External Audit Quality Research Articles

A Summary of Research on External Auditor Reliance on the Internal Audit Function

PCAOB Auditing Standard No. 5 (AS5) allows external auditors (EAs) to rely on the internal audit function (IAF) when the internal audit activities meet certain criteria and the EAs would find efficiencies in relying on their work (PCAOB 2007). This paper reviews the extant literature on the EAs’ reliance on IAF, identifies gaps in the literature, and proposes a series of research questions aimed at closing these gaps. We focus our review on research pertaining to how environmental factors and IAF-specific factors influence initial EAs reliance decisions, the nature and extent of EAs reliance on IAF, and the observable outcomes as a result of EAs’ reliance decisions. Our review finds that the environment in which EAs must make a reliance decision is complex – involving several factors that must be considered simultaneously. Moreover, an evolving set of auditing standards introduces several necessary intermediary judgments that the EAs must process before, and during, reliance on the IAF. In addition, our review indicates that we continue to know very little about how, and to what extent, EAs are currently evaluating IAFs’ quality factors. Similarly, while we find that the nature and extent of EAs reliance on IAF is influenced by account risk, inherent risk, and IAF sourcing, how the EAs chooses task environments (e.g., revenue recognition versus payroll) and the types of tests to be relied upon within these task environments is not completely understood. Finally, we find that there is a paucity of research concerning the effects of EAs’ reliance on IAF in terms of external audit quality.

Auditor Quality and Loan Syndicate Structure

SUMMARYThis study investigates whether and how the quality of external auditors hired by borrowers has an impact on loan syndicate structure. Our empirical analyses, using a sample of U.S. syndicated loans from 1996 to 2009, show the following findings: First, a larger number of banks participate in syndicated loans to borrowing firms with Big 4 (or previously Big 5 or Big 6) auditors than to those with non-Big 4 auditors. Second, the percentage of a syndicated loan retained by the lead bank(s) is smaller when the borrower is a client of a Big 4 auditor than when the borrower is a client of a non-Big 4 auditor. Third, the effect of auditor quality (Big 4 versus non-Big 4) on loan ownership structure is less pronounced when lenders are able to gather more information about the borrower prior to the loan deal. Overall, our results suggest that auditor quality plays an important role in loan syndication by alleviating information asymmetries between lead banks and non-lead participant banks.JEL Classifications: G21; G32; M42.Data Availability: Data are publicly available from sources identified in the paper.

Application of quality principles in transfusion microbiology

Application of quality principles in transfusion microbiology

The Influence of Strategy and External Quality Audit on University Performance: An Australian perspective

External quality audits have been introduced in many parts of the world including Asia Pacific, Asia, Africa, Europe, and the Middle East. While external quality audits have been introduced for more than a decade in some countries like New Zealand, the United Kingdom (UK), Denmark, and Sweden, there is limited research on the extent to which such audits have improved the performance of universities on educational measures. This paper is based on a large public university in Australia that has used strategy implementation and external quality audit as an opportunity for change and improvement. The paper argues that effective strategy implementation, external quality audits, and internal reviews and improvement processes, if effectively managed, could improve performance of the university on various educational measures. The paper compares various performance data of the university: two years pre‐strategy implementation and external quality audit and three years post‐audit. Finally, the paper argues that a ...

Role of corporate governance in mitigating the selective disclosure of executive stock option information

AbstractWe examine the nature and extent of statutory executive stock option disclosures by Australian listed companies over the 2001–2004 period, and the influence of corporate governance mechanisms on these disclosures. Our results show a progressive increase in overall compliance from 2001 to 2004. However, despite the improved compliance, the results reveal managements’ continued reluctance to disclose more sensitive executive stock option information. Factors associated with good internal governance, including board independence, audit committee independence and effectiveness, and compensation committee independence and effectiveness are found to contribute to improved compliance. Similarly, certain external governance factors are associated with improved disclosure, including external auditor quality, shareholder activism (as proxied by companies identified as poor performers by the Australian Shareholders’ Association) and regulatory intervention.

Auditor Quality and Ownership Structure of Syndicated Loan Deals

This study investigates a hitherto unexplored question of whether banks and other private lenders take into account the quality of external auditors appointed by borrowers when structuring the ownership of syndicated loans. Our empirical analyses, using a sample of U.S. loan data from 1992 to 2007, show several interesting findings. First, the percentage of a syndicated loan retained by lead arrangers is smaller for the loan to borrowers with Big 4 auditors than for the loan to borrowers with non-Big 4 auditors. Second, the effect of auditor quality (Big 4 versus non-Big 4) on loan ownership structure is more pronounced when the borrower has a high default risk. Finally, our change analyses show that the change in auditor quality is associated with the change in the ownership structure of syndicated loans: upgrading auditor from a non-Big 4 auditor to a Big 4 auditor leads to a significant decrease in the ownership retention by the lead arrangers. Overall, our results suggest that auditor quality plays an important role in loan syndication by alleviating information asymmetries between lead arrangers and non-lead participating lenders of the syndicated loan.

Managing Earnings to Meet Critical Thresholds and the Role of Corporate Governance: A Case Study of China

This study investigates the behaviors of Chinese firms in using non-operating below-the-line items to manage earnings to meet rights issuance threshold and to avoid loss or de-listing, and whether certain corporate governance mechanisms are related to such earnings management behaviors. The results of the empirical analyzes based on a sample of 1522 firm-year observations for the period 2000-2001 find that the likelihood of managing earnings to meet rights issuance threshold and to avoid loss or de-listing is negatively related to the adoption of independent directors in the board of directors and to the percentage shareholdings of the largest shareholder and positively related to the percentage share of state ownership. Further investigation shows that there is a non-linear relationship between such earnings management behaviors and the percentage of independent directors in the board. There is no evidence, however, that percentage shareholdings of CEO, the duality of CEO and top management position, or the quality of external auditor is related to such earnings management measure.

The association between employee stock option disclosures and corporate governance: Evidence from an enhanced disclosure regime

This study examines the role of corporate governance in employee stock option (ESO) disclosures following the revision of AASB 1028 Employee Benefits in 2001. We find that, while firms do not fully comply with AASB 1028 ESO disclosures, they voluntarily provide other ESO disclosures. In relation to corporate governance measures that have a role in the financial reporting process, we find two corporate governance measures dominate our results—the quality of auditor and duality of the role of CEO and Chair of the Board of Directors. We show that, in general, external auditor quality has positive incremental association with both mandatory and voluntary ESO disclosures while the dual role of CEO and chairperson of the board is associated with lower levels of mandatory disclosure.

World Maritime University

The issue of quality assurance in higher education is at the top of the agenda of universities throughout the world. For the World Maritime University, an institution with highly international staff and student bodies, a complex base of voluntary funding and isolated from any national or European system of education, the problem of defining quality and instituting a quality management system has been a particularly complex and vital task. Our quality standards are the key to our survival.Established in 1983, the University spent its first decade defining its corporate vision, ultimately concluding that it wished to be an excellent postgraduate university rather than an excellent training school. The first steps towards a quality assurance system could be made. External quality audits in 1998 and 1999 resulted in a wide spectrum of quality initiatives, from policy and program structure changes, to the establishment of a quality management system, including internal audit, feedback and systems of quality management. Continuing interaction with external parties ensures international comparability. Of primary importance is continual commitment to a quality culture by all staff — and in particular by University leadership.The 2004 audit by the European Universities Association shows that quality management at the University is well established, and that the University is well placed to apply its quality culture to its new global outreach programs.

Audit Quality, Legal and Disclosure Environments, and Analysts' Forecast Accuracy: Some International Evidence

In this study, we investigate the relation between the quality of external audit and earnings predictability of firms situated in different legal and disclosure environments around the world. In a sample of multinational firms cross-listed in the United States, we find that the association between audit quality and forecast accuracy is stronger in weak legal and disclosure environments than in strong legal and disclosure environments. We interpret these results as suggesting that audit service can serve as an alternative device to improve market participants' information environment in weak legal and disclosure environments.

Is It Possible? Investigating the influence of external quality audit on university performance [1

This paper explores whether it is possible to isolate independent effects of external quality audit (EQA) and concludes that effectiveness evaluations have a stronger foundation when the combined effects of university governance and management initiatives and government initiatives are examined together with EQA. The issue of how successful these influences are is addressed in relation to changing the processes of a university in enhancing learning outcomes, teaching and research outputs. The paper looks at the subject of how to measure quality and whether there is value in the use of a research‐led, evidence‐based approach. Through a case study the authors seek to identify the impact EQAs have had on one institution, the University of Otago, in New Zealand, over the past 10 years, as an illustrative example of what is occurring nationally, with relevance to the global level. The authors have developed a model which contextualises the role of external and internal influences in university performance.

A Call for Board Leadership on Quality in Hospitals

A national agenda for health care quality is unfolding but there is concern about inadequate progress on improving quality in hospitals. The 2003 Institute of Medicine report calls for transformational leadership in health care organizations to change systems and processes underlying quality. The key question is: Who will provide leadership in hospitals? A natural choice is the board of trustees on account of its legal responsibility for quality and its authority over medical staff and administration. This article describes several barriers to board leadership on quality and suggests strategies by which boards can lead the campaign for quality. Barriers include trustee ignorance, trustee insecurity, board inattention, poor board-physician communication, fragmented information on quality, traditional medical staff structure, lack of professional management of quality, and lack of investment. Strategies for hospital board leadership should include preparing to lead, self-education, visible participation in quality activities, activism, role clarification, increased informal dialogue with physicians, medical staff reform, creation of a quality management department, instituting high-quality standards, and external quality audit. Boards face a historic opportunity to transform hospital quality backed by a strong legal mandate.

Disclosure compliance with national accounting standards by listed companies in South Asia

This paper empirically examines the level of compliance with disclosure requirements mandated by 14 national accounting standards for a large sample of companies within the three major countries in South Asia, namely India, Pakistan and Bangladesh, and evaluates the corporate attributes which influence the degree of compliance with these standards. Using a scoring system to develop a total compliance index (TCI) for each sample company, the results indicate significant variation in total disclosure compliance levels across countries and different national accounting standards. Compliance levels are found to be positively related to company size, profitability and multinational-company status, and unrelated to leverage levels and the quality of external auditors.

Aligning Teaching Quality Indicators with University Reward Mechanisms

Teaching quality emerged as asignificant issue in higher education duringthe 90s. This led to the implementation ofnumerous quality control, assurance andenhancement schemes as institutions attemptedto stay abreast of demands from variousstakeholders in a rapidly changing educationalenvironment. More recently, with theestablishment of the Australian UniversityQuality Agency (AUQA) in 2000, there is nowfurther impetus to review quality schemes inAustralian universities. This paper describeshow a teaching award programme may impact onplanning and review processes within universitydepartments and highlights how the alignment ofteaching award criteria with external qualityaudit requirements can lead tocross-institutional benefits for enhancing thequality of teaching.

Quality Improvement through Quality Audit

Organisations exist for a purpose, sometimes set out in a Mission or Objectives; then they plan and act in ways intended to achieve these objectives. An organisation is exhibiting quality if it is doing what is necessary to achieve its goals, and a quality audit checks an organisation's effectiveness in achieving its goals. A number of structured approaches to quality have been proposed, and a long-standing one is the ADRI sequence (approach, deployment, results, improvement). The first three step correspond to the three stages of a quality audit, and the explicit inclusion of the last steps shows how quality audit can lead to quality improvement. This paper defines various roles of external quality agencies in higher education and then describes improvements recorded as a result of the activities of the New Zealand Universities Academic Audit Unit, and the approach being taken by the Australian Universities Quality Agency in order to render its actions most useful to the institutions it audits. These examples show how external quality audit can augment an institution's ability to improve.

Using an External Quality Audit as a Lever for Institutional Change

Higher education in Australia is little different from university sectors around the developed world. It has experienced declining levels of public funding, increasing dependence on competitively sourced domestic and international income and increased consumer-style pressures from a growing fee-paying student body. The establishment of the Australian Universities Quality Agency (AUQA) in 2001 and the commencement of institutional quality audits in 2002 adds a new mechanism for public accountability. Five Australian universities of technology, members of the Australian Technology Network (ATN), are taking a collaborative approach to the development of institutional responses to the new quality agenda. A key theme of their collective response to this development is to focus on how the prospect of an external audit can provide a positive driver internally for improving institutional quality management.

How are U.S. and international audit rules changing?

AbstractMajor efforts are underway to improve the quality of external audits—both in the United States and abroad. And big changes are in the wind. © 2003 Wiley Periodicals, Inc.

112. The role of the secondary standard dosimetry laboratory in the quality assurance in radiotherapy in poland

In Poland, in 1937, a special measurement unit was established in the Radium Institute (former name of the Institute of Oncology). The continuation of this unit is the SSDL, which was established in 1966 at the Medical Physics Department (MPD) of the Institute of Oncology. In 1988, the Laboratory was approved as a member of the IAEA/WHO SSDL network, and is periodically audited by the IAEA. The SSDL plays an important role in maintaining proper dosimetry standards in radiotherapy in Poland. The main activities of the SSDL are: - Collecting data concerning the intrastructure of radiotherapy in Poland. This activity started in 1993 and is continued on the yearly basis. - Calibration of dosimeters at the national level; it started as early as 1937. The SSDL calibrates over 20 ionisation chambers each year. The Co-60 exposure calibration factors are established, and then the air-kerma and the absorbed dose calibration factors are calculated. The system linearity and energy characteristics are determined in the orthovoltage range. In 2002 the measurement facility for calibrating the mammography dosimeters was set-up. - External quality audits of dosimetry in radiotherapy centres in Poland. During the period 1991–2001, 151 audits, based on TLD dose inter-comparisons were performed in reference conditions. The deviations above 3.5% (detined as acceptance level) were observed in 18 cases (nearly 12%). Since 2002 the audits in more complex, non standard conditions started. - Preparation of protocols and recommendations on dosimetry in radiotherapy. The QC recommendations for Co-60 units and accelerators were issued (brachytherapy has been taken care of by the Centre of Oncology in Cracow). The QC- recommendations for simulators and CT-scanners are in preparation. Training of physicists and radiotherapists (including the participants from other East European countries) in order to adhere to the increasing complexity of modern radiotherapy procedures. Trainings are performed individually or in a form of courses. This activity follows the recommendations of the Euroatom Directive 97/43 on health protection of individuals against the dangers of ionizing radiation in relation to medical exposure.

An Evaluation of the Impact of External Quality Monitoring on a Higher Education College (1993–98)

ABSTRACT With the establishment, in August 1997, of a new UK‐wide Quality Assurance Agency for Higher Education (QAA), it is timely to reflect on the impact of the two principal forms of external quality monitoring which the QAA has replaced. First, the quality assessment by the funding councils, whose five‐year cycle of teaching quality assessment in universities and colleges in Scotland and Wales, which commenced in 1993, is now complete. Second, institutional quality audits of universities and colleges, conducted by the Higher Education Quality Council (HEQC) between 1993 and 1997. This paper reports the results of a five‐year action research study conducted at a college of higher education. The particular focus of the study was on issues arising from the development and implementation of a quality assurance system at the study institution, and attempts to reconcile requirements for accountability and efforts to encourage quality improvement. The paper reviews and evaluates the impact of each of the forms of external monitoring, teaching quality assessment and institutional audit, on the study institution. Results are presented using qualitative and quantitative data drawn from external performance measures, such as the Scottish Higher Education Funding Council (SHEFC) and HEQC quality assessment and audit reports, and internal measures of staff experience and perceptions. Lessons are drawn in relation to perceived benefits, or otherwise, of external quality assessment and quality audit, and consideration is given to the implications which the findings have beyond the study institution and the Scottish higher education sector, and in particular for the newly established Quality Assurance Agency.

The impact of corporate attribites on the extent of mandatory disclosure and reporting by listed companies in Zimbabwe

This article reports the results of an empirical investigation of the degree of influence of eight corporate attributes on the extent of mandatory disclosure and reporting of 49 listed companies in Zimbabwe. Using a disclosure index which consisted of 214 mandated information items, the extent of mandatory disclosure be each sample company was quantified, and was used with other data specific to each sample company to test the relational hypotheses. Although several alternative specifications of multivariate regression models were developed and estimated, only the results of a robust regression analysis which indicated that company size, ownership structure, company age, multinational corporation affiliation, and profitability have statiscally significant positive effect on mandatory disclosure and reporting practices of the sample companies were reported. The quality of external audit, industry-type and liquidity were statistically insignificant.