A Case Study on Assessment Performance and Energy Efficient Recommendations for Industrial Boiler

As India is a developing country, industrialization is increasing day by day and there is a great need for industry energy audit. Audit helps to maintain and save energy from being wasted and helps in achieving highest efficiency of industrial equipment. This paper contains an actual industry audit report on boiler performance. This paper contains a report on Thermal analysis of boilers, thermal skin heat loss of boilers, O2 percentage control in flue gases to standard values, effect of coal additive, etc. This paper also contains a report on waste heat recovery options for thermal boiler, flue efficiency monitor, infrared thermometer, ultrasonic peak detector IR thermal imager. These equipment are used for energy assessment of boilers. Thermography survey of boiler surface is carried out to estimate the radiation and the other losses and the result of this total annual saving after insulation repairing or maintenance is Rs.8.48 lakh and investment is around Rs.6.31 lakh. Economizer performance of both the ISGEC and Thermax boiler can be improved with the help of suggested measures. It will help to save approximately rupees Rs.38.42 Lakh annually and investment on maintenance cost is negligible. In short, this paper deals with assessment of all boilers, evaluates their efficiencies and losses to identify energy saving opportunities and presents them in a report with their payback periods. Keywords: Energy, Energy audit, assessment, boiler.

Audit firm operating leverage and pricing strategy: Evidence from lowballing in audit industry

Using a unique set of Korean data for the years 2004–2013, we show that audit firms’ operating leverage is related to lowballing and audit quality. To capture audit firms’ operating leverage, we estimate audit hour elasticity from a regression of changes in logged audit hours on changes in logged audit fees for all audit clients of each audit firm. We find that audit firms with higher audit hour elasticity are more likely to discount fees for new clients (i.e., more lowballing). Further, we find that the relation is more salient when benefits of lowballing is expected to be greater, i.e., in the voluntary auditor rotation regime compared with the mandatory rotation regime. However, we find no evidence suggesting that audit quality of auditors with low operating leverage is compromised due to lowballing. Overall, our findings suggest that audit firms with more flexible production structure have a greater ability to implement pricing strategy even without sacrificing production quality.