Total Audit Research Articles

Does audit fee stickiness and audit quality are reciprocal?

This study examines the relationship between audit fee stickiness and audit quality to determine whether they mutually affect each other. Using panel data and fixed-effects as well as common-effects regression methods, the study evaluates how total assets, leverage, audit changes, and the Covid-19 pandemic influence both variables. This methodology was chosen for its ability to control for individual differences and handle panel data, allowing for a more accurate analysis of the relationship between audit fee rigidity and audit quality. The main findings show that total assets and audit changes have a significant positive effect on audit fee stickiness, while the Covid-19 pandemic does not significantly affect audit fee stickiness. Additionally, total assets and leverage have a significant positive impact on audit quality, whereas audit changes do not influence audit quality and the Covid-19 pandemic actually improves audit quality. Although audit fee stickiness contributes to the enhancement of audit quality, audit quality does not have a significant effect on audit fee stickiness, indicating that there is no reciprocal relationship between the two. The study suggests the need for adjustments in the audit fee setting mechanism to ensure that audit quality is maintained optimally without being influenced by fee rigidity.

Does client importance affect key audit matters reporting? New Zealand evidence

PurposeThis study aims to examine the relation between a client’s relative economic importance to its auditor and the number of key audit matters (KAMs) reported in the expanded audit report.Design/methodology/approachThe authors measure a client’s economic importance at the audit firm level as well as the audit partner level using the ratio of a client’s total fees to an auditor’s total fees earned from its listed clients and the ratio of a client’s audit fees to an auditor’s total audit fees from its listed clients. The authors estimate a multivariate regression model using a sample of New Zealand-listed company-years from 2017 to 2019.FindingsResults reveal a positive relation between client importance to auditor and the number of KAMs disclosed. Furthermore, the positive association between client importance and the number of KAMs reported is more pronounced for clients audited by the Big 4 auditors and less experienced audit partners. These findings suggest that auditors’ incentive to protect against potential losses from important client engagements outweighs any impairment to auditor independence and leads to a higher number of KAMs reported for the economically more important clients. Overall, the results suggest that auditors report KAMs strategically to mitigate engagement risks.Originality/valueThis study provides the first evidence on how client economic importance relates to the disclosure in the expanded audit report and contributes to the dialogue on auditors’ reporting of KAMs in the Asia-Pacific region.

Assessing audit effort in response to exogenous shocks: Evidence from Korea on the impact of enhanced audit standards and COVID‐19

Assessing audit effort in response to exogenous shocks: Evidence from Korea on the impact of enhanced audit standards and COVID‐19

Effects of human capital on revenues: evidence from professional service organizations in Taiwan

This paper specifies a trans-log revenue function to estimate the relationship between service revenue outputs and three key human capital inputs, including formal education, work experience, and professional training. Using a Taiwanese pooled cross-sectional sample of 22,875 observations over the period 1992-2021, we divide the total sample into international and non-international audit firms based on their total audit revenues. We find that the average partial effects (APEs) on revenues are much higher for international than for non-international audit firms, suggesting that audit firm size affects audit firms’ financial performance. We also find that investments in both formal education and work experience significantly contribute to the growth of service revenues (but if such investments are beyond the optimal level, they may contribute to the reduction of revenues) and that such growth is much larger for international than for non-international audit firms. Although we find that, in our statistical analysis, professional training contributes to the reduction of service revenues, our graphical analysis justifies this intriguing finding, which is attributed to a lagged return on professional training investments. In theory, human capital suggests that professional training is a needed process to raise future service revenues. Overall, our findings shed light on the APEs of human capital inputs on revenue generation and have practical implications for regulators and practitioners to understand how and to what extent human capital can make a positive contribution to the growth of audit firms’ revenues.

The differential impact of distracted auditors in managing portfolio of financially distressed audit clients on audit quality: the role of professional skepticism

This study hypothesizes that distracted auditors affect audit quality. As a result of resources scarcity, auditors pay more attention to financially distressed audit clients rather than non-financially distressed audit clients at the same audit client portfolio which eventually leads to differences in audit quality. In this context, earnings restatement of audit clients is used as a distraction event of auditors. Distracted auditor is measured by the percentage of the audit fees of financially distressed audit clients to total audit fees and audit quality is proxied by total accruals. The data is obtained from firms listed on the US stock market over eleven years between 2010 and 2020. The results indicate that financially distressed audit clients of distracted auditors receive higher audit quality than non-financially distressed audit clients of the same audit client portfolio. Further analysis suggests that this difference in audit quality between financially distressed audit clients and non-financially distressed audit clients decreases with skeptical auditors. This study introduces a new comprehensive approach to measure professional skepticism using KAMs disclosure. The results are robust to different measurements of distracted auditors, audit quality and professional skepticism. Overall, the empirical analyses suggest that distracted auditors have a decreasing differential impact on audit quality by professional skepticism.

Enhancing deforestation monitoring in the Brazilian Amazon: A semi-automatic approach leveraging uncertainty estimation

Official governmental monitoring of deforestation in the Brazilian Amazon relies on human experts conducting visual analyzes of remote sensing images, an approach that is very expensive and time-consuming due to the enormous geographic extent to be inspected. The main obstacle to the adoption of fully automatic methods is the requirement for the highest possible deforestation detection accuracy, which arises from the official nature of the deforestation reports, used as a basis for deforestation prevention policies and international treaties. This work addresses such a high accuracy constraint by introducing a semi-automatic method that aims at limiting visual analysis to areas where automatic classification is characterized by high uncertainty. We hypothesize that classification uncertainty is correlated with classification error. Therefore, by trusting automatic detections with low uncertainty and subjecting areas of high uncertainty to visual audit, the amount of human intervention in the whole process could be limited to a small fraction of the forest area, while very high accuracies would be achieved. In this work we investigate various uncertainty estimation strategies, including multiple and single inference approaches, and evaluate different uncertainty metrics. Additionally, we conducted a comprehensive analysis to identify the natural factors and deforestation practices that contribute to high uncertainty in automatic classification. We draw interesting conclusions from the analysis of selected regions of two distinct target sites, which exemplify common causes of uncertainty and indicate how uncertainty may be related with ongoing forest degradation processes. Through experimental evaluation at those sites, we demonstrate that the proposed semi-automatic methodology can achieve impressive accuracies in terms of F1-score values, exceeding 97%, while reducing the total human audit workload to just 3% of the target area.

Exploring Alcohol-Related Behaviours in an Adult Sample with Anorexia Nervosa and Those in Recovery.

While individuals with Bulimia Nervosa (BN) and Binge Eating Disorder (BED) often present with a higher rate of Alcohol Use Disorder (AUD) than the general population, it is unclear whether this extends to AN. This cross-sectional study examined differences in alcohol-related behaviours, measured using the Alcohol Use Identification Test (AUDIT), between AN participants (n = 58), recovered AN (rec-AN) participants (n = 25), and healthy controls (n = 57). Statistical models controlled for age and ethnicity. The relationship between alcohol-related behaviours with ED psychopathology and with depression was also assessed. The findings indicated that acute AN participants were not at greater risk of AUD than healthy controls. However, rec-AN participants displayed greater total audit scores than those with acute AN, and more alcohol-related behaviours than healthy controls. Acute AN participants consumed significantly less alcohol than both the healthy control group and rec-AN group. No associations were found between ED psychopathology and alcohol-related behaviours in the AN group or rec-AN. This highlights alcohol as a potential coping mechanism following AN recovery. Clinicians should consider assessments for AUD and targeted interventions aimed at encouraging healthy coping mechanisms in this group. Future studies should look at alcohol use as a moderating factor for AN recovery.

Audit committee characteristics as determinants of non-audit fees in UK FTSE 350 companies

PurposeThis study aims to examine trends in audit committee characteristics of companies and associates characteristics subject to major change with a fee-based proxy for audit committee effectiveness.Design/methodology/approachThe research adopts an empirical approach. Using descriptive and inferential statistics, observations for 253 Financial Times Stock Exchange 350 companies’ audit committee characteristics gathered from annual reports at the beginning and end of a five-year period are evaluated against averaged non-audit fees (NAF) as a proportion of total audit fees.FindingsAudit committee composition shows an increased incidence of female membership and of members with previous audit experience. The increase in members with previous audit experience is more marked where this is gained with the incumbent auditor. An increase is also shown in chief financial officers with previous audit experience. Previous audit experience is associated with reduced NAF as a proportion of total fees. This is marked where audit experience has been gained with the incumbent auditor. These results suggest that the benefits of financial expertise gained from audit experience outweigh impairments to independence due to social ties. Nevertheless, other studies indicate concerns about independence are still well-founded.Originality/valueThis paper’s original contribution is to evaluate the potential effect of previous audit experience on those involved in audit committees in light of concerns raised in the literature and by regulators that external auditor independence should be maintained. The innovative fee-based proxy for audit committee effectiveness facilitates an evaluation as to which influence prevails.

Audit Committee Characteristics and Financial Restatement of Quoted Non-Financial Firms in Nigeria

This study investigates whether there is any relationship between audit committee characteristics and financial restatement. Using secondary data over the period from 2005 to 2020 of 76 non- financial firms, the results of the generalized methods of moments (GMM) reveal that audit committee independence, audit committee diversity, audit committee meetings and audit committee expertise are positively significant with financial restatement while total audit committee size is negatively insignificant with it. The overall results shows that although most of the audit committee characteristics significantly influenced financial restatement, none of them helped in reducing managers tendencies to reduce the practices of restating previously reported financial statements. The study concludes with some recommendations for better performance reporting

Pengaruh Likuiditas, Leverage, Komisaris Independen, Komite Audit, dan Profitabilitas terhadap Agresivitas Pajak

This research aims to examine the effect of liquidity, leverage, independent commissioners, committee audit, and profitability on the tax aggressiveness of financial companies listed on the Indonesia Stock Exchange in the period 2018-2021. Tax aggressiveness is the company’s desire to reduce the amount of tax that must be paid by the company. Liquidity is proxied using the formula Current Ratio (CR), leverage is proxied using the formula Debt to Total Assets Ratio (DAR), independent commissioners are proxied using the formula total independent commissioners divided by total commissioners (KI), audit committees are proxied using the formula total audit committee (KA), and profitability proxied using the formula Return On Assets (ROA). The data in this sudy are secondary data obtained from www.idx.go.id or the company’s website. The population of this study are financial companies listed on the Indonesia Stock Exchange for the period 2018-2021 which consists of 106 companies with a total of 424 population. Determination of the sample using purposive sampling method with a total sample of 180 samples from 45 companies. The results of this study indicate that leverage has a posivite effect on tax aggressiveness and profitability has a negative effect on tax aggressiveness. While liquidity, independent commissioners, and audit committees do not affect tax aggressiveness

Total Assets and Audit Opinion: Impact on Audit Delay in Food and Beverage Manufacturing


 
 
 
 
 
 
 
 
 
 This research aims to investigate the effect of Total Assets, Profitability, Solvency, and Audit Opinion on Audit Delay in the Food and Beverage Sub-Sector Manufacturing Companies listed on the Indonesia Stock Exchange during the period of 2018-2020. The study utilized secondary data from financial statements and annual reports obtained from the website of Bursa Efek Indonesia. The sample comprised 24 purposively selected companies, representing a three-year observation period. Descriptive statistical analysis, classic assumption tests, t-tests, and multiple regression analysis using SPSS version 20 software were conducted for data analysis. The findings reveal that Total Assets and Audit Opinion exerted a significant negative influence on audit delay. However, Profitability and Solvency were found to have no significant effect on audit delay. These results contribute to the understanding of factors affecting audit delay in the food and beverage manufacturing sector and have implications for auditors, regulators, and researchers in the field of financial auditing. 
 Highlights:
 
 The study examines the impact of Total Assets and Audit Opinion on Audit Delay in the Food and Beverage Manufacturing companies listed on the Indonesia Stock Exchange.
 Findings reveal that Total Assets and Audit Opinion have a significant negative effect on Audit Delay.
 This research contributes to understanding the factors influencing Audit Delay in the food and beverage manufacturing sector and has implications for auditors, regulators, and researchers in the field of financial auditing.
 
 Keywords: Total Assets, Audit Opinion, Audit Delay, Food and Beverage Manufacturing, Indonesia Stock Exchange.
 
 
 
 
 
 
 
 
 

Prevalence and heritability of alcohol use disorders in 18-year old Swedish twins.

Background: Heritability of alcohol use disorders (AUDs) varies widely, with reported estimates of 30-78% in twin studies. This variation might be due to methodological differences (e.g., using different thresholds for AUDs, age differences between samples). Aim: To investigate the heritability of AUDs in a nation-wide sample of male and female twins in late adolescence (18 years). Participants: The study is based on data from 8,330 18-year-old Swedish monozygotic (MZ) and dizygotic (DZ) twins from the Child and Adolescent Twin Study (Sweden). Method: Univariate sex-limitation twin analyses were performed using (a) total AUDIT score, (b) different AUDIT cut-offs (AUDIT-10: potentially harmful alcohol use and most likely alcohol dependent ; AUDIT-C: potential hazardous alcohol consumption/active alcohol use disorders), and (c) a risk-group classification for alcohol dependence based on AUDIT total score. Results: Prevalence of potential hazardous alcohol consumption/active alcohol use was 57.1%, and for potentially harmful alcohol use prevalence was 26.5%. Prevalence was higher among females (59.0% and 31.1% respectively) than males (54.4% and 20.0% respectively). Overall, the results of the univariate model fitting indicated that there were qualitative sex differences in the genetic and environmental influences on AUDs, with generally moderate heritability estimates ranging between 0.37 and 0.50. Discussion: At odds with previous research, a harmful/hazardous drinking pattern was more common in this age group among females than a low-risk drinking pattern (where males were overrepresented). Heritability estimates were moderate throughout all measures and cut-offs, with equally high contributions from shared and non-shared environment. Sex-limitation models revealed qualitative sex differences for AUDs, suggesting that different genetic and/or environmental factors influence variation in AUDs in males and females.

Client Importance and Audit Quality at the Individual Audit Partner, Office, and Firm Levels

We investigate whether audit partner level data provides a more powerful measure than office or firm level measures of client importance. We find that the likelihood of issuing a going‐concern opinion (any and first‐time) increases, and the absolute value of discretionary accruals decreases, in relation to the proportion of audit fees to the total audit fees received by audit partners from all their clients. We also find that the likelihood of issuing a going‐concern opinion (any and first‐time) increases, and the absolute value of discretionary accruals decreases, in relation to the proportion of non‐audit services fees from a client to total non‐audit service fees, and the proportion of total audit and non‐audit service fees from a client to total fees from all their clients at the office and firm levels. Our findings provide evidence to regulators, audit clients, and stakeholders that audit partners do not succumb to pressure from economically more important clients as audit quality has a positive association with client importance.

Trends in the incidence, surgical management and outcomes of type B aortic dissections in Australia over the last decade.

This study aims to investigate the incidence and in-hospital outcomes of surgical repair for type B aortic dissection (TBAD) in Australia. Data were obtained from the Australasian Vascular Audit (AVA) and the Australian Institute of Health and Welfare (AIHW). The former is a total practice audit mandated for all members of the Australian and New Zealand Society for Vascular Surgery (ANZSVS) while the latter is an independent government agency which records all healthcare data in Australia. All cases of TBAD which underwent surgical intervention (endovascular or open repair) between 2010 and 2019 were identified using prospectively recorded data from the AVA (New Zealand data was excluded). The primary outcomes were temporal trends in procedures and hospital mortality; secondary outcomes were complications and risk factors for mortality. All admissions and procedures for, and hospital deaths from, TBAD in Australia were identified in AIHW datasets using the relevant diagnosis and procedure codes, with age-standardized rates calculated for the period 2000-01 to 2018-19. A total of 567 cases of TBAD underwent vascular surgical intervention (AVA data, Australia). Of these, 96.3% were treated by endovascular repair. There was an increase in the annual procedure number from 45 in 2010 to 88 in 2019. In-hospital mortality was 4.8% for endovascular repair and 19% for open repair (p = 0.021). From 2000-01 to 2018-19, the age-standardized procedure rates for TBAD (Australia) doubled, the proportion of admitted patients undergoing a procedure rose from 28% to 43%, and in-hospital deaths fell by 25%. There has been an increasing incidence of vascular surgical intervention for TBAD in Australia. The majority of patients received endovascular therapy while the mortality from surgically managed TBAD appears to be falling.

The scale and scope of the client portfolio and audit quality at the individual auditor level: evidence from China

We examine the relation between the scale and scope of an individual auditor’s client portfolio and audit quality. Using a sample of auditor-years for the period of 2001–2016 from China, where the personal identities of signing auditors are publicly disclosed, we find that auditors with large client portfolio scale (measured by an auditor’s total audit fees from clients) provide higher quality audits (measured by discretionary accruals and the likelihood of issuing modified audit opinions). However, auditors with large client portfolio scope (measured by the number of industries where clients are located) provide lower quality audits. Further analyses indicate that auditors of higher ability and reputation tend to have larger client scales and wider client scopes. Overall, our results suggest that, at the individual auditor level, the scale of the client portfolio conveys the auditor’s ability, and given the scale, the industry and geographic scope of clients reflects the auditor’s workload.

Is It Better to Kill Two Birds with One Stone? Internal Control Audit Quality and Audit Costs for Integrated versus Nonintegrated Audits

ABSTRACTAudits of internal control over financial reporting (ICFR) are typically “integrated” with the audit of the financial statements (FSs)—both audits are conducted by the same audit firm, which designs procedures to satisfy the objectives of both audits simultaneously. A common assumption is that integrating the two audits is more effective and efficient than performing them separately. However, this assumption has not been tested empirically. Using a sample of Chinese companies that employ different audit firms for their FS and ICFR audits (i.e., nonintegrated auditors), we find evidence that challenges this assumption. Specifically, we find ICFR audit quality is higher for nonintegrated audits compared to integrated audits. Moreover, total audit fees are lower for nonintegrated audits, despite higher ICFR audit fees.

자산화되는 연구개발지출이 감사인 노력에 미치는 영향

This study examines whether capitalized research and development(R&D) expenditure has an effect on the audit effort of external auditors using the audit hours by rank, and whether this effect differs by auditor size. R&D expenditure is reported as an asset if certain criteria are met, otherwise it is reported as an expense. However, there is a possibility of earnings management as discretionary judgment could be involved in the practical application of accounting standards. Accordingly, if capitalized R&D expenditure is high, it is expected that the auditor will consider it as an audit risk and increase the audit effort. Compared to non-Big4 auditors, Big4 auditors will have a clearer response to capitalized R&D expenditure because Big4 auditors have relatively large losses in the event of audit failure and have a large number of manpower.
 The non-financial listed companies that can be collected from the TS2000 and KISVALUE are analyzed. The period of analysis is from 2014 to 2017, and the data set contains 5,884 firm-years.
 As a result of empirical analysis, capitalized R&D expenditure is positively associated with total audit hours, partner audit hours, and registered CPA audit hours. And this effect is evident in the sample of Big4 auditors. These results suggest that the auditors judge capitalized R&D expenditure as an audit risk factor and respond to it, and this response is prominent in the Big 4 auditors.
 This paper has contributions in that it expands the previous research by analyzing the effect of R&D expenditure on auditors' audit hours by rank. In addition, through separate analyzes of the Big4 auditor sample and the non-Big4 auditor sample, the evidence is provided that the effect of R&D expenditure on audit efforts varies depending on the auditor size.

OVERCOMING AUDIT DELAY THROUGH TOTAL ASSETS AND AUDITOR QUALITY CORRELATIONAL RELATIONSHIPS

This study aims to determine the effect of total assets and audit quality on audit delays in manufacturing companies in the food and beverage sub-sector listed on the Indonesia Stock Exchange. The type of research used is quantitative research. This study used secondary data from the Indonesia Stock Exchange. The population in this study is a manufacturing company in the food and beverage sub-sector listed on the Indonesia Stock Exchange for the 2019-2021 period, totaling 30 companies. The sampling technique uses a purposive sampling technique. The samples obtained were 27 companies so with observations for three years the total sample was 81. The analysis methods used are Descriptive statistical analysis, multiple Linear Regression, Hypothesis Testing (Correlation Coefficient Test and Coefficient of Determination), and Model feasibility (Statistics f and Statistical t)). The results of this study show that Total Assets do not affect Audit Delay, Auditor Quality affects Audit Delay, and Total Assets and Auditor Quality together affect Audit Delay in manufacturing companies listed on the IDX in 2019-2021.
 Keywords: Total Assets, Audit Quality, Audit Delay

The Effect of Abnormal Audit Hours on Earnings Persistence and Discretionary Accruals: Using the Rank-Specific Audit Hours Data*

This study examines how abnormal total audit hours and rank-specific audit hours affect earnings quality, proxied by earnings persistence or discretionary accruals. The sample is collected from listed firms in Korea between 2014 and 2019. In particular, this study uses rank-specific audit hours which have been publicly disclosed under the External Audit Act Amendment in 2014 in order to estimate abnormal audit hours for five different ranks: audit quality reviewer, director, registered accountant, associate accountant, and expert in other areas such as tax, IT audit, and asset valuation. Our major findings are fourfold. Firstly, abnormal total audit hours as well as abnormal audit hours for audit quality reviewer, registered accountant and associate accountant are negatively associated with earnings persistence. Secondly, we do not observe any significant relations between discretionary accruals and abnormal audit hours, total or rank-specific. Thirdly, the results stay qualitatively similar when discretionary accruals are replaced with loss avoidance (i.e., reporting small positive earnings), while absolute discretionary accruals appear to be positively related to abnormal audit hours by two positions (audit reviewer and director) as well as abnormal total audit hours. Lastly, results based on log of audit hours (total or rank-specific) are sensitive to the inclusion of firm size as a control variable in the regression model whereas those based on abnormal audit hours are relatively stable regardless of the presence of firm size in the control. Our results suggest that audit hours may act as an indicator of audit risk rather than audit quality.

Auditors' workload and audit quality under audit hour budget pressure: Evidence from the Korean audit market

By utilizing unique audit hour (actual and budgeted) data from Korea, this study examines the impact of auditors' workload on audit quality under audit hour budget pressure. We find the intensity of auditor workload has a negative impact on audit quality when total audit hours exceed budgeted hours (i.e., unfavourable budget variance). When we breakdown the audit workload by auditor level, we find partner workload has a negative impact on audit quality regardless of the budget variance, while senior auditor workload negatively affects audit quality only when the budget variance is unfavourable. We cautiously interpret our empirical findings to suggest that stress and burnout caused by increased audit hours under budget pressure can compel auditors to engage in behaviours that undermine audit quality.