Auditor Type Research Articles

Corporate governance and intellectual capital disclosure. An empirical analysis of the Italian listed companies

Intellectual capital (IC) as well as disclosure of information on IC has in recent years gained importance. IC is the key issue in strengthening a firm’s competitive position and in achieving its objectives. The purpose of this study is to investigate some determinants of the disclosure of IC in annual reports. In particular the aim of this research is to analyse the internal mechanisms of corporate governance (board composition, role duality, ownership structure, auditor type and size of audit committee), which influence the intellectual capital disclosure in corporate annual reports for a sample of all listed Italian firms at 31st December 2010. It has been used a disclosure index as a dependent variable, (ICD), and the method used to measure it is content analysis.

The Impact of Audit Quality Features on Enhancing Earnings Quality: The Evidence of Listed Manufacturing Firms at Amman Stock Exchange

<p>The study aims at investigating the impact of external audit quality features on enhancing the quality of accounting profits of the listed manufacturing firms at Amman Stock Exchange (ASE), where continuity of profit has been used as Proxy variable to express the quality of earnings. Indicators of quality of audit, audit office size, auditors' fees, period of customer's retention, type of auditor's opinion, and the specialization in client's industry, were used to measure audit quality. A sample of 45 firms had been selected, and data covering the period 2009-2013 had been collected from these firms, where 225 observations were used in the analysis. The study finds that the earnings of listed manufacturing firms at Amman Stock Exchange are with good quality, and that there is a linear relationship between external audit quality and the quality of reported earnings. Auditors' fees have most important significant effect on earnings quality, followed by auditors' opinion, where others factors has no significant effect on earnings quality. Based on these findings, the study raises several questions about the reliability of audit quality properties by stakeholders in firms, especially investors, when they check the quality of earnings, whenever they need to take a decision. The study recommends further researches regarding the issue by using other metrics to measure earnings quality, and through the addition of other properties to the quality of the audit, such as linked audit offices with auditing global offices, degree of qualification employees, and the opened lawsuits against audit office.</p>

The Effects of Audit Market Liberalisation and Auditor Type on Audit Opinions: The Iranian Experience

Audit services were provided exclusively by a state entity in Iran until late 2001, when the audit market was liberalised. The liberalisation of the audit market resulted in increased competition, as more private auditors became licensed to operate and provide audit services. The present study examines the effects of audit market liberalisation and auditor type (i.e., state and private auditors) on audit opinions. It is predicted that increased competition in the audit market may reduce the relative bargaining power of auditors, which can compromise auditors’ independence when issuing audit opinions. The present study also investigates whether the process of issuing audit opinions is influenced by the government, thus resulting in a lower rate of modified audit opinions issued by state auditors compared to those issued by private auditors. Importantly, this study develops an explanation based upon a bargaining power view of auditor independence in issuing audit opinions and upon the limitations of the explanation for the circumstances in which auditor and owner interests are aligned in the case of government entities. The present study analyses the data of firms listed on the Tehran Stock Exchange between 1999 and 2010. The findings, after controlling for auditor choice, reveal that modified audit opinions have decreased following the liberalisation of the audit market in Iran, and compared to private auditors, state auditors have issued fewer modified audit opinions. The findings suggest that increased competition in the audit market is more likely to decrease the relative bargaining power of auditors and that there is a significant concern regarding audit opinions when both auditee and auditor are state-controlled entities.

The influence of auditor’s opinion and auditor’s reputation on the cost of debt: evidence from private Spanish firmsLa influencia de la opinión de auditorãa y la reputación del auditor en el coste de la deuda: evidencia en las empresas españolas no cotizadas

ABSTRACTThis paper addresses the relevance of auditor’s opinion and auditor’s reputation for the creditors of private companies in an environment of low demand for audit quality. By employing archival data from private Spanish firms, we find that Big-4 auditors’ clients bear a lower cost of debt, showing that the selection of a high-quality auditor is relevant for the creditors of the company. We also demonstrate that the content of audit reports is relevant for creditors, as they require a higher cost of debt from firms that have obtained a qualified audit report. The influence of auditor’s opinion on the cost of debt does not depend on type of auditor, suggesting that Big-4 auditors’ clients benefit from their auditor’s reputation, even when they receive a qualified audit report.

The Relationship between Information Asymmetry and Mechanisms of Corporate Governance of Companies in Tehran Stock Exchange

This study aims to investigate some of the most important corporate governance mechanisms and information asymmetry in Tehran's stock exchange. The percentage of institutional investment, ownership concentration, type of auditors, and the independence of board members have been used as the corporate governance mechanisms, and also changes in the liquidity of the stock market have been used as an indicator for information asymmetry. The statistical population of this study is companies accepted in Tehran's Stock Exchange and research sample has been selected by using the systematic sampling Cup method and applying the conditions of research variables to 145 companies from 22 industries during 2008-2013. The research findings show that there is a negative and significant relationship between the percentage of institutional investments and the independence of board members, and bid-ask spread, and there is a positive and significant relationship between ownership concentration and the bid-ask spread. Also, the obtained results show that there is no relationship between the variables of the type of auditor and bid-ask spread.

Mekanisme Corporate Governance dan Kecurangan Laporan Keuangan

The purpose of this research is to examine factors that may affect fraud on financial statements that could encourage the emergence of corruption by management. This research uses banks as an industry sample because the banking industry is highly regulated and should report their financial statement to a central bank. Meanwhile, banks still frequently have fraudulent financial statements. Good corporate governance mechanisms indicated that banks have the capability to detect fraud in financial statements. This research focuses on testing factors that may affect the financial statements fraud which lead to the corruption of management. The data used in this research is financial statement data. Corporate governance mechanisms tested in this study are the number of commissioners, percentage of independent directors, number of commissioners meeting, percentage of largest share ownership, managerial ownership, long tenure of commissioners, and type of auditor. This research found that the number of commissioners and managerial ownership affects management's fraud, while the number of independent directors, the number of commissioners meeting, a long tenure managing director, large share ownership, and the type of auditor has no effect on fraud.

Auditor Reputation Under Different Negligence Regimes

Do auditor reputation effects evolve the same way under precise negligence as under vague negligence? Or are there differences? We assume that investors update their beliefs on unobservable auditor quality when an auditor discloses an inaccurate report. We call this a reputation effect. A necessary condition for reputation effects to occur is that, ex ante, investors expect ‘good’ auditors to take more care than ‘bad’ auditors such that ‘good’ auditors are less likely to issue an inaccurate report. Consistent with empirical evidence, we assume that wealthier (‘good’) auditors tend to take more care than less wealthy (‘bad’) auditors. We find that under vague negligence, reputation effects will occur, inducing both types of auditor to increase the level of care taken. A ‘good’ auditor is likely to exert excessive care. Then, even in the absence of auditor risk aversion, a (properly defined) liability cap is necessary to induce efficient incentives. A contractual liability cap is preferable to a legally fixed liability cap. Under precise negligence, a ‘good’ auditor will exert the standard of due care. However, a ‘bad’ auditor will also do so if sufficiently wealthy. Consequently, ex ante, investors do not expect different levels of care to be taken or reputation effects to occur. A liability cap is not desirable. This paper highlights the importance of non-legal sanctions in auditor liability. Finally, it links the ‘reputation’ and ‘deep pocket’ hypotheses, both of which have attempted separately in the past to explain the positive correlation between auditor size and auditor quality.

Environmental, Social and Governance Disclosures: A Call for Integrated Reporting in Nigeria

Annual reports of most companies quoted on the Nigerian Stock Exchange (NSE) have been found to be deficient, because they lack vital financial and non-financial information that would enable stakeholders make informed decisions. The aim of this study was to investigate the environmental, social and governance (ESG) practices of Nigerian quoted companies and discuss the need for integrated reporting (IR). A checklist was developed to capture the ESG disclosures from the annual reports of 40 companies listed on the Nigerian Stock Exchange over a two-year period from 2013 to 2014. The ESG determinants were proxied by company size, profitability and auditor type. Company size was measured by total assets, profitability was measured by return on equity (ROE), and auditor type was measured by a dummy variable, ‘1‘ for Big 4 and ’0‘ for otherwise. The data obtained were analysed using descriptive statistics, correlation and regression. The findings revealed that, the level of ESG disclosure was 53%, this was made up environmental scores (7%), social scores (66%) and governance scores (81%). This showed that governance information was the most disclosed while environmental information was the least disclosed. Findings also revealed that ESG disclosure practice was influenced by auditor type; but not by company size and profitability. The current trend of integrated reporting worldwide calls for Nigerian companies to be proactive. There is a need to improve on ESG practices by integrating the financial and ESG elements to generate a single integrated report, which allows both the company and its stakeholders to make better-informed decisions.

Measuring the Performance of Romanian Listed Companies Considering their Individual Characteristics

Abstract The aim of this paper is to provide evidence about the financial performance that the companies that are listed on a regular market obtained. The financial performance can be influenced by individual characteristic of the entity, like: size, indebtedness ratio, and liquidity ratio, type of the auditor, the industry where they act or other particular features. The research was conducted upon the Bucharest Stock Exchange (BSE). It took into consideration the entities that have to report their individual financial statements under International Financial Reporting Standards (IFRS). This regulation is compulsory for entities that are admitted for listing on a regular market from 2012. The study provides proper evidence about the factors that influence the entities’ performance. Both quantitative and qualitative measures were taken into consideration. The qualitative elements were quantified using dummy variables (the development region, the type of auditor, the specialization field, the case in which major shareholder has more than 50% of the shares). The results emphasize the important of several variables (i.e. the company's size, the region where the entity acts, the company's indebtedness ratio, and the company's age) that have significantly influenced, both in a positive and a negative way, the financial performance. Considering the area in which the company is specialized, no reliable information was detected. It seems that neither return on equity, neither return on assets, neither cash flow from operation divided by total assets are reliable financial measure though which the influence of specialization can be properly reflected. Considering geographical regions, companies from nord - west region and from the west region do obtained a lower financial performance that that that it's obtained if the company act in other development region.

The Interaction Between Financial Audit and Corporate Governance: Evidence from Romania

In order to conduct a quality financial audit both information about financial indicators and about the corporate governance that a company has are mandatory. This study presents the correlation between financial audit and corporate governance of the entities that are listed on the Bucharest Stock of Exchange that had to comply with IFRS approach. Using a simultaneous equation model, positive influence is detected between financial audit, proxy by audit fees, and the type of auditor and negative effect is found between the existence of audit committee, the non- existence of CEO/chair duality and the one tier management system.

Do auditors make mistakes when they write audit reports? An empirical study applied to Spanish non-listed firms

The objective of this paper is to analyse whether auditors comply with the standards currently in force when writing audit reports in Spain. We try to obtain evidence for the relationship of the errors contained in the report with the type of opinion figuring in it, and with the auditor issuing it. This study is based on a sample of 1236 reports selected by the stratified random sampling method, for the period 2004–2007. Once we had defined the dependent variable, the number of errors committed in the report, the independent variables, the type of auditor and type of opinion, we tested the hypotheses by means of a regression analysis with the aim of estimating the average number of errors that can be found in a report according to the variables described. The results obtained permit us to conclude that reports with a qualified opinion contain a greater number of errors, and that they are committed to a greater extent by individual auditors than by companies and by multinationals.

An Evaluation of Clients’ Fraud Reasoning Motives in Assessing Fraud Risks: From the Perspective of External and Internal Auditors

Abstract The auditor's accuracy in conducting fraud risk assessment continues to be the most critical task. The reason is the effectiveness and efficiency of an audit depends on auditor's ability to accurately assess the existing audit risks ( Jones, 2004 ). Applying to that, Malaysian Approved Standards on Auditing AI 240 on “Fraud and Error”, provides recommendation to auditors in assessing the client's likelihood of fraud risks based on the three elements of fraud triangle concept; opportunity, pressure and rationalization. Ideally, this audit standard highlighted the importance of auditors’ to evaluate these elements as it will assist them to understand their clients’ fraud reasoning motives and thus, properly assess the potential fraud risks that might be occurred. Based on the risk assessment, the auditors are required to plan the audit procedures in order to detect any material misstatement that may lead to fraud or error. In this study, as established in the ISA240, the fraud triangle concept has been used to examine the direct and interaction effect of the following fraud risk factors: (1) internal control system (opportunity); (2) pressure and; (3) type of auditors (internal and external auditors) on fraud risk assessment. An experimental research approach is adopted by sending a set of case scenarios to 129 auditors, comprises of both internal and external auditors. The respondents were required to complete two different case scenarios, where the level of internal controls and pressures were being manipulated; high and low. The results showed that there are significant relationships between each risk factors and fraud risk assessment. Furthermore, the results of the interaction effects (combination of two variables) also show significant effect on fraud risk assessment. The findings of this study may provide insights into the auditors’ judgment in assessing fraud risk. It is also could be beneficial to the auditors to increase their awareness of the importance to understand their client's fraud motives during fraud risk assessment task and thus, improve the audit quality.

The Effects of Industry Specialization on Auditor's Opinion in Iran

The current study aims to provide evidences regarding the audit industry expertise as one of the criteria of auditing quality. For this purpose, in this research the relation between audit industry expertise and auditor's type of opinion is studied using the financial information extracted from listed companies in Tehran Stock Exchange during 2004 - 2012. The previous studies indicated the positive effect of this criterion on quality of auditing in companies. To support the evidences of the former studies, after control of other relevant environmental factors, the results of this study showed that there is a positive and significant relation between audit industry expertise and auditor's qualified opinions. The obtained evidences supported this idea that audit firm specialization could lead to improved quality of financial information of the capital market. Regarding other used variables of the research, the results showed that the auditor size and return of assets negatively, and the company's size and performance of the previous year positively are dependent on the type auditor’s opinion. The results of this study add to the literature of audit quality through study of the role of audit industry expertise as well as the study of the relevant factors to the type of auditor's opinion. DOI: 10.5901/mjss.2015.v6n1p399

The Impact of Firm Characteristics on IFRS 8 Disclosure in the Transition Period in Nigeria

Following the adoption of International Financial Reporting Standard (IFRS) in Nigeria, companies listed under Nigerian Stock Exchange (NSE) are mandated to comply with the provisions of IFRS within the transition period effective 1st January 2012 and ending 2014. The aim of this paper is to share more lights in the transition process to IFRS with regards to segment reporting in mandatory regime. Based on sample of 97 listed companies using a disclosure index, the study document that the quantity of disclosure was positively related to some aspects of firm characteristics such as industry type, auditor type, firm size, and company?s listing age, albeit these variables provide a significant impact on compliance with IFRS 8 (Operating segments) disclosure. The study Further document that majority of the sample companies identify Board of Directors (BOD) as their Chief Operating Decision Maker (CODM).

The Level of Compliance with International Accounting Standard IAS 18 by Listed Firms in Bahrain

This Study examines the association between five firm-specific characteristics and the level of compliance with International Accounting Standards (IAS 18) by listed Firms in Bahrain Bourse. A self-constructed compliance checklist was developed and the compliance index was derived to represent the level of compliance among publically traded firms in Bahrain Bourse for the year 2013 to IAS 18 disclosure requirements. The results detected an aggregate mean compliance of 63% to IAS 18 disclosure requirements. A significant positive relationship was found between the level of compliance and a company’s size, and auditor type. A significant negative relationship was found between the IAS 18 disclosure level and a company’s debt level (leverage). However, a significant relationship between the level of IAS 18 disclosure level and a company’s profits or age could not be established in this research. The results of this research can benefit investors and companies as well, as the results will determine what level of compliance to IAS 18 are listed companies in Bahrain Bourse are committed to, and how transparent are the revenues they are reporting in their financials

A Study on the Relation between the Effects of IFRS Transition and the Audit Hour․Audit Fee: Focused on Auditor Type

A Study on the Relation between the Effects of IFRS Transition and the Audit Hour․Audit Fee: Focused on Auditor Type

External auditor types and the cost stickiness of listed companies

External auditing is an important method of corporate governance that can effectively monitor and restrict a manager’s opportunistic behaviour and reduce cost stickiness. We focus on Chinese A-shares listed companies from 2002 to 2010 to explore the governance role of external auditors in cost stickiness. We classify audit firms into three types: the Big Four International, the Big Ten Domestic, and the non-Big Ten Domestic. The results show that the cost stickiness of firms audited by the Big Four International is significantly lower, while the cost stickiness difference between firms audited by the latter two types is not significant. Further tests show that the restriction on cost stickiness for the Big Four International is more significant when the largest shareholder’s shareholding ratio is lower or when the local market is less developed. These results indicate that the restriction placed by audit quality on cost stickiness varies with other corporate governance mechanisms. Our results are qualitatively unchanged under different robustness tests, including propensity score matching. This study shows that Big Four International audit firms can better reduce cost stickiness, which provides evidence of the higher audit quality of these firms and extends the study of restrictive factors on cost stickiness to external corporate governance mechanisms.

English

In this study the relation and effect of corporate governance on audit opinion of CPAs is investigated. The companies investigated are listed in Tehran Stock Exchange and are selected using the systematic elimination method. They are 104 companies. The time period is 2008-2010. The statistical methods used are logistic regression and Wald test. The data were collected from the companies’ annual financial statements and independent auditors’ opinion. The results indicated a significant relation between the ratio of the executive board and type of independent auditors’ opinion. Therefore, in companies with higher ratio of executive board members, the right opinion of an independent auditor is taken along with an explanatory paragraph. Moreover, there was a positive and significant relation between family control and type of CPA’s opinion; that is, if a company has higher rank in terms of ownership, then the independent auditor’s opinion will have a fewer number of paragraphs and vice versa; in companies with more stockholders dispersion, the independent auditor’s opinion is unqualified and has more audit paragraphs. Adding the corporation’s size to the research model, the research results were approved. Key words: Audit opinion, executive board, family control.

Compliance with International Financial Reporting Standards by Listed Companies in Ghana

This study examined the extent to which companies listed on the Ghana Stock Exchange (GSE) comply with International Financial Reporting Standards’ (IFRSs) presentation and disclosure requirement. With the aid of a checklist, an index of compliance was devised to quantify the level of compliance. This was applied to the 2010 financial statement of 31 companies listed on the GSE. Descriptive statistics was used to analyse the extent of compliance by companies categorised in line with industry classification of the GSE. The study further examined relationships between company attributes and the extent of compliance. In addition, factors influencing the extent of IFRSs compliance are revealed using correlation and multiple regression analysis. ANOVA was employed to explore statistically significant differences between industry types with regards to their extent of compliance. The findings revealed an overall mean compliance of 85.8% in Ghana. Company attributes of size, profitability, auditor type, internationality and industry type associate positively with IFRSs compliance. ANOVA results revealed differences between industry types with regards to their compliance rate. The study recommends that the Institute of Chartered Accountants Ghana liaise with regulators to organise regular training programmes for companies to provide a practical guide for full compliance since the IFRSs receive continuous amendment.

The effect of board of commissioners, audit committee, and stock ownership concentration on audit report lag of banking companies in Indonesia Stock Exchange

This study aims to examine the effect of corporate governance characteristics such as board size, independence of the board of commissioners, the size of the audit committee, audit committee independence, audit committee competence, and concentration of stock ownership on audit report lag. In addition, this study also tests three control variables such as firm size, type of auditor, and profitability. One hundred and fiftysix sample of banking companies listed in the Indonesia Stock Exchange during the 6 years of the study were obtained by using purposive sampling technique. The results of multiple regression analysis proved that only board size variable that affects the audit report lag, while the other three control variables has no significant effect on audit report lag. This result suggested that auditors perform the audit more efficiently and effectively, for BAPEPAM-LK and Bank Indonesia as regulator to review again the regulation about corporate governance, for the future researcher to be reference in developing research.