Auditor Reputation Research Articles

Consequences of Going Concern Opinion for Financial Reports of Business Firms and Capital Markets with Auditor Reputation as a Moderation Variable - An Experimental Study

1. Introduction In Indonesia, based on SA (Audit Standard) Section 570-Business Continuity (IAPI, 2013), auditors are allowed to publish an opinion that contains a description of the auditor's doubts on the ability of a company to maintain its viability. This opinion is known as going concern opinion (GCO). Conditions and events that trigger the auditor to issue GCO are also stated in SA 570. Research on the GCO usually focuses on (1) auditor judgment in determining whether the auditor needs to modify the audit opinion by giving an explanation about the viability, (2) errors that may occur in the issuance of GCO, (3) individual GCO consequences for companies receiving GCO (announcing firms), (4) GCO consequences for other companies in the same industry (rival firms). There have not been many researchs studying the possibility of the GCO to play an important role in the stabilization of the stock price in a stock market or to play an important role in enhancing the credibility of financial statements for other companies which do not receive GCO (Tuttle and Vandervelde, 2009). There has been no study that simultaneously examines the consequences of GCO for announcing firms, rival firms, and the overall capital market using the same data source. Therefore, this study will examine the consequences of GCO for announcing firms, rival firms and the capital market as a whole. Researches on the consequences of GCO for announcing firms generally show that according to investors the GCO is relevant to assess the companies' share price. O'Reilly (2010), who examined the consequences of GCO for announcing firms argues that announcing firms experienced a significant decline in stock prices. Stock-price estimation made by investors was much reduced when a company received GCO than when it received an unqualified opinion. This indicates that GCO is bad news for announcing firms. GCO consequences for rival firms indicate one of two phenomena, namely competitive effect or contagion effect. Competitive effect occurs when rival firms get the positive impact from other companies in the same industry which receive GCO (indicated by an increase in the stock prices of rival firms). The contagion effect occurs when rival firms get the negative impact of the presence of other companies in the same industry which obtain GCO (indicated by a decrease in the stock prices of rival firms). Researches on the consequences of GCO for rival firms generally show support for competitive effect. Elliott et al. (2006) show that at the moment when certain companies receive GCO in the real estate industry, investors will move their business and their holdings to rival firms. It can be stated that Elliott et al. (2006) show more support for the competitive effect. This indicates that GCO is good news for rival firms. Coelho et al. (2012) show that rival firms experience positive abnormal returns and announcing firms experience negative abnormal returns on the date of the audit report. It can be concluded that Coelho et al. (2012) show more support for the competitive effect than the contagion effect. This indicates that GCO is good news for rival firms, but is bad news for announcing firms.The possibility as to whether the competitive effect can be turned into contagion effect has been rarely investigated. This study used an experimental method to manipulate the number of GCOs in every industry. Thus, the results should show whether at the time when the number of GCOs increases in an industry, the benefits gained by rival firms will decrease. Research on the consequences of GCO for the stock market as a whole is still rarely conducted. This is due to the difficulty in obtaining the required data. Therefore, Tuttle and Vanderveldes (2009) used an experimental method to manipulate GCO by making two experimental markets (one with GCO and the other without GCO). The market with GCO was a capital market in which there was GCO, while the market without GCO was a capital market in which there was no GCO. …

Audit Office Reputation Shocks from Gains and Losses of Major Industry Clients

AbstractOur study reports evidence on the dynamic effects of client switches on auditor reputations and fee premia. Offices of large accounting firms that lose (gain) major industry clients experience a reputation shock leading to more same‐industry client losses (gains) over the next two years. There is also a shift in audit fees charged to other same‐industry clients when a major client loss (gain) results in an audit office losing (gaining) city‐level industry leadership. A major client loss or gain also creates a short‐term capacity shock to an audit office's ability to supply high‐quality audits. However, there is no evidence of reputation spillovers to other‐industry clients in the audit office, or to clients in other offices of the accounting firm.

The effect of firm size, financial performance, listing age and audit quality on Internet Financial Reporting

Financial reporting is the most important information for investors. So far, a rapid internet growth has created a new strategy for companies to communicate with investors. In this case, internet could be used by companies to report their financial information, or commonly known as Internet Financial Reporting (IFR). The objec-tive of this study is to analyze the effect of firm size, profitability, liquidity, leverage, listing age, and auditor reputation on Internet Financial Reporting. The sample, as based on sampling criteria, consists of 82 manufacturing companies listed in the Indonesia Stock Exchange in 2013. This study used a multiple regression analysis for the analyses such as to examine the variables that affect the Internet Financial Reporting. The findings show that firm size has a significant effect on Internet Fi-nancial Reporting. However, other factors such as profitability, liquidity, leverage, listing age, and auditor reputation have no significant effects on Internet Financial Reporting. The implication of this study is that the investors can use this study as a reference related to investment in Indonesia.

The main determinants of differences in compliance levels of disclosure items for IAS 16 in BIST

PurposeThis paper aims to empirically examine the main determinants of the compliance level of disclosure requirements for IAS 16, as well as factors that may explain the differences in the levels of compliance within companies.Design/methodology/approachThe association between the level of compliance and various corporate characteristics was examined using Chi-square Automatic Interaction Detector (CHAID) analysis in financial disclosures for IAS 16. CHAID analysis was applied to the manufacturing companies listed in Borsa Istanbul for the years 2012 and 2013.FindingsIt was found that the most significant factor is the auditor reputation within different nodes such as size or free float rate. In most of the studies, correlation is used to determine the association between different factors, but this study is the first one that uses the CHAID analysis which offers an adjusted significance testing, and at the same time classification of the interaction between variables.Research limitations/implicationsThis paper provides insights into the primary factors of disclosure compliance that help to improve the structure of disclosures and the level of compliance in preparing future financial reports. The proposed improvements will also support further developments in financial reporting regulations regarding disclosures. The key limitation in this paper is that it concentrates on a specific standard and only covers two years. However, it provides suggestions for one of the most important standards that includes various disclosures.Originality/valueIn addition, this paper fills a gap in the literature about the compliance level of specific standards such as IAS 16 and the usage of CHAID analysis in such studies. The results were consistent with some previous studies regarding the relationship between compliance level, auditor reputation and size and it also highlight the effect of different disclosure items on compliance level.

PENGARUH OPINI AUDIT GOING CONCERN TERHADAP MODEL PREDIKSI KEBANGKRUTAN DAN REPUTASI AUDITOR

Audit report with modification of going concern indicates that in auditor’s opinion there is a risk that companies could not survive. This study is aimed to investigate the effect of bankruptcy prediction model and auditor reputation on going concern audit opinion. Moreover, this going concern modification is not expected by companies due to decrease public trust of image company. In addition, some of companies received unqualified opinion stop operating and not in accordance with the auditor's assessment. Thus, this study used object includes manufacturer listed on Indonesia Stock Exchange during 2013 -2015 with 134 observations obtained using purposive sampling method. Furthermore, this data are analyzed used logistic regression analysis. The conclusion of this study, the result has showed that the financial condition proxied by bankruptcy prediction model affect going concern auditor opinion positively. The auditors reputation which is proxied by audit firm size do not positively affect the opinion.Keywords: going concern opinion, bankruptcy prediction model, auditor reputation

Faktor-faktor yang mempengaruhi initial return pada saat ipo di bursa efek indonesia periode tahun 2006-2015

The purpose of this empirical study are to analyze the effect of accounting information and non accounting information to initial return in firm that do Initial Public Offering (IPO) and listing on Indonesia Stock Exchange in 2006-2015. The population in this research are the firms that do Initial Public Offering (IPO) in 2006-2015. With purposive sampling method from 210 firms, 143 firms meet the criteria of the sample. The result of regression analysis shows that accounting information Return On Asset (ROA) and firm size, and also non accounting information auditor reputation individually had a significant effect to initial return, while accounting information Earning Per Share (EPS) and financial leverage, and also non accounting information firm age, underwriter reputation and type of industry had not significant effect on initial return individually.

The reputation driven interplay of relationships between clients and auditors in an auditor selection process: A multilevel network approach

This study investigates the reputation-based interplay between auditor selection and interlocking directorships from a multilevel network perspective. The aim of this article is to explore how and under what conditions reputation influences patterns of social selection processes in an assurance service context. To empirically determine the impact of reputation on establishing relational ties, this study applies exponential random graph models (ERGMs) for multilevel networks. The case study was carried out in the Danish field of mandatory audits, and findings here make a valuable contribution to the literature on auditor selection. A total of 774 annual reports were collected from 145 - 165 Danish public listed companies, and the relational data of companies was assembled, as comprised of the members of supervisory boards and partners who signed audit reports during the five-year period from 2010 to 2014. In this study, mechanisms for auditor selection were controlled by mechanisms for interlocking directorships in order to obtain a broader picture of the conditions under which board members have tendencies to select reputable auditors. The findings suggest that reputation has a significant impact on both observed processes, however, results reveal that reputation has a compensatory nature, as it drives both mechanisms of social selection but never simultaneously.

The influence of profitability, firm size, productivity and reputation of the auditor on the rating of Sukuk.

The purpose of this research is to find out the effect between the profitability, firm size, productivity, and auditor reputation toward rating sukuk. Rating sukuk is the dependent variables in this research were measured by scoring technique based on Pefindo’s rating. For the independent variables in this research, using profitability were measured by return of equity ratio, firm size were measured by natural logarithm of total asset, productivity were measured by comparison sales with employees, auditor reputation using dummy method. This research using secondary data which is non bank companies from Indonesian Stock Exchange Listed Company and rated by Pefindo in 2009-2013. While the sampling method used was purposive method which is overall 35 sample choose. This research uses logistic ordinal regression to test the hypothesis with SPSS computer program.
 The research result show that produktivity and auditor reputation partially have a significant negative influence toward rating sukuk, while profitability and firm size have no significant influence toward rating sukuk.

PENGARUH PROFITABILITAS, UKURAN PERUSAHAAN, PRODUKTIVITAS, DAN REPUTASI AUDITOR TERHADAP PERINGKAT SUKUK

The purpose of this research is to find out the effect between the profitability, firm size, productivity, and auditor reputation toward rating sukuk. Rating sukuk is the dependent variables in this research were measured by scoring technique based on Pefindo’s rating. For the independent variables in this research, using profitability were measured by return of equity ratio, firm size were measured by natural logarithm of total asset, productivity were measured by comparison sales with employees, auditor reputation using dummy method. This research using secondary data which is non bank companies from Indonesian Stock Exchange Listed Company and rated by Pefindo in 2009-2013. While the sampling method used was purposive method which is overall 35 sample choose. This research uses logistic ordinal regression to test the hypothesis with SPSS computer program.
 The research result show that produktivity and auditor reputation partially have a significant negative influence toward rating sukuk, while profitability and firm size have no significant influence toward rating sukuk.

Corporate governance, capital structure and firm performance: Evidence from Thailand

We examine the relationship between corporate governance and firm performance for a panel sample of 493 firms of non-financial firms in Thailand during the period 2001–2014. We find that for the full sample, corporate governance is not associated with financial leverage and firm performance. Leverage has a positive effect on firm performance. When we split firms into small and large firm subsamples, we observe some influence of corporate governance. The negative effect of audit committee size on firm performance is evident for large firms while the effect of audit reputation on firm performance is evident for small firms only. Furthermore, financial leverage mediates the effect of audit committee size on firm performance for the large firms.

Audit Firm Size, Audit Fee, Audit Reputation and Audit Quality: The Case of Listed Companies in Vietnam

Audit quality is considered as an essential factor affecting the reliability of financial information. The aim of this study is to assess the effects of audit firm characteristics, including audit reputation, audit fees and audit firm size, on audit quality. A sample of 192 companies listed on Hanoi and Ho Chi Minh Stock Exchange for the period of 2006-2014 was selected. Multiple regression was used to analyze the data. The findings show that Big 4 auditors in Vietnam provide high audit quality than non-Big 4 auditors. Interestingly, in Vietnam context, except for the audit firms in the Big 4 group, the findings suggest that smaller audit firms provide better audit quality. Additionally, the results reveal that the more audit fees the auditors receive, the lower audit quality they provide. The critical role of audit quality has attracted significantly scholarly attention, however, prior studies have mainly focused on firms in developed countries. Little is known about audit quality in an emerging economy context such as Vietnam. This study adds to the limited number of studies on audit quality of listed companies in emerging economies.

Determinan Penerimaan Opini Audit Going Concern pada Perusahaan Property dan Real Estate

Abstract The purposes of this research are to examine the influence of tenure audit, opinion shopping and auditor reputation on acceptance of going concern audit opinion. This research was done to the sub sectors and property company in 2013-2015. The data which is used this secondary data by using purposive sampling technique. Analysis technique which is used in this research is descriptive with quantitative approach using descriptive statistical test, multicolinearity test, logistic regression analysis, and coefficient of determination. The result shows that audit of tenure, opinion shopping, and auditor reputation simultaneously affect the acceptance of going concern audit opinion, audit tenure does not affect the acceptance of going concern audit opinion, opinion shopping does not affect the acceptance of going concern audit opinion, auditor reputation has an effect on acceptance of going concern audit opinion. Keywords: Acceptance of going concern audit opinion; Audit tenure; Auditor reputation; Opinion shopping. Abstrak Penelitian ini bertujuan untuk menguji pengaruh audit tenure, opinion shopping dan reputasi auditor terhadap penerimaan opini audit going concern. Penelitian ini dilakukan pada perusahaan sub sektor property dan real estate tahun 2013-2015. Data yang digunakan pada penelitian ini adalah data sekunder dengan pengambilan sampel menggunakan purposive sampling. Teknik analisis data yang digunakan adalah teknik deskriptif dengan pendekatan kuantitatif menggunakan uji statistik deskriptif, uji kelayakan model regresi, uji multikolinearitas, analisis regresi logistik, dan koefisien determinasi. Hasil yang peroleh menunjukkan bahwa audit tenure, opinion shopping, dan reputasi auditor secara simultan berpengaruh terhadap penerimaan opini audit going concern, audit tenure tidak berpengaruh terhadap penerimaan opini audit going concern, opinion shopping tidak berpengaruh terhadap penerimaan opini audit going concern, dan reputasi auditor berpengaruh terhadap penerimaan opini audit going concern. Kata kunci: Audit tenure; Opinion shopping; Penerimaan opini audit going concern; Reputasi auditor.

Does CEO-Auditor Dialect Sharing Impair Pre-IPO Audit Quality? Evidence from China

Using a sample of Chinese to-be-listed firms during the period of 2006–2012, this study examines the influence of CEO-auditor dialect sharing (CADS) on pre-IPO audit quality and further investigates the moderating effects of auditor reputation and audit firm industry specialization. On the basis of information in personal identification cards, this study hand-collects data about CADS, and then provides strong and consistent evidence to show that CADS is significantly positively related with discretionary accruals (the inverse proxy for audit quality), suggesting that CADS leads to the collusion between the CEO and the signing auditors, elicits pre-IPO earnings management, and eventually impairs pre-IPO audit quality. Moreover, both auditor reputation and audit firm industry specialization attenuate the positive effect of CADS on discretionary accruals. Furthermore, sensitivity tests suggest that above findings are robust to different measures of CADS and discretionary accruals, and above conclusions still stand after controlling for the endogeneity. Lastly, the findings using the post-IPO sample further validate the negative association between CADS and pre-IPO audit quality.

Audit quality and audit report lag: case of Indonesian listed companies

PurposeThe purpose of this paper is to empirically examine the relation between two dimensions of auditor quality, namely, auditor industry specialization and auditor reputation and the audit report lag.Design/methodology/approachThe data collection focuses on companies listed on the Indonesia Stock Exchange for the financial year of 2010 and 2011. To ensure data homogeneity and reduce industry bias, this study focuses solely on manufacturing companies identified by the Indonesian Capital Market Directory.FindingsThis study finds a negative and significant association between industry-specialist auditors and audit report timeliness. Companies audited by industry-specialist auditors have shorter audit delays. The authors also find evidence that Big 4 auditors perform significantly faster audit work than their non-Big 4 counterparts. In addition, this study reports a statistical and significant relationship between auditing complexity, companies’ profitability, auditors’ business risk, and industry classification and audit report lag. The results show that firms with a large number of subsidiaries and firms experiencing poorer financial performance are found to be associated with longer reporting delays. Moreover, audit report timeliness is found to be faster for companies in the low-profile industry sector and owned by family members.Research limitations/implicationsSimilar to other empirical investigations, this study is not without certain caveats. First, the period of audit report lag in this study reflects the audit work from the year-end to the audit report date. The authors do not consider audit work conducted outside this period in the analysis. Second, there are numerous control variables and although the authors have attempted to capture those variables to maintain the integrity of the research there are likely other excluded variables that may be important in explaining audit report timeliness. Finally, there are other factors, for example, an administrative approval process with the audit firm home office, which can affect audit report lags but have not been included in the model analysis. Future studies can seek to focus on refinements to the proxy measures for dependent and experimental variables.Practical implicationsInsights drawn from this study may be of assistance to policy makers as they consider the costs and benefits associated with varying levels of audit market concentration as well as providing a snapshot of the level of non-compliance on audit timeliness in Indonesia.Originality/valueThis study provides further empirical evidence on the relation between auditor quality and audit report lag using data from a different domestic setting. This study also enriches the auditor quality literature by employing industry-specialist and Big 4 auditors as a predictor for the timeliness of audit reports.

Auditor Response to Clients' Reputational Risk

In this study, we use new data to examine client reputation risk as a component of auditor risk assessment and response. The RepRisk database captures negative media coverage of companies’ environmental, social, and governance practices in a quantified measure of client reputational risk. Due to its focus on non-financial risk, this measure is uniquely able to disentangle auditor reputation considerations from the risk of material misstatement. We predict that auditors consider client reputational risk in the risk assessment phase of the audit. Specifically, client reputation risk may impact auditor business risk, where an auditor suffers reputation losses from their association with a client with impaired reputation. We find that client reputational risk has a positive impact on audit fees and the likelihood of auditor changes. Thus, our findings suggest that auditors monitor negative media coverage of their clients and incorporate it into pricing and retention decisions. We conduct supplemental analyses suggesting that our evidence is consistent with an auditor business risk explanation incremental to responses explained by risk of material misstatement and increased effort.

Enforcement Actions and Auditor Changes

In this paper, we examine whether the uncovering of erroneous financial statements by German enforcement agencies is related to subsequent auditor changes. We argue that enforcement actions are likely to reveal information about the client or its auditor, which might affect auditor choice by initiating an update of mutual expectations. Our empirical findings indicate that firms with erroneous financial statements indeed have an increased probability of subsequent auditor changes. Firms also tend to change from a non-Big4 auditor to a Big4 auditor in this situation, suggesting that clients increasingly seek the reputation and services of Big4 auditors. Big4 auditors in turn do not appear to refrain from taking over error-firms as new clients in the German setting, which is characterized by limited auditor liability. Additionally, auditor changes are more likely to occur before the public announcement of an error, indicating that firms take action as soon as the uncovering of an accounting error becomes sufficiently certain.

Impact of Quality Certification on IPO Underpricing: Evidence from India

The study examines the impact of quality certification of initial public offerings (IPOs) arising out of lead manager’s reputation, grading by credit rating agencies, presence of anchor investors and the reputation of auditors on the level of IPO underpricing. The mean initial excess return that measures the level of IPO underpricing is 22 per cent based on a sample of 399 IPOs made by Indian companies during the period from April 2005 to March 2015. Contrary to expectations, nearly 37 per cent of the IPOs do not provide a positive initial excess return. Univariate analysis reveals that except for IPO grading, the other quality certification variables do not make a significant impact on the level of underpricing. Graded issues are more fairly priced compared to non-graded issues. The Securities and Exchange Board of India (SEBI), the capital market regulator, has recently done away with mandatory grading of IPOs. As graded issues have been observed to improve pricing efficiency, SEBI should reconsider its decision and reintroduce compulsory IPO grading. Multivariate analysis, that includes other variables, such as issue size, level of subscription and promoters holding, reveals that the two variables that have a significant influence on initial excess returns from IPOs are the issue size and the level of oversubscription of the IPO.

PENGARUH KARAKTERISTIK PERUSAHAAN DAN AUDITOR TERHADAP AUDIT DELAY (Studi Kasus Pada Perusahaan Hotel, Restoran, dan Pariwisata di Bursa Efek Indonesia)

Penelitian ini bertujuan untuk menguji, membuktikan, dan menganalisis pengaruh Ukuran Perusahaan, Kompleksitas Operasi Perusahaan, Reputasi KAP, dan Opini Auditor terhadap Audit delay.Variabel penelitian ini adalah Ukuran Perusahaan, Kompleksitas Operasi Perusahaan, Reputasi KAP, Opini Auditor, dan Audit Delay. Sampel penelitian ini adalah perusahaan Hotel, Restoran, dan Pariwisata yang terdaftar di BEI periode 2010-2013. Pemilihan sampel menggunakan purposive sampling dan diperoleh 40 sampel dari 10 perusahaan selama tahun 2010-2013. Data yang digunakan dalam penelitian ini adalah data sekunder berupa laporan keuangan tahunan (Annual Report) perusahaan sektor Hotel Restoran, dan Pariwisata yang terdaftar di Bursa Efek Indonesia periode 2010-2013 yang telah diaudit dan kemudian diklasifikasikan berdasarkan kriteria-kriteria yang telah ditentukan. Teknik analisis menggunakan analisis regresi linier berganda dengan variabel dummy. Berdasarkan hasil penelitian yang telah dilakukan membuktikan bahwa model regresi yang dihasilkan tidak sesuai untuk menguji pengaruh Ukuran Perusahaan, Kompleksitas Operasi Perusahaan, Reputasi KAP, dan Opini Auditor terhadap Audit Delay. Berdasarkan pengujian parsial membuktikan bahwa Ukuran Perusahaan, Kompleksitas Operasi Perusahaan, Reputasi KAP, dan Opini Auditor tidak berpengaruh signifikan terhadap audit delay.This study aimed to test, to prove and analyze the influence of company size, complexity of operations of the Company, Reputation of Audit Firm and Auditor’s Opinion toward audit delay. Variabel this research is company size, complexity of operations of the Company, Reputation of Audit Firm, Auditor’s Opinion, and Audit Delay. The sample was company Hotel, Restaurant, and Tourism, which is listed on the Stock Exchange 2010- 2013. The sample selection using purposive sampling and obtained 40 samples of 10 companies during 2010-2013. The data used in this research are secondary data from the annual financial statements (Annual Report) sector company Hotel Restaurant, and Tourism, which is listed on the Indonesia Stock Exchange 2010-2013, audited and then classified based on the criteria that have been determined. Techniques of analysis using multiple linear regression analysis with dummy variables. Based on the research that has been done to prove that the resulting regression model is not appropriate to examine the influence of company size, complexity of operations of the Company, Reputation of Audit Firm and Auditor’s Opinion toward Audit Delay. Based on the partial testing proves that the company size, complexity of operations of the Company, Reputation of Audit Firm and Auditor’s Opinion no significant effect on audit delay.

Political connections, related party transactions, and auditor choice: Evidence from Indonesia

This paper investigates how political connections in concert with related party transactions (RPTs) determine auditor choice in Indonesia. Our study is motivated by conflicting findings in the literature on whether politically connected firms appoint reputable auditors (Big 4 auditors). On one hand, politically connected firms are less likely to appoint Big 4 auditors if they wish to cover up RPT-related tunneling activities by providing financial statements that fail to reflect their true economic performance. On the other hand, politically connected insiders who refrain from self-dealing would prefer higher-quality financial reporting and, hence, appoint Big 4 auditors. Using data from Indonesia, we find support for the former. By documenting the role of RPTs as a motivating factor for politically connected firms to choose non-Big 4 auditors, we enrich the political connection and auditor choice literature.

PERTIMBANGAN AUDITOR DALAM MEMBERIKAN OPINI AUDIT GOING CONCERN

Going concern audit opinion will cause a decline in public trust and may even accelerate the company went bankrupt, as in the hypothesis of a self-fulfilling prophecy. This study examines the financial and non-financial faktors that can be obtained comprehensive model that can be considered by the auditor in assessing business continuity auditee. The purpose of this study was to test the effect of financial distress, debt default, prior audit opinion, auditor’s reputation and auditor client tenure to the possibility of receiving going concern audit opinion. The population of this study is a manufacturing company listed in the Indonesia Stock Exchange in the year 2008-2010. The samples of 28 companies were selected based on criteria that the companies are scored negative net profit after tax. Secondary data obtained is processed by using Logistic Regression analysis. The results revealed that the debt default and prior audit opinion affect on going concern audit opinion. As stated in the PSA 30, that debt default be an important indicator before the auditor issued a going concern opinion. The financial distress, auditor reputation and auditor client tenure had no effect on the possibility of receiving going concern audit opinion.