企业风险与审计师选择

信号传递理论认为,IPO市场中审计师选择可以作为信号机制,降低发行企业和投资者之间的信息不对称程度.本文以股权分置改革后我国证券发行制度向市场化过渡为背景,考察我国审计师声誉和IPO企业特征之间的关系.研究结果表明,在公司规模、资产负债率、资产净利率、投资银行声誉、公司成立时间这五个反映公司风险的变量中,公司规模、投资银行声誉、公司成立时间与是否选择大事务所进行审计有显著正相关关系,且大规模事务所审计的IPO企业的首日回报显著要低,这意味着大规模事务所的高声誉得到了市场的认可,审计师的信号传递功能在我国初步有效.     

Information uncertainty and auditor reputation

This paper explores the relationship between information uncertainty and auditor reputation revealed by the failure of Arthur Andersen (AA). AA’s reputation deteriorated considerably when it announced on January 10, 2002, that it had shredded documents related to its audit of Enron. AA’s demise was sealed on March 14, 2002, with its indictment for obstruction of justice. We find that on these dates the clients of AA and other Big Five auditors that are characterized by higher information uncertainty experience relatively larger share price declines compared to clients with lower information uncertainty. The findings suggest that the market relies more heavily on auditor reputation for higher information uncertainty firms, which implies that the value of an audit is greater when a firm is harder to value. Our results highlight the importance of information uncertainty in financial markets: where there is a shock to auditor reputation, firms with greater information uncertainty suffer the largest losses.     

Does Auditor Reputation Matter? The Case of KPMG Germany and ComROAD AG

We study the stock and audit market effects associated with a widely publicized accounting scandal involving a public company (ComROAD AG) and a large, reputable audit firm (KPMG) in a country (Germany) that has long provided auditors with substantial protection from shareholder legal liability. We use this event to study whether an auditor's reputation helps to ensure audit quality, a rationale for which recent literature and events provide scant support. Given the absence of a strong insurance rationale for audit quality, Germany permits a relatively clean test of whether auditor reputation matters. We find that KPMG's clients sustain negative abnormal returns of 3% at events pertaining to ComROAD, and that these returns are more negative for companies that are likely to have higher demands for audit quality. We also find an increase in the number of clients that drop KPMG in the year of the ComROAD scandal (mostly smaller, recently public companies that are similar to ComROAD). Overall, our results provide support for the reputation rationale for audit quality.     

Independent director reputation incentives,accruals quality and audit fees

While prior research provides abundant evidence that independent directors are associated with favorable outcomes, researchers have only recently started to investigate the impact of independent director reputation incentives. This study examines whether the reputation incentives of independent directors are associated with accruals quality and audit fees. The results reveal a negative relationship between the proportion of independent directors with relatively low reputation incentives and accruals quality. Further, the proportion of independent directors with relatively low reputation incentives is positively associated with audit fees, suggesting that auditors view lower reputation incentives as increasing risk. We also find that Big 4/5 auditor office size moderates the relationship between independent director reputation incentives and audit fees. Specifically, our results indicate that audit fees increase less in response to lower reputation incentives as office size increases, suggesting that larger offices respond to the risks associated with lower reputation incentives more efficiently than smaller offices.     

审计师声誉研究:述评与展望

审计师声誉是审计师保持独立性的动机,对审计师声誉的研究在2001年安然事件后逐渐增多并引发了广泛关注。现有文献主要从审计师声誉的形成、作用、毁损与修复机制等方面展开。具体而言,监管、行业专门化、审计质量、媒体及法律等是审计师声誉形成的重要影响因素,审计师声誉的建立有助于审计师保持独立、提高审计质量和收费等,而审计师声誉的毁损将会导致市场反应和溢出效应,同时也催生了相应的声誉修复问题。本文的综述有助于全面了解审计师声誉的现状并可能对其未来发展方向提供建议。     

The impact of corporate governance on auditor choice: Evidence from China

As the largest and fastest growing emerging market, China is becoming more and more important to investors throughout the world. The purpose of this paper is to investigate the determinants of firms’ auditor choice in China in respect of their corporate governance mechanism. Normally firms have to take a trade-off in their auditor choice decisions, i.e., to hire high-quality auditors to signal effective audit monitoring and good corporate governance to lower their capital raising costs, or to select low-quality auditors with less effective audit monitoring in order to reap private benefits derived from weak corporate governance and less-transparent disclosure (the opaqueness gains). We develop a logit regression model to test the impact of firms’ internal corporate governance mechanism on auditor choice decisions made by IPO firms getting listed during a bear market period of 2001–2004 in China. Three variables are used to proxy for firms’ internal corporate governance mechanism, i.e., the ownership concentration, the size of the supervisory board (SB), and the duality of CEO and chairman of board of directors (BoDs). We classify all auditors in China into large auditors (Top 10) and others (non-Top 10), assuming the large auditors can provide higher quality audit services. The empirical results show that firms with larger controlling shareholders, with smaller size of SB, or in which CEO and BoDs chairman are the same person, are less likely to hire a Top 10 (high-quality) auditor. This suggests that when benefits from lowering capital raising costs are trivial, firms with weaker internal corporate governance mechanism are inclined to choose a low-quality auditor so as to capture and sustain their opaqueness gains. On the other hand, with improvement of corporate governance, firms should be more likely to appoint high-quality auditors.     

审计委员会特征与会计师事务所变更的经验研究

本文以会计师事务所变更为视角,探讨具备怎样特征的审计委员会才能有效履行其职责。研究表明:审计委员会的独立性和专业性与会计师事务所变更显著负相关;审计委员会的开会次数与会计师事务所变更没有显著关系,说明审计委员会的存在有助于减少会计师事务所变更。但在对会计师事务所变更的进一步研究中,我们并没有发现会计师事务所变是为了追求更高审计质量的进一步证据,也说明审计委员会对会计师事务所变更的影响仍然有限。这些研究结论为完善我国审计委员会制度提供了经验证据。     

Does the severity of a client’s negative environmental,social and governance reputation affect audit effort and audit quality?

In recent years, investors have begun to value companies’ reputations through their environmental, social, and governance (ESG) practices. ESG risk can affect business processes and controls and can heighten financial risk and threaten a firm’s survival. This study examines whether and how the severity of media coverage of a firm’s negative ESG issues (tainted ESG reputation) is associated with audit effort and audit quality. I find that auditors manage the higher expected engagement risk conveyed by tainted ESG reputation by applying higher audit effort. Next, I observe that the increased effort is associated with auditors likely detecting and requiring adjustments for material misstatements and that tainted ESG reputation is associated with fewer misstatements (i.e., reduces poor audit quality). The association between tainted ESG reputation and audit quality is driven primarily by increased audit report lag, not by increased audit fees. Further, I find that tainted ESG reputation is positively associated with audit effort and reduces poor audit quality for up to three years. The results also show that the audit effort and audit quality effect vary across the three components of ESG.     

Consequences of adopting an expanded auditor’s report in the United Kingdom

The United Kingdom has recently required an expanded auditor’s report for large public companies. We investigate whether this requirement is associated with an increase in the decision usefulness of the auditor’s report and whether it has indirect consequences on audit fees and quality. Our analyses cover four years surrounding the changes, including companies that transitioned to the new regime and companies that continued issuing the previous report’s format. We do not find evidence that the regulatory change significantly affected investors’ reaction to the release of auditors’ reports, audit fees, or audit quality. Furthermore, we do not find that variation in the expanded reports’ content has affected these outcomes. Although companies with long reports pay comparatively higher fees, the mere increase in disclosure does not affect audit fees or quality. Collectively, our evidence is consistent with the expanded auditor’s report providing little incremental information to investors.     

Does common auditor have an impact on corporate tax avoidance? An investigation from the supply chain perspective

We find that, at both the audit firm and partner level, having a common auditor in the supply chain has a significant positive association with the supplier company's degree of tax avoidance. Companies report a higher level of tax avoidance when they are audited by an industry-expert or a tax expert common auditor, when the common audit partner is economically dependent on the supplier company, when the audit client is in a highly competitive industry, and when the company is subject to a high level of information asymmetry. Moreover, we find potential audit quality issues embedded in common audits in the supply chain.     

To switch or not to switch? The effect of audit firms’ economies of scale on audit firm switches after audit price deregulation in China

We exploit the unique setting of China’s 2014 audit price deregulation policy to examine whether audit firms use their economies of scale (EOS) to compete for clients. We find a significant increase in client firms switching from a non-EOS auditor to an EOS auditor after the audit price deregulation policy was implemented. The additional analyses show that EOS audit firms are more likely to offer audit fee discounts than non-EOS audit firms while retaining audit quality. We also find that the auditors’ EOS effect is more pronounced for highly homogeneous industries and firms paying high abnormal audit fees, firms in financial distress, and firms receiving less capital market attention than for less homogeneous industries and firms paying low abnormal audit fees, financially stable firms, and firms receiving more capital market attention. Finally, we find that the presence of state-owned enterprises and political connections both separately and jointly moderate the effect of audit firm–client realignments from a non-EOS auditor to an EOS auditor after the audit price deregulation. Overall, our study provides important insights for policymakers and regulators reviewing and developing new policies on audit services.     

Public and private sector auditors and accruals quality in English NHS hospital Trusts

To promote auditor independence and audit quality in English NHS Trusts the Audit Commission regulates auditor rotation, fees and the appointment of its own and private sector auditors. NHS sanctioned departures from GAAP, some of which allow the financial breakeven target to be achieved, have been criticised by the Audit Commission as detrimental to financial discipline. In this paper, we investigate the association between abnormal accruals and the achievement of financial breakeven in NHS hospital Trusts over the period 1998–2005. We also investigate the association between abnormal accruals, audit fees and the Trusts audited by public and private sector auditors. We find evidence that abnormal accruals are used to achieve financial breakeven and they differ across different types of auditor. We also identify a negative relationship between abnormal accruals and NHS Trust star ratings. These findings raise questions about the ‘quality’ of NHS audit where compliance with NHS-specific regulations overrides the wider GAAP-based requirement for financial statements to show a true and fair view and they warrant reconsideration of the nature of audit in NHS Trusts.     

Do Non–Audit Service Fees Impair Auditor Independence? Evidence from Going Concern Audit Opinions

We find no significant association between non–audit service fees and impaired auditor independence, where auditor independence is surrogated by auditors' propensity to issue going concern audit opinions. We also find no association between going concern opinions and either total fees or audit fees. In addition, our findings are robust to controlling for unexpected fees, to controlling for endogeneity among our variables, and to several alternative research design specifications. Our results are consistent with market–based incentives, such as loss of reputation and litigation costs, dominating the expected benefits from compromising auditor independence.     

Audit committee diligence around initial audit engagement

Studies focusing on governance mechanisms argue that auditor monitoring is one of several governance mechanisms that exist in the firm, and these mechanisms supplement each other. Extending this argument, I examine whether firms support auditor monitoring with audit committee monitoring when auditor oversight is deemed to be weak. Prior auditing literature argues that audit quality is affected by auditors' lack of familiarity with their clients' activities. Since lack of auditor–client familiarity exists in the first year of auditor–client tenure, I examine whether firms increase their audit committee monitoring during the year of auditor change. For a sample of firms that changed auditors between 2006 and 2012, the findings show that audit committees meet more frequently in the first year of audit engagement. Further tests show that firms' past reporting behavior play a significant role in the demand for more audit committee meetings and the increase in the audit committee meetings in the initial year of auditor engagement positively affects reporting quality.     

Non-audit fees, institutional monitoring, and audit quality

We posit that the effect of non-audit fees on audit quality is conditional on the extent of institutional monitoring. We suggest that institutional investors have incentives and the ability to monitor financial reporting quality. Because of the reputation concerns and potential litigation exposure, auditors are likely to provide high audit quality, when they also provide non-audit services to clients, particularly when clients are subject to high institutional monitoring. We find evidence that, as non-audit fees increase, audit quality (measured by performance-adjusted discretionary current accruals and earnings-response coefficients) reduces only for clients with low institutional ownership but not for clients with high institutional ownership. Our results are robust after controlling for auditor industry specialization, firms’ operating volatility, size effect, and potential endogeneity between institutional ownership and audit quality.     

Japanese stock market reaction to announcements of news affecting auditors’ reputation: The case of the Olympus fraud

The revelation of accounting fraud by the Olympus Corporation gave rise to shareholder allegations of audit failure against Olympus’ auditors—Ernst & Young ShinNihon LLC and KPMG AZSA LLC—in 2011. In this study, we investigate whether the auditors’ affiliation with Olympus contributes to divergent perceptions of audit quality in the event of news announcements affecting the reputation of Olympus’ auditors. First, we use a nonparametric generalized rank event study methodology on 918 sample firms from the First Section of the Tokyo Stock Exchange (TSE) to observe Japanese investors’ perceptions of auditor reputation as proxied by abnormal returns. Second, we perform a multivariate linear regression on firms’ abnormal returns after controlling for firm-specific variables. We find that Japanese investors do not respond to negative or neutral reputational information arising from news announcements concerning Olympus’ auditors for firms affiliated and not affiliated with those auditors. In the absence of legal penalties imposed on Olympus’ auditors, we argue that Japanese investors consider the Olympus fraud case as an expected occurrence of audit failure due to a lack of evidence suggesting systematic audit failure on the part of Olympus’ auditors and an expectation of lower audit quality in the Japanese capital market. As a result, Japanese investors do not consider news announcements affecting the Olympus auditors’ reputation as sufficient evidence to change their prior expectation regarding the reputations of the audit firms affiliated with the Olympus fraud case.     

The influence of jurors' perceptions of auditor tenure on blame

This study investigates whether jurors' judgments of auditor blameworthiness are influenced by the length of an auditor's tenure with a client. We use an experiment to determine whether tenure affects juror perceptions of an auditor's competence and independence. We then examine whether these perceptions influence the attribution of blame. Results, consistent with both sides of the mandatory auditor rotation debate, indicate that tenure has a positive impact on perceptions of competence and a negative impact on perceptions of independence. Further, as juror perceptions of the auditor's competence and independence decrease, attributions of blame increase. These results have implications for auditor tenure research as well as for auditors involved in litigation. By utilizing structural equation analysis, we find that the effects of auditor tenure on perceptions of audit quality are complex. Perceptions of both competence and independence are significantly related to extended tenure; however, these perceptions independently affect the assignment of blame. While longer tenure improves perceptions of competence and lessens blame, it decreases perceptions of independence resulting in greater blame. From a litigation perspective, the auditor's tenure with a client is a double-edged sword that must be addressed strategically in court.     

What do we know about audit quality?

This paper reviews empirical research over the past 25 years, mainly from the United States, in order to assess what we currently know about audit quality with respect to publicly listed companies. The evidence indicates that outright audit failure rates are infrequent, far less than 1% annually, and audit fees are quite small, less than 0.1% of aggregate client sales. This suggests there may be an acceptable level of audit quality at a relatively low cost. There is also evidence of voluntary differential audit quality (above the legal minimum) along a number of dimensions such as firm size, industry specialization, office characteristics, and cross-country differences in legal systems and auditor liability exposure. The evidence is very positive although there is some indication that audit quality may have declined in the 1990s, in which case there could be merit in recent reforms such as the Sarbanes-Oxley Act of 2002 in the US. However, we do not know from research the optimal level of audit quality and therefore whether we currently have ‘too little’ or ‘too much’ auditing? Despite this lacuna we are entering an era of more mandated auditing in response to high-profile corporate governance failures including the Enron–Andersen affair. Finally, while recent reforms have scaled back the scope of non-audit services due to independence concerns, a case can be made that audit quality will always be somewhat suspect if other services are provided that are perceived to potentially compromise the auditor's objectivity and skepticism. For this reason public confidence in audit quality may be increased by proscribing all non-audit services for audit clients. Recommendations are also proposed with respect to legal liability reform and changes in partner compensation arrangements.     

It’s all about audit quality: Perspectives on strategic-systems auditing

We discuss the antecedents of and rationale for what has become known as Strategic-Systems Auditing (SSA). We also describe the conceptual foundation and key elements of SSA. We observe that the auditor employing SSA conceives the audit as a process of evidence-driven, belief-based, risk assessment. We also illustrate facets of this process, including how the auditor, by acquiring a rich understanding of how and how well management is executing its business-model, develops rich (e.g., distributional) expectations of future financial-statement amounts and disclosures. These expectations form a benchmark against which the auditor later compares and investigates management’s asserted financial-statement amounts and disclosures. Finally, we pose and respond to some of the more common questions about elements of SSA and complete the paper by suggesting some educational innovations and high-value targets for research.One salient message is that SSA first emerged in the 1990s as an attempt to enhance audit quality in response to changes in the audit environment. Another salient message is that SSA continues to equilibrate, adapting to more recent environmental changes, especially society’s demand for greater protection from financial-statement fraud. Such adaptation requires ongoing, significant intellectual investments by audit practitioners and audit scholars/educators.