Audit Costs Research Articles

The Role of Environmental Audits in Enhancing Sustainability in Industrial Property Management. Insights From Nairobi County

Nairobi, the capital city of Kenya, is experiencing significant environmental challenges, with pollution levels reaching unprecedented heights. This issue is particularly evident in the Nairobi River Basin, which comprises the Nairobi, Ngong, and Mathare Rivers. The basin is a focal point of concern due to the widespread discharge of untreated industrial waste into its waters. The city's high population density, coupled with the concentration of industries, exacerbates the environmental impact, making Nairobi the most affected region in the country in terms of pollution. Among the various sources, industrial pollution emerges as a major contributor, prompting the National Environmental Management Authority (NEMA) to intervene and hold accountable the industries responsible for these environmental violations. This study set out to analyze the role of environmental audits in the management of industrial properties, focusing on a case study of industrial properties in Nairobi. The research targeted three key industrial areas: Nairobi Industrial Area, Baba Ndogo, and the industries along Nairobi-Mombasa Road. The study's target population consisted of 487 respondents, comprising 440 property managers and 47 NEMA County directors. Using Yamane’s 1967 formula, the sample size was determined to be 211 respondents. The study employed a simple random sampling method for data collection, utilizing questionnaires and interviews to gather information. Data analysis was conducted using descriptive statistics with SPSS version 24, and interpretation was guided by a theoretical framework and previous research. The study found that environmental audits significantly enhance industrial performance by improving organizational effectiveness, ensuring regulatory compliance, and boosting competitive advantage. They also raise awareness of environmental impacts, enhance corporate reputation, and provide valuable data for investors. However, challenges such as corruption, regulatory bias, and high audit costs persist. The research underscores the importance of environmental management and recommends that property managers strategically implement audit systems to support sustainable industrial growth and regulatory compliance

Measuring and Mitigating Racial Disparities in Tax Audits

Abstract Tax authorities around the world rely on audits to detect underreported tax liabilities and to verify that taxpayers qualify for the benefits they claim. We study differences in Internal Revenue Service audit rates between Black and non-Black taxpayers. Because neither we nor the IRS observe taxpayer race, we propose and use a novel partial identification strategy to estimate these differences. Despite race-blind audit selection, we find that Black taxpayers are audited at 2.9 to 4.7 times the rate of non-Black taxpayers. An important driver of the disparity is differing audit rates by race among taxpayers claiming the Earned Income Tax Credit (EITC). Using counterfactual audit selection models to explore why the disparity arises, we find that maximizing the detection of underreported taxes would not lead to Black EITC claimants being audited at higher rates. Rather, the audit disparity among EITC claimants stems largely from a policy decision to prioritize detecting overclaims of refundable credits over other forms of noncompliance. Modifying the audit selection algorithm to target total underreported taxes while holding fixed the number of audited EITC claimants would reduce the share of audited taxpayers who are Black and would lead to more audits focused on accurate reporting of business income and deductions, fewer audits focused on the eligibility of claimed dependents, higher per audit costs, and more detected noncompliance.

The impact of the JOBS act on the costs of going public: evidence from long-term audit costs

The Jumpstart Our Business Startups (JOBS) Act (2012) allows reduced compliance costs for IPOs with less than $1 billion in revenues. While prior research has focused on the Act’s ability to reduce short-term IPO compliance costs, we investigate how the Act affected key observable compliance costs – audit fees – over the five years the issuing firm is eligible for this reduced level of disclosure/compliance. In contrast to prior findings of increased short-term audit costs, we find that long-term audit costs decreased by 16.6 percent, or $172,000 for IPO firms following JOBS, relative to the change fees for in control firms unaffected by the regulation. After investigating other consequences of the Act, we find greater information uncertainty for affected firms following JOBS. However, we find lower accrual-based earnings management as responses to these information frictions. We find the reductions in earnings management is driven by firms with the greatest information uncertainty with investors, suggesting that affected firms take additional steps to mitigate the information risks in light of their inherently riskier IPOs. Overall, we present a fuller picture of the costs/benefits and risk mitigation in post-JOBS IPOs.

The impact of internal control of non-financial reporting-related weaknesses on audit fees: does external audit size matter?

This study intends to examine the impact of internal control of non-financial reporting-related weakness on the audit fees of corporations. To pursue the research objectives, two research questions are formalized: (i) How does internal control over non-financial reporting-related weakness (ICWN-FR) affect audit fees (ADF)?; (ii) What is the effect of external audit size on the link between ICWN-FR and ADF ?. Multiple regression models with 82 listed Jordanian companies from 2014 to 2020 used as the study sample reveal the following findings. Our findings underscore the importance of considering the characteristics of the audit firm when analyzing the relationship between ICWN-FR and audit fees. Companies audited by Big 4 firms may face greater scrutiny and potentially higher fees for ICWN-FR compared to those audited by non-Big 4 firms. While prior studies have explored various factors influencing audit fees and the impact of internal controls on audit costs, this research uniquely delves into the differential effects observed when companies are audited by different categories of audit firms. The study accentuates the significance of impeccable internal controls within non-financial reporting procedures and their far-reaching consequences on audit fees, thereby highlighting the imperative for corporations to give precedence to augmenting their internal control mechanisms.

Research on Internal Audit of Cost and Expense--Take Company C as an example

Research on Internal Audit of Cost and Expense--Take Company C as an example

Effect of The Board of Directors Size, Independence, and Frequency of Board Meetings on Audit Fees: Evidence From GCC Market

Purpose: This study aims to examine the potential impact of board size, board independence, and meeting frequency on audit fees for companies listed on the financial markets of the United Arab Emirates (UAE). Design/Methodology/Approach: The Abu Dhabi Securities Exchange (ADX) and the Dubai Financial Market (DFM) are the two financial markets in the UAE. The data utilised in the investigation were obtained from the ADX and the DFM. The data was gathered over six years, from 2011 to 2016. The final sample comprises 312 observations. The study employs descriptive and correlation tests, in addition to multiple regressions, as statistical methods. Findings: The analysis revealed a strong correlation between audit fees and both the independence and frequency of board meetings. The findings demonstrated a positive correlation between stringent corporate governance procedures and the requirement for superior audit quality, resulting in higher audit costs. The results also indicated a significant correlation between business size, profitability, leverage, and audit fees. Originality/Value: Due to the recent implementation of the corporate governance code in the UAE and its financial markets, including the ADX and DFM, the efficacy of the code remains uncertain and, therefore, subject to scrutiny. Inadequate governance and audit standards may adversely impact the integrity of financial reporting. Nevertheless, there is limited empirical research investigating the elements influencing the quality of financial reporting in the UAE. This study contributes to the existing literature by enhancing comprehension of the impact of the board of directors on audit quality, utilising data from a GCC country.

Healing the Past by Nurturing the Future: trauma-aware, healing-informed care to improve support for Aboriginal and Torres Strait Islander families – implementation and evaluation study protocol

IntroductionComplex trauma can have serious impacts on the health and well-being of Aboriginal and Torres Strait Islander families. The perinatal period represents a ‘critical window’ for recovery and transforming cycles...

The impact of it governance on audit outcomes and footnote readability for public companies in Indonesia

This study explores the relationship between IT governance and audit outcomes, including audit costs, quality, report lag, opinions, and the readability of financial statement footnotes in Indonesian public companies. Utilizing regression analysis, the research finds that while IT governance does not significantly affect audit costs, report lag, or opinions, it positively influences audit quality. Contrary to expectations, higher IT capabilities do not lead to increased audit costs but reduce them by lowering audit efforts. Furthermore, IT governance does not notably impact footnote readability, potentially due to information overload in annual reports. These findings shed light on the importance of IT governance in shaping audit quality and provide valuable insights for stakeholders in Indonesian public companies. Further research is encouraged to explore these relationships in different contexts and industries.

Determinan Audit Fee (Studi pada Perusahaan Manufaktur yang terdaftar di BEI Tahun 2018-2020)

This study aims to identify the determinants of audit fees in real estate companies listed on the Indonesia Stock Exchange (IDX) for the period 2018-2020. Using a quantitative approach and linear regression analysis on secondary data from annual financial reports, it was found that among the four independent variables examined—going concern, corporate governance, company size, and audit firm size—only company size has a significant effect on audit fees. Company size influences audit fees due to greater operational complexity, audit risk, and the need for additional services. These findings support Agency Theory and have practical implications for large company management to manage risk and complexity to control audit costs, as well as for auditors and policymakers to consider company size when setting audit fees and formulating regulations.

Chief risk officer and audit fee: An investigation from financial industries in Indonesia

The appointment of a CRO (Chief Risk Officer) influences the implementation of ERM (Enterprise Risk Management), which reduces risk and lowers audit costs. Financial Services Authority Regulation No.17/2014 in Indonesia requires companies to have an RMC (Risk Management Committee), which is different from a CRO equivalent to a C-Level. This study examines the impact of a CRO on external audit costs. The data consists of financial companies listed on the Indonesia Stock Exchange (IDX) from 2011 to 2020. The results show that companies using a CRO have lower risk, thereby reducing audit costs. Additionally, the expertise of a CRO also impacts a higher ERM, which in turn affects the reduction of audit costs. This study contributes to the practical world by supporting the appointment of a CRO to reduce company risk. Thus, the company can deliver better performance.

Does Goodwill-Related Critical Audit Matters Disclosure Influence Firms’ Financial Reporting Decisions? Evidence from Goodwill Impairment

SUMMARY We investigate whether the new critical audit matters (CAMs) disclosure requirement for auditors under the PCAOB Standard AS 3101 affects audited firms’ financial reporting decisions in the context of goodwill impairment recognition. We argue that an auditor's intense engagement with management and the audit committee in the CAMs determination and evaluation process improves management's information sets. Specifically, we report that the propensity to recognize goodwill impairment loss increases for firms with goodwill-related CAM disclosure relative to those without. This result is more pronounced when the likelihood of expected impairment is higher, suggesting that CAMs reporting lowers managers’ discretion in delaying impairment loss recognition. Additionally, we find that goodwill-related CAM disclosure increases the length and use of uncertain words in goodwill-related footnote disclosure by management but has no significant impact on audit costs. Overall, these findings suggest that adopting CAMs requirements can reduce management's discretion in financial reporting decisions. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M41; M42.

Enterprise innovation and audit pricing: An evidence study from China's A-share listed companies.

Driven by innovation strategy, Chinese enterprises' innovation investment, and research and development capability have been continuously improved, and the audit risk caused by this has attracted widespread attention from the academic community. This study takes China's A-share listed companies from 2013 to 2021 as samples to empirically test the relationship between innovation input and audit pricing of Chinese enterprises. Research shows that the higher the innovation investment, the higher the audit cost. High-quality corporate governance, sufficient research and development personnel, research and development subsidies, and operating cash flow can all play a negative moderating role. A good innovation environment will weaken the positive influence between innovation input and audit fees. This study theoretically confirms the risk-oriented audit pricing mechanism, which is of great significance for optimizing enterprise innovation risk management and improving audit service levels.

Analysis of the Effects of Agency Costs on Financial Performance of Commercial Banks Listed at the Nairobi Securities Exchange in Mombasa County, Kenya

Agency costs result from a principal-agent relationship's conflicting interests. The relationship develops because the principal may not be able to manage the business since they are technologically illiterate, numerous, and geographically spread; as a result, they hire the agent. In a commercial bank, there are various relationships that show principal agent relationships, with the most prevalent one being the link between the shareholders and the management. Agency fees are paid with the intention of aligning the agents' and principal's ambitions in order to realize the principal's overarching intentions. Therefore, the perseverance of this study was to analyze agency costs and their effects on financial performance. In this study, the agency cost on financial performance of public commercial banks was analyzed. Specific objectives were; to establish how monitoring cost affect the financial performance of quoted commercial banks in Mombasa County, to assess the effect of bonding cost on financial performance of listed commercial banks in Mombasa county, to examine the extent to which residual loss affect the financial performance of commercial banks in Mombasa county and to determine the effects of restructuring cost on financial performance of listed commercial banks in Mombasa County- directed the study. Theories supporting this study were as follows; agency theories, free cash flow and stakeholder’s theory. Descriptive design is a kind of research methodology which establishes the connection between variables. It was used in this study to identify both the broad and the detailed study goals. A census of the 10 listed commercial banks in Mombasa County was conducted as part of the work and purposive sampling was be used. This study used qualitative and quantitative methods. Validity was tested through interview while reliability was tested using Cronbach alpha. The data was analyzed using inferential statistics like regression and correlation and descriptive statistics like mean and standard deviation using the Statistical Package for Social Science (SPSS) Version 22.0. The results were presented using cross tabulation, frequency tables, and charts. Findings indicated that there was a significant impact between; monitoring cost, bonding cost and residual cost and the financial performance. Restructuring cost were determined to have a favourable impact on financial performance. Therefore, the study recommends implementing an efficient internal control system by listed commercial bank management. This will assist in cutting down on the cost of auditing, administrative costs, and wasteful and unneeded spending, Managers should be paid more and attaching monetary or share bonuses or option entitlements to particular firm performance and to adopt a type of restructuring that will align with the relevant strategy and objectives.

Energy consumption disaggregation in commercial buildings: a time series decomposition approach

As commonly stated, we cannot manage what we do not measure. Understanding the flow of energy and its end-uses within a building is critical for energy management. Therefore, the lack of high resolution energy submetering is a significant barrier to efficient energy management in buildings. Despite this, many buildings still lack adequate submetering for their major end-uses because of the cost and practical restrictions. Energy disaggregation techniques aim at breaking down the bulk meter energy data into primary end-uses to gain insight into consumption patterns. However, high resolution, trustworthy BAS trend data is essential to develop reliable disaggregation techniques and capture unmeasured energy flow accurately. This paper explores a time series decomposition based method to disaggregate the total energy use into three major end uses namely lighting and plug loads, cooling, and heating energy use without BAS trend data. The results were compared with actual submetered data from ten office buildings in Ottawa, Canada for validation purposes. Specific insights into lighting and thermal scheduling, as well as hourly, daily, and monthly operational variations based on the de-composition components were discussed. The promising performance of the proposed method suggests that it could be used for quick and low cost auditing of commercial buildings with access to only the building’s total energy use data.

Regulatory Role of Financial Performance on Internal Control and Audit Costs: Evidence from China

With the development of China's economy, many problems such as financial fraud have gradually appeared in the market environment, which has a very adverse impact on the sustainable development of China's economy. At the same time, the importance of audit supervision has become increasingly prominent. Therefore, the relationship between the internal situation of enterprises and external audit needs to be further studied. This paper discusses the relationship between internal control, financial performance and audit costs, focusing on how financial performance plays a role in the relationship between internal control and audit costs. In the following sections, we will explain how internal controls and financial performance affect audit costs.

The Effects of Information Asymmetry on Audit Fees

Audit fees refer to the financial compensation received by accounting firms and auditors in return for the delivery of their professional services. These services encompass a range of operations, including the analysis of financial statements, evaluation of internal controls, and performance of numerous other tasks linked to auditing. Typically, organizations remunerate external audit firms for their services through fees, which can be either annual or based on the specific services rendered. The remuneration for audit services is commonly subject to variability, with adjustments made based on the particular audit engagement's scope and complexity. This paper delves into the correlation between information asymmetry and audit fees. The concept of information asymmetry arises when there is an unequal distribution of information between two parties involved in a transaction, leading to an imbalance in knowledge. This phenomenon has a notable influence on the determination of audit fees. This paper examines the theoretical underpinnings, empirical findings, and practical ramifications of the impact of information asymmetry on audit costs and the quality of audit services. The work analyzes the elements that contribute to information asymmetry by conducting a comprehensive review of current literature and empirical studies. Through this analysis, the study sheds light on the complex dynamics between information asymmetry, audit fees, and audit quality.

Employee education, labor protection intensity and auditor risk perception.

Prior literature finds senior executives can influence auditor decision making. However, few studies have discussed the impact of employee's personal characteristics. Our research aims to fill the above research gaps by examining the impact of employee level education on audit costs. Taking A-share listed companies in Shanghai and Shenzhen from 2006 to 2021 as the research object, this paper examines the impact of employee education on audit fees. It is found that highly educated employees can effectively reduce the audit fees borne by the company, but the implementation of the Labor Protection Law weakens this inhibitory effect. In the case of low marketization level and weak Confucian culture intensity, employee education level has a more significant inhibitory effect on audit fees of listed companies. This study provides a basis for empirical research on the impact of employee attributes on auditor decision making, provides a new research perspective on the impact of labor protection law at the corporate micro level, and enriches the theoretical research on corporate governance rooted in traditional Chinese culture. We contribute to the practice that implications for evaluating the effectiveness of adopting labor protection.

Measureing Carbon NetZero and the IRISCAST Project

Moving towards NetZero requires robust information to enable good decision making at all levels: covering hardware procurement, workload management and operations, as well as higher level aspects encompassing grant funding processes and policy framework development. The IRISCAST project is a proofof-concept study funded as part of the UKRI DRI Net-Zero Scoping Project. IRISCAST performed an audit of carbon costs across a multi-site heterogeneous infrastructure by collecting and analysing snapshots of actual usage across different facilities within the IRIS community (https://iris.ac.uk). Combining usage information with an analysis of the embodied carbon costs and careful mapping and consideration of the underlying assumptions resulted in an estimate of the overall carbon cost, an understanding of the key elements that contribute to the carbon cost, and the important metrics needed to measure it. IRISCAST makes reccomendations to allow high level feedback of carbon costs to funding bodies to inform strategic decisions as well as low level feedback of carbon costs to users and user communities to drive changes in user code bases and behaviors to be more carbon efficient. IRISCAST carbon modeling shows that estimates of carbon costs can vary by factors of 10, hence there is significant opportunity for the carbon footprint of Digital Research Infrastructures to be reduced.

The Impact of the JOBS Act on the Costs of Going Public: Evidence from Long-Term Audit Costs

The Impact of the JOBS Act on the Costs of Going Public: Evidence from Long-Term Audit Costs

Effects of Indebtedness, Taxes and Financial Distress on the Demand for Non-Mandatory External Audit: Evidence from the Chinese Firms

This paper aims to examine the determinants of firms’ demand for non-mandatory external audit in China. Although the demand for non-mandatory external audit has often been investigated for the western economies, we are the first to present evidence for the China by using a unique dataset that the World Bank provided. Using enterprise surveys to estimate the likelihood of firms engaging non-mandatory external audit, the paper uncovers how the indebtedness, tax inspection probability, and the financial distress affect the demand for non-mandatory external audit. The results indicate a positive association between tax inspection probability and demand for external audit. Contrary to the previous literature, the likelihood of demanding external audit diminishes as financial distress level of the firm rises. This result indicates relatively high audit costs for the financially distressed firms that can not afford to cover their non-operational costs.