Mandatory Audit Research Articles

Аудит в системе национальной безопасности государства

Being the only independent type of financial control, it is the audit that provides, in accordance with the legally established procedure, an official opinion on the reliability of accounting (financial) statements to all interested users. At the present stage, the purpose and objectives of the audit do not fully meet the needs of users of accounting (financial) statements, which led to a crisis of confidence in the audit services market. In 2022, the situation in auditing activities has changed significantly due to the fact that unprecedented sanctions in terms of scale and nature have been and are being permanently introduced against our country, which radically changes the strategy for the further socio-economic development of the state. The current situation in Russia requires the mobilization of all resources to protect the national interests of the state. One of the tools of financial security is an independent audit. The article substantiates the role of audit in the modern economy and the importance of mandatory audit in the formation of national security.

Homophily versus monitoring: Do all female board directors drive the gender assignment of audit partners?

By examining the extent to which the proportion of female board directors affects the gender assignment of engagement partners, this paper contributes to the existing literature in several ways. First, we investigate the French mandatory joint audit setting, giving rise to a set of concerns with regard to the auditor pair composition. Second, we consider female directors according to their positions on the board in order to determine which of the homophily and monitoring arguments plays the greater part in the auditor selection process. Third, we address the moderating effect of the gender quota law on the link between female directorship and the choice of audit engagement partners. Using appropriate estimation methods, we find that female board members appointed to key monitoring positions (female independent directors and female audit committee members) choose gender-diverse engagement partners. However, counter to the gender similarity (homophily) argument, we find that female inside directors are negatively associated with the selection of gender-diverse engagement partners. The association between gender-diverse boards and gender-diverse audit partners is found to be more pronounced in the period following the enactment of the gender quota law, thereby providing some practical and policy implications with regard to capitalising on the benefits of gender diversity. Supplementary analyses support the preponderance of the monitoring argument over the homophily argument in the auditor selection process.

Surgical Outcome After Pancreatoduodenectomy for Duodenal Adenocarcinoma Compared with Other Periampullary Cancers: A Nationwide Audit Study

BackgroundSurgical outcome after pancreatoduodenectomy for duodenal adenocarcinoma could differ from pancreatoduodenectomy for other cancers, but large multicenter series are lacking. This study aimed to determine surgical outcome in patients after pancreatoduodenectomy for duodenal adenocarcinoma, compared with other periampullary cancers, in a nationwide multicenter cohort.MethodsAfter pancreatoduodenectomy for cancer between 2014 and 2019, consecutive patients were included from the nationwide, mandatory Dutch Pancreatic Cancer Audit. Patients were stratified by diagnosis. Baseline, treatment characteristics, and postoperative outcome were compared between groups. The association between diagnosis and major complications (Clavien–Dindo grade III or higher) was assessed via multivariable regression analysis.ResultsOverall, 3113 patients, after pancreatoduodenectomy for cancer, were included in this study: 264 (8.5%) patients with duodenal adenocarcinomas and 2849 (91.5%) with other cancers. After pancreatoduodenectomy for duodenal adenocarcinoma, patients had higher rates of major complications (42.8% vs. 28.6%; p < 0.001), postoperative pancreatic fistula (International Study Group of Pancreatic Surgery [ISGPS] grade B/C; 23.1% vs. 13.4%; p < 0.001), complication-related intensive care admission (14.3% vs. 10.3%; p = 0.046), re-interventions (39.8% vs. 26.6%; p < 0.001), in-hospital mortality (5.7% vs. 3.1%; p = 0.025), and longer hospital stay (15 days vs. 11 days; p < 0.001) compared with pancreatoduodenectomy for other cancers. In multivariable analysis, duodenal adenocarcinoma was independently associated with major complications (odds ratio 1.14, 95% confidence interval 1.03–1.27; p = 0.011).ConclusionPancreatoduodenectomy for duodenal adenocarcinoma is associated with higher rates of major complications, pancreatic fistula, re-interventions, and in-hospital mortality compared with patients undergoing pancreatoduodenectomy for other cancers. These findings should be considered in patient counseling and postoperative management.

The impact of narcissism, self-confidence and auditor’s characteristics on audit report readability

PurposeThe present study aims to assess the impact of narcissism, self-confidence and auditor's characteristics on audit report readability for companies listed on the Tehran Stock Exchange.Design/methodology/approachThe study’s statistical population comprises firms listed on the Tehran Stock Exchange. The present research used a systematic elimination method, and 1,162 firm-year observations were obtained for seven years from 2012 to 2018. Three variables including auditor tenure, audit fee and audit specialization are used for measuring auditing features. The Fog index is used as a proxy for measuring audit report readability. In addition, in this paper, four regressions, including fixed effects, random effects, pooled and T+1, are used to estimate reliable coefficients.FindingsThe findings show a negative and significant relationship between auditor’s characteristics (tenure, fee and specialization) and audit report readability. Moreover, the variables of the auditor’s narcissism, self-confidence and mandatory auditor change have a positive and significant association with audit report readability. This study lends support to the theories of personality disorder and behavioral decision.Originality/valueSince narcissism and self-confidence are two characteristics that shape an individual’s character and personality, some involved behavioral factors in auditors’ characteristics contribute to their decisions. The effects of these should be detected to enhance the decision-making process. The said factors significantly impact audit report readability. Hence, this paper attempts to assess the effect of the said factors on audit report readability.

Apparent trends in the use of femoral megaprostheses: an analysis from the National Joint Registry

BackgroundMegaprosthetic replacement (MPR) of the femur is typically reserved for salvage or oncological reconstruction. Presently little is known about the provision of femoral MPRs performed nationally, the trends in indications for their use, and their outcomes beyond published unit-level data. Although the National Joint Registry (NJR) collects data as part of a mandatory arthroplasty audit process, MPR data entry on this platform is thought to be inconsistent. The aim of this study is to determine current trends for femoral MPR procedures as submitted to the NJR.MethodsData for all procedures submitted to the NJR using the following implants were extracted: METS (Stanmore/Stryker), MUTARS (Implantcast), Segmental (Zimmer), GMRS (Stryker) and MEGA C (LINK). Pseudoanonymized data were analyzed through the NJR’s research Data Access Portal and are reported using descriptive statistics.ResultsA total of 1781 procedures were identified. Submitted cases increased for primary and revision hip and knee categories over the study period, although they plateaued in recent years. MPR implants were most commonly used in revision hip arthroplasty procedures. MPR use for the management of peri-prosthetic fractures has increased and now represents the most commonly reported indication for MPR use in both hip and knee revision categories. Few centers submitted large MPR case volumes (which were noted to be lower than published unit case series, indicating NJR under-reporting), and the vast majority of centers submitting MPR cases did so in low volume.ConclusionsDue to the limitations identified, reported case volumes must be interpreted with caution. An MPR-specific NJR data entry form has been developed to allow more accurate and tailored reporting of MPR procedures, to support specialist service provision, and to provide meaningful data for future research.

Business Audit in ESG format: Up-Growth of the Corporate Reporting Verification Methodology

The paper continues the series of authors’ publications on the problem of developing the concept of business audit in sustainable development and ESG transformation. The object of the study is the modern international and Russian practice of verifying public ESG reporting by leading companies. The study’s task is to develop a methodology to confirm its reliability as the area for developing business audit in these conditions. As a result of the study, the authors have identified a trend for the auditors of the world’s leading countries to express an opinion on the reliability of ESG reporting with the provision of reasonable assurance to interested users, in contrast to Russian practice, in which thereare currently no such precedents. There have been determined directions for improving the procedure for confirming the reliability of public (including non-financial) reporting and delimited by the horizon of their practical implementation. The authors substantiated the necessity of introducing a requirement for a mandatory audit of non-financial information in corporate reporting. Also, they gave a comparative description of the two tracks of the practical implementation in the application of this requirement: the introduction of a mandatory rule for the predominant expression of reasonable assurance when auditors perform assignments to confirm the reliability of all types of non-financial reporting; extending the requirements of auditing standards, requiring auditors to express reasonable assurance on all corporate reporting. The authors have developed proposals to correct certain aspects of the existing methodology for the audit of financial statements in relation to the process of verification of non-financial information in corporate reporting. The results got will expand audit practice in the implementation’s context of the concept of sustainable development and implementing ESG principles. The study may interest national regulators, professional communities, as well as investors and financial market participants.

Costs and benefits of mandatory audit firm rotation: initial engagement experience of audit committee chairs and engagement partners

ABSTRACT Audit regulators remain divided on whether the costs of mandatory audit firm rotation (MAFR) will be outweighed by the benefits of the regulation. Existing research provides mixed results in support of the benefits of MAFR. This paper aims to complement these studies by examining what costs and benefits are experienced during the initial engagement after a MAFR. Interviews were conducted with dyads of South African audit committee chairs and audit partners involved in the same appointment process and initial audit engagement following a MAFR. While many audit committee chairs remained opposed to MAFR, most were impressed by the better-than-expected benefits of the fresh perspective and challenge offered by a newly appointed audit firm, and the less than expected costs of losing the incumbent auditor’s knowledge. By comparison, most audit partners expressed support for MAFR after their experience with the regulation and believed the policy would improve public perceptions of independence but raised concerns about the significant start-up costs their firms had been forced to absorb. As a result, while the findings suggest that the primary arguments against MAFR may be overstated, there is a risk that MAFR may compromise auditor independence by pressurising auditors to appease their new clients to retain the engagement and recover these initial costs. This paper provides insights for policymakers considering the costs and benefits of implementing MAFR, and for audit committees and auditors who seek to maximise the benefits while minimising the costs of their next MAFR event.

Audit committee characteristics and firms’ investment efficiency: the moderating effect of audit committee mandatory requirements

ABSTRACT This study examines how the relationship between audit committee characteristics and firms’ investment efficiency is affected by mandatory requirements for audit committees. Audit committee activity has a positive relationship with investment efficiency. The results suggest that the independence and expertise of audit committees cannot increase investment efficiency if the audit committees are less active. This positive relationship is more pronounced for firms with mandatory audit committees. Moreover, this relationship is strengthened when external governance attracts shareholders’ attention to corporate issues. The results suggest that the positive relationship between audit committee activity and investment efficiency is enhanced when the firms are under external pressures on corporate governance. The findings provide significant implications for countries that still do not have mandatory requirements for audit committees.

Does audit firm tenure enhance firm value? Closing the expectation gap through corporate social responsibility

PurposeThis study aims to examine the moderating effect of audit firm tenure on the association between corporate social responsibility (CSR) and firm value. Prior studies provide mixed results on this association, which may be due to differing theoretical expectations related to CSR and firm value. It is also possible that external stakeholders are unable to differentiate between positive and negative CSR investments, as CSR reports are generally not assured by independent third parties. Thus, the authors propose that audit firm tenure may be used by external stakeholders to evaluate CSR performance.Design/methodology/approachThe authors use an ordinary least squares regression to examine the moderating effect of audit firm tenure on the relation between CSR and firm value after controlling for other determinants of firm value and various internal and external governance mechanisms documented in the literature. The sample consists of 15,707 firm-year observations from US firms during the sample period of 2000 to 2012. The authors measure CSR quality using rating scores from MSCI ESG STATS (formerly the KLD database), audit firm tenure as the number of years the incumbent auditor has served the client and firm value using Tobin’s Q.FindingsThe results indicate that CSR is positively associated with firm value when audit firm tenure is long but not when tenure is short. The results are robust to alternative measures of firm value, CSR performance scores, and individual CSR dimensions. The evidence supports the argument against mandatory audit firm rotation in the USA.Research limitations/implicationsFuture studies could examine a similar issue in alternative settings and/or look at cross-sectional variations among firms on the association between CSR and firm value by other auditor traits such as auditor industry specialization and big-name reputation. Additionally, as auditor alone is unable to ensure the quality of management disclosures and their accountability, future studies could examine the moderating effect of internal and other external governance mechanisms on the association between CSR and firm value, exploring when the signaling effect of auditor tenure on CSR reporting quality and its effect on firm value is most salient.Practical implicationsThe findings are important to regulators and investors. The authors provide evidence that longer audit tenure serves as a signaling device for external investors with regard to the quality of a firm’s CSR performance. Hence, the study facilitates regulators’ cost-benefit analysis related to mandating audit firm rotation. The evidence suggests that mandating a term limit on auditor tenure may have the unintended consequence of eliminating a signaling effect of auditor tenure on the quality of CSR disclosures under information asymmetry. This supports the Public Company Oversight Board’s decision to forgo the requirement of mandatory audit firm rotation in the USA.Originality/valuePrior literature presents mixed findings on the association between CSR performance and firm value based on a variety of underlying theories (economic, stakeholder and contingency theory). Literature on mandatory auditor rotation has concentrated on the auditor tenure effect on perceived and actual audit quality as reflected in earnings quality. Relying on agency theory, this study posits that auditor tenure serves as a signal for the quality of CSR activities in the absence of CSR assurance reporting as CSR quality can be difficult to evaluate. The authors provide evidence that audit tenure moderates the association between CSR activities and firm value and longer audit tenure makes it more likely that the CSR activities are associated with increased firm value.

Implementation of robotic rectal cancer surgery: a cross-sectional nationwide study

AimAn increasing number of centers have implemented a robotic surgical program for rectal cancer. Several randomized controls trials have shown similar oncological and postoperative outcomes compared to standard laparoscopic resections. While introducing a robot rectal resection program seems safe, there are no data regarding implementation on a nationwide scale. Since 2018 robot resections are separately registered in the mandatory Dutch Colorectal Audit. The present study aims to evaluate the trend in the implementation of robotic resections (RR) for rectal cancer relative to laparoscopic rectal resections (LRR) in the Netherlands between 2018 and 2020 and to compare the differences in outcomes between the operative approaches.MethodsPatients with rectal cancer who underwent surgical resection between 2018 and 2020 were selected from the Dutch Colorectal Audit. The data included patient characteristics, disease characteristics, surgical procedure details, postoperative outcomes. The outcomes included any complication within 90 days after surgery; data were categorized according to surgical approach.ResultsBetween 2018 and 2020, 6330 patients were included in the analyses. 1146 patients underwent a RR (18%), 3312 patients a LRR (51%), 526 (8%) an open rectal resection, 641 a TaTME (10%), and 705 had a local resection (11%). The proportion of males and distal tumors was higher in the RR compared to the LRR. Over time, the proportion of robotic procedures increased from 15% (95% confidence intervals (CI) 13–16%) in 2018 to 22% (95% CI 20–24%) in 2020. Conversion rate was lower in the robotic group [4% (95% CI 3–5%) versus 7% (95% CI 6–8%)]. Anastomotic leakage rate was similar with 16%. Defunctioning ileostomies were more common in the RR group [42% (95% CI 38–46%) versus 29% (95% CI 26–31%)].ConclusionRectal resections are increasingly being performed through a robot-assisted approach in the Netherlands. The proportion of males and low rectal cancers was higher in RR compared to LRR. Overall outcomes were comparable, while conversion rate was lower in RR, the proportion of defunctioning ileostomies was higher compared to LRR.

Аудит бизнеса: обзор действующих стандартов в фокусе ESGрегулирования

The article provides an overview using certain provisions of the current auditing standards and quality management system standards for the purposes of confirming sustainability reporting. A comparison of Russian practice in the field of regulation of assurance of public reports of companies and European regulations obliging auditors to confirm the reliability of non-financial statements with the possibility of expressing a reasonable degree of confidence is given. On the basis of the analysis carried out, directions for improving the regulatory regulation of the procedure for confirming the reliability of non-financial reporting are proposed: regulation of the process of interaction between the auditor and other verifiers of non-financial reporting; introduction of a requirement for the mandatory audit of non-financial (and all corporate) reporting, which actually means a transition from the audit of financial statements to the audit of business. An approach has been formulated to define the concept of "corporate reporting" as a new object of audit.

Audit fee premium for national and local level of industry expertise in Italy

PurposeThis study aims to examine whether national industry expertise in Italy is more dominant than local expertise. Prior studies from Australia, USA and UK show that audit fees for industry experts are priced at a higher premium at the local level than the national level. These countries have voluntary audit firm rotation, while Italy has mandatory audit firm rotation (MAFR). The authors predict that Italy has a stronger national than local level of industry expertise, to better retain and transfer industry expertise.Design/methodology/approachThe authors compare audit fee premiums of national industry experts to local levels, using quantitative (multivariate tests) and qualitative (interviews) methodology.FindingsUsing hand-collected audit fees, the authors find that the audit fee premium for industry expertise is greater at the national level than the local level. The authors find corroborating results with audit hours. To provide further support, the authors conduct analysis for a neighboring country that does not have audit firm rotation. Using hand-collected data from Germany, the authors find that audit fee premiums from national industry expertise are no different from local industry expertise.Originality/valueThe present study study has theoretical and practical implications, for European Union countries, which recently adopted MAFR and for countries considering adoption in the future.

Outcome of Pancreatic Surgery During the First 6 Years of a Mandatory Audit Within the Dutch Pancreatic Cancer Group.

To describe outcome after pancreatic surgery in the first 6 years of a mandatory nationwide audit. Within the Dutch Pancreatic Cancer Group, efforts have been made to improve outcome after pancreatic surgery. These include collaborative projects, clinical auditing, and implementation of an algorithm for early recognition and management of postoperative complications. However, nationwide changes in outcome over time have not yet been described. This nationwide cohort study included consecutive patients after pancreatoduodenectomy (PD) and distal pancreatectomy from the mandatory Dutch Pancreatic Cancer Audit (January 2014-December 2019). Patient, tumor, and treatment characteristics were compared between 3 time periods (2014-2015, 2016-2017, and 2018-2019). Short-term surgical outcome was investigated using multilevel multivariable logistic regression analyses. Primary endpoints were failure to rescue (FTR) and in-hospital mortality. Overall, 5345 patients were included, of whom 4227 after PD and 1118 after distal pancreatectomy. After PD, FTR improved from 13% to 7.4% [odds ratio (OR) 0.64, 95% confidence interval (CI) 0.50-0.80, P <0.001] and in-hospital mortality decreased from 4.1% to 2.4% (OR 0.68, 95% CI 0.54-0.86, P =0.001), despite operating on more patients with age >75 years (18%-22%, P =0.006), American Society of Anesthesiologists score ≥3 (19%-31%, P <0.001) and Charlson comorbidity score ≥2 (24%-34%, P <0.001). The rates of textbook outcome (57%-55%, P =0.283) and major complications remained stable (31%-33%, P =0.207), whereas complication-related intensive care admission decreased (13%-9%, P =0.002). After distal pancreatectomy, improvements in FTR from 8.8% to 5.9% (OR 0.65, 95% CI 0.30-1.37, P =0.253) and in-hospital mortality from 1.6% to 1.3% (OR 0.88, 95% CI 0.45-1.72, P =0.711) were not statistically significant. During the first 6 years of a nationwide audit, in-hospital mortality and FTR after PD improved despite operating on more high-risk patients. Several collaborative efforts may have contributed to these improvements.

Fistula Risk Score for Auditing Pancreatoduodenectomy: The Auditing-FRS.

To develop a fistula risk score for auditing, to be able to compare postoperative pancreatic fistula (POPF) after pancreatoduodenectomy among hospitals. For proper comparisons of outcomes in surgical audits, case-mix variation should be accounted for. This study included consecutive patients after pancreatoduodenectomy from the mandatory nationwide Dutch Pancreatic Cancer Audit. Derivation of the score was performed with the data from 2014 to 2018 and validation with 2019 to 2020 data. The primary endpoint of the study was POPF (grade B or C). Multivariable logistic regression analysis was performed for case-mix adjustment of known risk factors. In the derivation cohort, 3271 patients were included, of whom 479 (14.6%) developed POPF. Male sex [odds ratio (OR)=1.34; 95% confidence interval (CI): 1.09-1.66], higher body mass index (OR=1.07; 95% CI: 1.05-1.10), a final diagnosis other than pancreatic ductal adenocarcinoma/pancreatitis (OR=2.41; 95% CI: 1.90-3.06), and a smaller duct diameter (OR=1.43/mm decrease; 95% CI: 1.32-1.55) were independently associated with POPF. Diabetes mellitus (OR=0.73; 95% CI: 0.55-0.98) was independently associated with a decreased risk of POPF. Model discrimination was good with a C -statistic of 0.73 in the derivation cohort and 0.75 in the validation cohort (n=913). Hospitals differed in particular in the proportion of pancreatic ductal adenocarcinoma/pancreatitis patients, ranging from 36.0% to 58.1%. The observed POPF risk per center ranged from 2.9% to 25.4%. The expected POPF rate based on the 5 risk factors ranged from 11.6% to 18.0% among hospitals. The auditing fistula risk score was successful in case-mix adjustment and enables fair comparisons of POPF rates among hospitals.

Effectiveness of Internal Audit- A Tool for Management Control System: An Action Research Approach

Internal audit emerged to have been an indispensable tool of management control system in Large Public Ltd. Companies in particular and Public Ltd Companies in general. Research on internal audit and its effectiveness has mainly so far focused on Public Limited Companies though an effective internal control system is a must for any organization including Private Limited Companies. Present study was administered in DMM Enterprise Private Ltd. Company within the meaning of the Companies Act, 2013 in order to examine the degree of effectiveness of internal audit for Private Limited Companies. The findings reveal that internal audit is a powerful tool to ensure that operational and financial functions carried out in succinct manner by timely detecting errors, financial frauds, exposing the risks involved and guiding the management in day-to-day commercial operations of the concerned organization. The appointment of internal auditor is mandatory for all the Listed Companies and ‘Producer Companies’. Unlisted Public Limited Companies having been subject to either of the criteria of a Paid-up Capital of INR 50 Cr. or more, the Turnover of INR 200 Cr or more and Loans and Borrowings of INR 100 Cr. from banks and financial institutions or having Outstanding Deposits of INR 25 Cr. at any point of time during the preceding financial year. As far as Private Limited Companies are concerned, internal audit has to be in place whenever the Turnover is INR 200 Cr. or more or the amount of Outstanding Loans and Borrowing is INR 100 Cr. or more at any point of time during the immediately preceding financial year. Internal audit for Private Limited Companies not covered within the criteria mentioned above assists efficiently in early detection of financial scam, frauds, errors, risk exposure , organizational performance evaluation and ensuring exercise of a robust management control throughout the length and breadth of the organization and save financial resources, ensures accuracy, authenticity, validity and reliability of financial information which in turn contribute to ensure quality decision making by the management. Moreover, effective internal audit system can save financial resources from being spent on non- or non-timely compliances. This paper aims at examining effectiveness of internal audit through the ’Action Research Approach’. Effective internal audit has emerged to be a tool for exercising management control over large organizations for which it is mandatory and also the companies not covered under the canvas of mandatory internal audit requirements and any other organizations including and medium sized enterprises. Scope of internal audit includes identifying and assessing the financial and non-financial risks and the hurdles in achieving the mission, goals and objectives of an organization. The study has been conducted on the Action Research Model developed by Kurt Lewin in the 1930s. This approach helps the organizations bring about sustainable efficiency in the economic operations of a business in terms of improving productivity, profitability and financial solvency.

Explorative study on waste heat production intensity and recovery practices in the textile sector: First steps towards the creation of a decision support tool based on real data

Nowadays industrial companies are getting more and more aware of the fact that a huge amount of the energy consumed every year goes unused and lost in the form of waste heat. Despite the fact that awareness is raising, incentives are available and that waste heat recovery technologies are generally mature and market-ready, heat recovery measures are still unimplemented at industrial level, mainly due to non-technological barriers, and in particular to the lack of reliable data related to heat consumption and waste heat recovery potentials, as well as to types, costs and benefits of heat recovery practices. The aim of this work is to fill such informational gap for the textile sector, providing a knowledge base elaborated on the basis of real industrial data gathered via a massive survey, and allowing further elaborations from the authors and academics. ENEA, the Italian National Agency for New Technologies, Energy and Sustainable Economic development, has in fact seized the opportunity to gather a relevant amount of data related to heat consumption, uses, potentials and recovery practices on the second deadline imposed by the Italian Legislative Decree n°102 of the July 4, 2014, which established periodic mandatory energy audits for large and energy intensive enterprises. Methodology and main results of data analysis are presented, providing a solid basis for both companies willing to identify and evaluate potential heat recovery opportunities for their processes, thus enabling knowledge transfer and practices sharing, and academics and policy makers willing to estimate recovery potentials. Consumption data for the textile sector are presented together with the quantification of main heat uses, allowing the identification of most relevant sub-sectors in terms of waste heat potential; heat recovery practices described in the energy audits are then analysed and characterized from a technical and economic point of view.

감사위원회 활동성과 감사보고시차

[Purpose]Although there have been a number of studies that have examined the effect of audit committee activity on auditing quality and earnings quality, no studies have investigated how audit committee activity influences auditing efficiency or audit effectiveness. The purpose of this study is to clarify the role of audit committee meeting frequency in corporate governance by verifying the relationship between audit committee activity and audit efficiency. [Methodology] The regression models were estimated to verify the relationship between audit committee activity and audit report lags. In addition, two-stage least squares (2SLS) was used to control potential endogeneity of this relationship. [Findings] The results showed that there was a significant and negative relationship between audit committee activity and audit report lags and this relationship was more pronounced for firms with mandatory audit committee. These results show that audit committee meeting frequency leads to audit efficiency because audit committee effectiveness is relatively increased in firms under regulatory pressure. Thus, audit committee meeting frequency seems to help limit managers’ opportunistic behavior in advance when firms are under high regulatory pressures. This relationship remains the same even after controlling for the potential endogeneity between audit committee activity and audit report lags. In addition, it was found that audit committee activity contributed to audit efficiency when the ratio of outside directors in the board was relatively higher and there was a continued auditor. Therefore, the audit committee is to enhance audit efficiency through interaction with internal and external monitoring bodies. [Implications]This study contributed to prior research by suggesting new evidence that audit committee activity positively affects audit efficiency rather than audit effectiveness.&#x0D;

Voluntary vs. mandatory: the role of auditing in constraining corporate tax avoidance in small private firms

This paper examines whether the status of the financial statement audit, as either voluntary or mandatory, is related to the corporate tax avoidance behaviour of private firms. Using the Swedish audit regime shift in 2010 which removed mandatory audit requirements for small private companies, we find that voluntarily audited firms exhibit a 19% decrease in total income tax burden relative to firms subject to mandatory audit following the regulatory change. This decrease corresponds to an average SEK 15,000 (approximately 1,500 euros) lower tax payment and is driven primarily by increasing conforming tax avoidance. We also find that increasing tax avoidance in voluntarily audited firms occurs, at least partly, due to impaired auditor independence under the voluntary audit regime. Finally, we show that the non-tax costs of tax avoidance restrict these tax-driven reporting changes. Our findings contribute to the literature on auditors’ constraining effect on corporate tax avoidance as well as to the debate over the costs and benefits of a mandatory financial statement audit regime.

MANDATORY AUDIT AND ITS NORMS

MANDATORY AUDIT AND ITS NORMS

Audit Tenure, Audit Fee, and Audit Quality : Evidence from India

This paper examined the relationship between the tenure of the auditor and the audit quality of Indian companies, particularly in the wake of two significant regulations in the financial reporting, the implementation of Ind AS (the IFRS compliant accounting standards) and mandatory auditor rotation. Using Discretionary Accruals as a proxy for audit quality, the study took the data of all the companies listed on the NSE for 11 financial years, from 2009 – 2019 (totaling 8,171 firm-year observations). It deployed panel data regression with a random-effects model. The results showed that audit quality improved up to specific auditors’ tenure, particularly with the IFRS compliance and Big 4 auditors. The higher audit fee is positively significantly associated with lower earnings quality. The study suggested that mandatory auditor rotation might provide the full benefit only along with other regulations on IFRS, auditor reputation, and audit fee. The study provided an impetus to the regulators, audit fraternity, and companies to improve the relevance of financial statements. This is one of the first longitudinal studies examining the interaction effects of different audit regulations. Robustness checks with other proxies of audit quality provided the same results.