Specialist Auditors Research Articles

Auditor Experience and the Timeliness of Litigation Loss Contingency Disclosures*

ABSTRACTThis paper hypothesizes and finds that firms audited by city‐industry specialists have more timely disclosures of contingent losses from litigation when there is no news coverage relating to the legal case prior to management disclosures. A closer examination reveals that this result is explained by the specialist auditors’ prior experience auditing clients in the same office and industry who are involved with litigation. In our setting, disclosures of litigation‐related contingent losses, we identify two kinds of knowledge generated from experience: industry knowledge and litigation knowledge. Industry knowledge helps auditors detect and correct poor implementation of guidance for litigation loss contingency disclosures. Auditors gain litigation knowledge from auditing clients in a given office and industry with previous involvement as defendants. Thus, the two types of knowledge interact in their effects on reporting outcomes.

The Hidden Risk of Auditor Industry Specialization: Evidence from the Financial Crisis

Using a measure of office-level industry concentration/specialization (as opposed to a market-based measure), we identify situations in which auditor industry specialization could be detrimental for audit outcomes. In stable environments, industry specialist auditors should be able to apply their unique experience and knowledge in ways that yield better audit outcomes. However, during periods of heightened industry-specific risk, specialist auditors from the affected industry could struggle to secure and allocate sufficient resources to mitigate the heightened risk in the affected industry because, by construction, specialists in the affected industry have a client portfolio that is concentrated in the affected industry (i.e., there is insufficient resource slack). We test our predictions by investigating the effects of the recent financial crisis on audits of clients from the banking industry. We find that, during the period before the financial crisis, banking auditor industry specialization is associated with higher audit quality and more timely audits. However, during the financial crisis, the results indicate that banking auditor industry specialization is associated with lower audit quality and less timely audits. Collectively, our results suggest that auditor office-level industry specialization can be detrimental in certain circumstances and that audit firms and audit regulators should consider whether the audit market, audit firms, or audit offices have become too specialized to handle the resource allocation problems that crisis situations present.

Uncertain tax benefits, international tax risk, and audit specialization: Evidence from US multinational firms

The purpose of this study is twofold. First, it examines the association between income‐shifting arrangements consisting of transfer pricing aggressiveness, tax haven use and foreign tax rate differentials, and Financial Interpretation No. 48 (FIN48, now ASC740–10‐25) unrecognized tax benefits (UTBs). Second, it analyzes the impact of audit specialization on the association between income‐shifting arrangements and UTBs. Using a dataset of 286 US multinational firms over the 2007–2016 period (2,097 firm‐years), our regression results show that income‐shifting arrangements represented by transfer pricing aggressiveness, tax haven use and foreign tax rate differentials are significantly positively associated with UTBs. We also observe that audit specialization magnifies the positive association between transfer pricing aggressiveness and UTBs, and foreign tax rate differentials and UTBs. Finally, in additional analysis we provide some evidence that the positive association between income‐shifting arrangements and UTBs is magnified in the post‐2010 uncertain tax position reporting requirement period. Overall, our study extends prior research on the topic of audit characteristics (i.e., audit specialization) and tax aggressiveness.

The Effect of Confirmation Bias on Auditorss Risk Assessments: Archival Evidence

Experimental research in accounting provides extensive evidence that auditors’ judgments are negatively affected by the use of heuristics. However, there is little research investigating whether the negative effects of using heuristics manifest in practice and survive the quality control processes that regulators and audit firms have in place to mitigate them. In this study, we focus on one such heuristic – confirmation bias – and identify a setting where the effects of auditors’ use of this heuristic are likely to manifest. Our findings indicate that auditors with previous experience auditing a client with a history of low risk followed by an increase in risk do not adequately respond to the higher level of risk. Consistent with expectations, we find that this effect is mitigated when the risk increase is likely to violate auditors’ reasonableness constraint, when the client is highly visible or has high institutional holdings, and when the auditor is a Big Four or industry specialist auditor. Our study complements prior experimental research by providing evidence that auditors’ use of heuristics has an economically significant effect on auditor judgments in practice and that the negative effects of using heuristics can survive the quality control processes that audit firms have in place.

PENGARUH KUALITAS AUDIT DAN KOMITE AUDIT TERHADAP MANAJEMEN LABA PADA PERUSAHAAN MANUFAKTUR YANG TERCATAT DI BURSA EFEK INDONESIA

This study aims to analyze the effect of the Audit Quality and Audit Commite Characteristics on Earnings Management. Variables in this study consisted of an audit quality as measured by the size of public accounting firm, industry specialist auditors and audit tenure. While audit committee are measured by audit committee size, financial expertise and the number of audit commite meetings. The modified Jones Models is used to measure discrectionary accruals (the proxy for earnings management).The sample used in this study were taken by purposive sampling method. The sample used in this research was the secondary data from annual report of manufacturing company which listed on Indonesia Stock Exchange in 2013-2016. After reduction with criteria set at 39 companies in the sample. Techniques of analysis in this study using linear regression analysis with SPSS version 20. The result of this research showed that the variable Public Accounting Firm had positive and significant influence on earnings management. Meanwhile, the variable industry specialist auditors, audit tenure, size of audit committee, financial expertise and the number of audit commite meetings had not significant influence to the earnings management.

사업다각화와 감사시간 및 감사보수의 관련성에 관한 연구: 산업전문감사인의 차별적 영향을 중심으로

사업다각화와 감사시간 및 감사보수의 관련성에 관한 연구: 산업전문감사인의 차별적 영향을 중심으로

조세회피와 감사인의 산업전문성이 주가폭락위험에 미치는 영향

조세회피와 감사인의 산업전문성이 주가폭락위험에 미치는 영향

The Effects of Audit-Firm Monopolies within Local Audit Markets

This study examines auditors who monopolize audit markets (monopolist auditors), defined as a particular industry within a city (Numan and Willekens 2012), and their pricing strategy as well as audit quality. I document that monopolist auditors charge lower fees than industry specialist auditors, suggesting that monopolist auditors discount audit fees to deter new entrants. This result is consistent with monopolists using a limit pricing strategy (Milgrom and Roberts 1982) but contrasts with regulators’ concerns about monopoly pricing. I also find that the monopolist auditors more frequently fail to detect misstatements than industry specialist auditors that do not have monopolies. This is consistent with regulators’ concerns about market-dominating auditors’ complacency (GAO 2003, 2008). In cross-sectional tests, I document that the limit pricing is predominantly evident among clients in homogenous operation industries, where the monopolist auditors would fear more for new entrants because the monopolist auditors would forgo more profits generated from clients in homogeneous operation industries. On the other hand, I find that the limit pricing is less evident among clients in industries requiring complex accounting where the monopolist auditors would have less fear for new entrants because barriers to entry are high in industries with complex accounting. Finally, I find that monopolist auditors’ audit failures are more pronounced when market competition within a city is low, where the monopolist auditors would have even lower incentives to improve audit quality.

Disproportionate Insider Control and the Demand for Audit Quality

SUMMARYWe examine the relationship between disproportionate insider control, enabled through dual-class share structures, and the demand for audit quality. Using a comprehensive hand-collected sample of U.S. dual-class firms, we find that, consistent with outside shareholders' increased demand for external monitoring, as well as self-bonding by entrenched insiders, disproportionate insider control is positively associated with the propensity to hire a Big 4 or industry specialist auditor, auditor independence, and audit fees. Corroborating a self-bonding explanation, additional analyses show that audit quality mitigates the negative association of disproportionate insider control and firm value. In expanded analyses, we also investigate the separate effects of insider voting and cash flow rights on the demand for audit quality in dual-class firms. Consistent with general agency theory, we find a decreased (increased) demand for audit quality from incentive-alignment (entrenchment) effects of ownership.

Kualitas Audit dan Manajemen Laba pada Perusahaan Manufaktur di Indonesia

AbstractThe purpose for this research is to test the influence of audit quality to earnings management on manufacturing companies in Indonesia. In this research, the measurement of audit quality divided in five proxies: auditor size, auditor specialization industry, auditor opinion, auditor change, and audit timeliness. The measurement is refers to Habbash and Alghamdi (2016) research. This research used secondary data from manufacturing companies’s annual report listed on Indonesia Stock Exchange in 2015. Data analysis method used in this research is multiple linear regression test. The sample used in this research is 73 manufacturing companies. The results showed that the auditor size, auditor specialization industry, auditor opinion, auditor change, and audit timeliness have no effect on earnings management.Keywords: Audit Quality, Auditor Size, Auditor Opinion, Earnings Management, and Industry Specialization  Â

Audit Regulation, Auditor Industry Expertise and Effects on Audit Pricing

The diversity of regulations that govern statutory audit in European countries provides the opportunity to analyse how audit regulation affects audit fees. This study is the first to analyse empirically the joint effect of audit regulation and auditor expertise on audit fees for the institutional setting of 14 European countries by using a sample of 4,293 European firms for the period from 2003 to 2011. I analyse four attributes of audit regulation, namely terms for annual renewal of the mandate, nature of the auditors’ liability, whether the state requires joint audits and whether it imposes restrictions on the provision of non-audit services. The main results show that using an industry specialist auditor results in higher audit fees. Moreover, three regulatory attributes—auditor liability, annual renewal of the mandate and joint audit—play a significant role in determining audit fees. Fees are higher when the auditor’s mandate may be renewed or terminated each year, and when the auditor’s liability is tort. Mandatory joint audit has also a positive impact on audit fees.

Do Banks Audited by Specialists Engage in Less Real Activities Management? Evidence from Repurchase Agreements

SUMMARY Prior research documents that nonfinancial firms resort to more real activities management when their ability to manage accruals is constrained by specialist auditors (e.g., Chi, Lisic, and Pevzner 2011; Burnett, Cripe, Martin, and McAllister 2012). Within the context of banks' real activities management through repurchase agreements (repos), we argue that repo management can increase litigation risk for auditors and, hence, specialist auditors will pay greater attention to repo management and will better constrain the extent of such real activities management than non-specialists. We find that banks audited by specialists, including both Big 4 and non-Big 4 specialists, are associated with less downward repo deviation than banks audited by non-Big 4 non-specialists. We also find that banks audited by the joint national and city-level specialists are associated with less downward repo deviation than banks audited by Big 4 non-specialists.

Audit committee director-auditor interlocking, audit pricing and industry specialisation

This study examines the relation between audit committee director-auditor interlocking and audit fees, as well as the effect of auditor industry specialisation on this relation. Using a sample of S&P 1,500 firms in the USA during the years 2004-2014, we find a positive relation between audit committee director-auditor interlocking and audit fees only for firms that select industry specialist auditors. Firms that select non-industry specialist auditors pay lower audit fees compared to the control firms which do not have either interlocked audit committees or interlocked audit committees through director-auditor links. The findings are robust after controlling for sample selection bias and unobserved omitted variables and using alternative measures of audit committee director-auditor interlocking. Additional analyses show that firms with audit committee director-auditor interlocking are more likely to select industry specialist auditors. These results indicate that audit committees with director-auditor interlocking demand high quality audits and extensive audit coverage due to reputation effects only when the selected auditors have higher reputational cost and more bargaining power.

Audit committee director-auditor interlocking, audit pricing and industry specialisation

This study examines the relation between audit committee director-auditor interlocking and audit fees, as well as the effect of auditor industry specialisation on this relation. Using a sample of S&P 1,500 firms in the USA during the years 2004-2014, we find a positive relation between audit committee director-auditor interlocking and audit fees only for firms that select industry specialist auditors. Firms that select non-industry specialist auditors pay lower audit fees compared to the control firms which do not have either interlocked audit committees or interlocked audit committees through director-auditor links. The findings are robust after controlling for sample selection bias and unobserved omitted variables and using alternative measures of audit committee director-auditor interlocking. Additional analyses show that firms with audit committee director-auditor interlocking are more likely to select industry specialist auditors. These results indicate that audit committees with director-auditor interlocking demand high quality audits and extensive audit coverage due to reputation effects only when the selected auditors have higher reputational cost and more bargaining power.

High-quality auditors vs. high-quality audit: the reality in Oman

The objective of this study is to explore the unique setting of Oman with respect to audit quality. This study measures the quality of audit by examining whether big-4 audit firms and industry specialist auditors have a role in improving the quality of the audit. We use data from the companies listed on the Oman capital market between 2006-2013. Using a panel data approach and two measures of audit quality for the purpose of this study, we find that the audit quality of big-4 audit firms and industry specialist auditors is low because they do not enhance the quality of discretionary accruals and do not have a propensity to issue going-concern audit opinion. We also document that big-4 audit firms and industry specialist auditors consider that religion and risk factors provide the means for achieving high-quality audit. This paper is different from prior studies because it is the first to comprehensively examine audit quality in a unique setting - the Gulf Cooperation Council (GCC). Furthermore, it extends our understanding of the role of religiosity in audit quality.

BOARD CHARACTERISTICS AND INDUSTRY SPECIALIST AUDITOR : THE MODERATING ROLE OF CONCENTRATED OWNERSHIP

This study illustrates the impact of concentrated ownership on the monitoring role of board of directors in term of high quality audit proxy by industry specialist auditor. The integration of agency theory and resource dependency theory reflects that board has different incentives and abilities to monitor management. The analyses of Turkish listed firms indicates that board characteristic complement high quality audit when ownership concentration at low levels. When ownership concentration is at high level, this is not the case- proposing that there is substitution influence between concentrated ownership and board characteristics in term of the demand for high quality audit.

High-quality auditors vs. high-quality audit: the reality in Oman

The objective of this study is to explore the unique setting of Oman with respect to audit quality. This study measures the quality of audit by examining whether big-4 audit firms and industry specialist auditors have a role in improving the quality of the audit. We use data from the companies listed on the Oman capital market between 2006-2013. Using a panel data approach and two measures of audit quality for the purpose of this study, we find that the audit quality of big-4 audit firms and industry specialist auditors is low because they do not enhance the quality of discretionary accruals and do not have a propensity to issue going-concern audit opinion. We also document that big-4 audit firms and industry specialist auditors consider that religion and risk factors provide the means for achieving high-quality audit. This paper is different from prior studies because it is the first to comprehensively examine audit quality in a unique setting - the Gulf Cooperation Council (GCC). Furthermore, it extends our understanding of the role of religiosity in audit quality.

산업전문감사인과 직급별감사시간－감사인은 시간당 감사보수 할인을 어떻게 대처하는가?－

산업전문감사인과 직급별감사시간－감사인은 시간당 감사보수 할인을 어떻게 대처하는가?－

감사인의 특성이 기업의 고유변동성에 미치는 영향: 감사인 규모와 산업전문성을 중심으로

감사인의 특성이 기업의 고유변동성에 미치는 영향: 감사인 규모와 산업전문성을 중심으로

STATUS PRAWNY KORPUSU KONTROLERÓW NAJWYŻSZEJ IZBY KONTROLI

An essential condition for the proper fulfilment of tasks by the Supreme Audit Office (hereinafter referred to as the SAO) is the proper shaping of the legal status of its employees, especially those performing and supervising audit activities. According to Article 66a of the Act of 23 December, 1994 on the Supreme Audit Office (hereinafter referred to as the Act) to the so-called corps of auditors include: directors of the audit units of the Supreme Audit Office; deputy heads of audit units of the Supreme Audit Office; advisors to the President of the Supreme Audit Office; legal, economic and technical advisers; major state audit specialists; state audit specialists; senior state audit inspectors; state audit inspectors and junior state audit inspectors. This article aims to characterize the legal status of the audit corps employed by the Polish Supreme Audit Office.