The international firms as new entrants to the statutory audit market: an empirical analysis of auditor selection in Greece, 1993 to 1997

This paper investigates choice of statutory auditor in Greece in the five years subsequent to the 1992 liberalization of the audit market. We analyse auditor choices by 205 companies which, by 1997, represented almost 90% of companies listed on the Athens Stock Exchange. We find that the level of shareholdings by foreign shareholders is positively associated with choice of a Big Six versus any other auditor both immediately after liberalization in 1993 and still in 1997, indicative of the role of the Big Six in providing audit credibility in the eyes of international investors. In addition, Big Six auditors strengthened their position in the finance sector and, outside the finance sector, among larger companies over the period studied. We also find that in both 1993 and 1997 Big Six firms were distinguished specifically from the second-tier international firms, consistent with the view that, in post-liberalization Greece, companies by their choice of auditor appear to be distinguishing Big Six firms from all others but not between second-tier international firms and local auditors. These findings shed light on the hitherto unresearched area of which companies Big Six auditors target in order to gain market share when they are new entrants in an environment radically changed by regulatory reform. In addition the research extends the auditor name brand reputation debate by its finding that, in post-liberalization Greece, second-tier international firms appear to be distinguished from the Big Six but not from the local audit firms.     

Are the ‘Big Six’ ‘big’ in Belgium?

Studies in the United States, Europe and Australia have shown that the market for audit services is highly concentrated and largely dominated by the same ‘Big Six’ international audit firms. This paper measures the degree of concentration in the Belgian audit market through an empirical study of the number of professionally qualified auditors employed by each audit firm and some characteristics of their clients. Our calculations show that the concentration ratios, however measured, are low when compared with other countries, possibly due to the low value attached to the certification of financial statements by a professionally qualified auditor. This lack of importance can be explained by characteristics of the Belgian environment (e.g. a relatively passive capital market, dominated by a few large holding companies) which may induce companies to chose cheaper (domestic) audit firms. We also calculate Spearman rank correlations between the rankings of the audit firms based upon the different audit firm revenue proxies. All the correlations show it is of no importance which measure is used to rank audit firms.     

Audit Fees in a Joint Audit Setting

Abstract

This paper uses the uniqueness of the French audit environment to conduct an in-depth study of audit pricing issues associated with the requirement to hire two independent auditors (joint audit). I use a model derived from Simunic's [(1980). The pricing of audit services: Theory and evidence. Journal of Accounting Research, 18(1), 161–190] seminal work to examine to what extent audit fees are influenced by the number of Big 4 joint auditors (zero, one, or two). After controlling for well-known drivers of audit fees that are specific to audit client firms (size, complexity, and risk), for governance characteristics and for auditor selection, the paper shows that the decision to hire two Big 4 auditors as joint auditors does not require the payment of a higher Big 4 premium compared to the choice of one Big 4 auditor paired with a smaller auditor, other things being equal. The choice of two Big 4 auditors thus appears to be a rational economic choice for large and international firms.     

Enforcement Releases,Firm Characteristics,and Earnings Quality: Insights from Germany's Two‐tiered Enforcement System

The implementation of a two‐tier external enforcement mechanism in Germany in 2004 permits the examination of the interrelationship of enforcement releases, firm characteristics, and earnings quality in a unique institutional framework. A total of 151 cases are examined where the announcement of errors in prior disclosed and audited financial statements was mandatorily ordered by the enforcement authority. Prior literature documents the correlation between underperformance in financial ratios and the probability of erroneous disclosure of financial statements. Evidence is provided of differences in characteristics between firms with enforcement releases and control firms as well as all German publicly listed firms. The research affirms the connection of financial ratios to earnings quality metrics. Overall, the results document the underperformance in important financial ratios as well as indicate an inferior earnings quality of firms subject to enforcement releases vis‐à‐vis the control groups. These results hold with regard to both different earnings quality specifications and different periods observed. This study adds to the earnings quality discussion and contributes to the development of a comprehensive picture of accounting quality in the unique institutional settings of Germany. The findings show that a conjoint two‐tier public and private enforcement system is effective and could be a model for consideration by other countries.     

Audit Quality and Banks' Assessment of Disclosed Accounting Information

The objective of this paper is to investigate whether banks view the information on the off-balance sheet liabilities (specifically, operating leases) disclosed in the notes to the financial statements as more reliable when it is audited by brand name auditors (i.e. a Big 4 audit firm). To the extent that banks assess a higher likelihood that the financial statements could have material misstatements if it is not audited by a Big 4 audit firm, they should charge a higher interest rate on private loans. Our findings suggest that the impact of operating leases on the interest rate is higher if the firm is audited by non-Big 4 audit firms.     

Auditor independence in economies in transition: a study of Russia

The independence of auditors is regarded as key to their credibility as external verifiers of external financial statements. The requirement for external auditors to be independent of their clients when undertaking an audit is enshrined in the International Federation of Accountants' (IFAC) Code of Ethics and in the European Union's Eighth Directive. In the IFAC code this requirement is translated into various situations where observance of certain rules should ensure independence. As the countries of Central Europe and the former Soviet Union have drafted and implemented new laws on external audit, some of these auditor independence rules have been included in the new laws and codes of professional practice. Yet the rationale for the inclusion of these rules is not always clear, particularly given the different cultural and business contexts. In this paper, the authors have identified the auditor independence rule requirements that have been implemented into the laws and codes of practice in Russia. These requirements are then analysed against the economic, social and historic background in Russia, based to a large extent on interviews with auditors, enterprise management and users of financial statements, to generate questions about the efficacy of the auditor independence rules. This should provide relevant input to international and national bodies concerned with the drafting of rules relating to auditor independence in countries with different social and economic traditions.     

审计师选择与业绩承诺精准达标——基于中国借壳上市公司的经验证据

在借壳交易中，对借壳方（非上市公司）财务报告执行审计的审计师可以是壳公司（上市公司）的现任审计师，也可以是新任审计师。以2011—2020年完成借壳上市并签订业绩补偿承诺的我国A股借壳交易案件为样本，检验借壳上市审计师选择对借壳公司业绩承诺实现情况的影响。研究发现，与保留壳公司现任审计师的借壳公司相比，借壳上市交易中选择新审计师的借壳公司更可能在业绩承诺期间精准实现业绩承诺，盈余管理是借壳交易中审计师选择影响借壳公司精准实现业绩承诺的作用渠道。此外，当业绩承诺补偿方式为股份补偿以及借壳交易双方为关联方时，借壳交易中选择新审计师的公司对业绩承诺精准达标的正向作用更加显著。进一步研究发现，借壳上市交易中选择新审计师的公司更可能在业绩承诺到期后经历业绩滑坡，且大股东更可能在锁定期结束后减持股票。结果表明，与保留壳公司现任审计师的借壳公司相比，借壳交易中选择新审计师的借壳公司的机会主义行为更严重。     

自愿性审计师变更原因与投资者反应

本文选取2001￣2004年发生自愿性审计师变更的公司作为样本,采用事件研究法考察投资者对审计师变更公告中所披露不同变更原因的反应。研究发现,市场对于不同原因的审计师变更反应存在差异,投资者根据变更原因判定审计师变更为好消息的反应显著大于判定其为坏消息的反应。由此可知,投资者对于披露的变更原因信息具有一定的识别能力,不同类型的审计师变更会影响公司的价值。监管部门强制披露审计师变更原因有助于提高市场有效性。     

Legal Liability,Government Intervention,and Auditor Behavior: Evidence from Structural Reform of Audit Firms in China

This paper investigates how legal liability influences audit quality and audit fees, particularly in the presence of government intervention. Since 2010, all Chinese audit firms were required to transform from a structure of limited liability company (LLC) to limited liability partnership (LLP), which removes the cap on the liability exposure of negligent auditors. By adopting this natural experiment, we document the following findings: first, after audit firms reorganize as LLPs, auditors are more likely to (1) issue modified audit opinions and going-concern opinions, (2) constrain clients’ earnings management, and (3) charge a premium in audit fees, which suggest that exerting unlimited legal liability on negligent auditors improves both audit quality and audit fees. Second, the effect of the LLP adoption is more pronounced when auditors are from local audit firms, and clients are controlled by local governments. Further analyses suggest that the stock prices of clients positively react to the reform event, which indicates that LLP adoption improves the overall value of audits. In summary, our empirical findings are consistent with the argument that legal liability is able to effectively shape auditor behavior in emerging markets where the other institutional mechanisms are relatively weaker and government intervention is heavy.     

企业会选择与竞争对手共享审计师吗?——基于经营范围相似度的分析

在选择最适合自身需求的审计师方面,企业会关注竞争对手的选择,并在享受审计专家服务与保护专有信息外溢之间寻求平衡。以企业的收入排名和经营范围的相似度衡量竞争对手,检验竞争对手间的审计师共享行为。研究发现,当行业内经营范围高度相似的两个企业互为竞争对手时,共享审计师的可能性较低;行业竞争激烈程度会放大竞争对手共享审计师的负向关系;但当外部审计师为审计专家时,会改变同行竞争对手不愿共享审计师的倾向;从经济后果来看,聘用同一会计师事务所的同行企业会有相似的经济决策。从财务层面构建衡量竞争对手的方法,验证竞争对手间的共享审计师问题,发现审计师不仅是财务报表的鉴证者,也是知识与资源丰富的信息中介与来源。     

Non-audit services and auditor independence: some evidence from Ireland

This study reports the results of an investigation into the effects of the provision of non-audit services (NAS) on perceptions of auditor independence held within the Irish commercial environment, an environment not previously subject to a study of this nature. The methodology used in the study combined the use of a mail questionnaire and semi-structured interviews to allow both breadth of coverage and the opportunity to probe deeper into the nature of the perceptions held. The principal findings of the study were that perceptions of auditor independence were significantly diminished when NAS were provided to clients by personnel involved in the audit rather than by either a separate department within the audit firm or to non-audit clients only. The study highlighted that users of financial statements were willing to accept some reduction in auditor independence consequent upon the provision of NAS if this resulted in firms obtaining better or more cost-effective advice or if it resulted in a higher standard of audit. Analysis of the interviews provided further insights into the manner in which users of financial statements formed these perceptions and also suggested that, in the opinion of the interviewees, the small size and closeness of the Irish audit market acted to enhance rather than diminish audit independence.     

Market Implications of the Audit Quality and Auditor Switches: Evidence from China

Independent audits enhance the credibility of corporate financial reports and assist investors to make rational decisions in the capital market. Nonetheless, the utility of the auditing function depends upon the quality of audits, which is determined by the independence and expertise of auditors. Hence, auditor choice and switch will not only affect an audit's quality, but will also influence decisions made by investors and other market participants. The purpose of this paper is to investigate how investors respond to the quality of audits and auditor switches in the Chinese context. Empirical results show that the quality of an audit and switching to a larger auditor have a positive (negative) impact on earnings response coefficients (ERCs) for firms with positive (negative) abnormal earnings. In contrast, switching to a smaller auditor has a negative (positive) impact on ERCs for firms with positive (negative) abnormal earnings. These results suggest that large auditing firms (Top 10) in China are perceived as more effective for curbing income-increased earnings management, which leads to higher (lower) ERCs for clients with positive (negative) abnormal earnings. Firms' switching to a larger auditor may signal high-quality earnings. Therefore, investors more often increase stock prices when firms have positive abnormal earnings and less often depreciate prices for negative abnormal earnings. Similarly, switching to a smaller auditor may signal lower earning quality, resulting in opposite market responses. In general, the empirical evidence suggests that audit information is valued by the capital market in China. Large auditing firms have been able to product-differentiate themselves within the Chinese stock market.     

Enforcement of Accounting Standards in Europe: Capital-Market-Based Evidence for the Two-Tier Mechanism in Germany

On the background of regulatory initiatives that mandate the establishment of comparable enforcement systems in EU jurisdictions to ascertain consistent and faithful application of IFRS, this paper provides capital-market-based evidence on investor reactions for one specific institutional set-up: the two-tier enforcement system in Germany. In operation since 2005, the German enforcement mechanism consists of a private body, the DPR, which investigates compliance of published financial reports of firms listed on a regulated market segment and, upon error findings, involves the German securities regulator BaFin, which on a second level enforces disclosure of these findings to establish adverse disclosure (‘name and shame’). For a sample of error findings published in the period 2005–2009, we investigate short- and long-term market reactions to error announcements. Results for abnormal returns, abnormal trading volumes and abnormal bid‐ask spreads indicate that these announcements represent new, negative information and suggest that, despite an enforcement environment that is categorised as weak in the extant literature, the activities of the DPR/BaFin seem to penalise infringing firms and thus provide potential deterrence. Multivariate analyses yield weak evidence that the magnitude of the market value discount is positively associated with the severity of the errors, with the threat of subsequent litigation and with cases in which firms disagreed with the error findings of the DPR.     

Do (Fe)Male Auditors Impair Audit Quality? Evidence from Going-Concern Opinions

Recent research indicates that there may be a relationship between the characteristics of the audit engagement partner and audit quality. In this paper, we examine the relationship between audit quality and the presence of a female or male audit engagement partner. We use the likelihood that an auditor issues a going-concern opinion (GCO), conditional on the client's financial situation, as an indicator of audit quality. Using a sample of 7105 financially distressed, private Belgian companies, we find that female auditors are, ceteris paribus, more likely to issue GCOs than male auditors. Our results also show that this effect is stronger when clients are either important (i.e. represent a material portion of the auditor's revenues) or high-risk (i.e. associated with increased uncertainties and risks). Collectively, these results indicate higher audit quality by female auditors.     

股权结构、治理结构与审计师选聘——基于委托代理理论的实证考察

本文以委托代理理论为基础,选择2002年深圳股市的484家上市公司为样本,考察了大股东控制的公司审计师选择行为。结果发现第一大股东持股比例越高,就越不聘请国际“四大”会计师事务所的境内合作所,以便实施其掏空行为;而设立审计委员会可以在一定程度上遏制大股东的审计师选择偏好;如果第一大股东是外资股,则更可能聘请国际“四大”会计师事务所的境内合作所,以求降低其代理成本。     

事务所转制效果存在差异吗？——原因与后果

借助理论模型将会计师事务所转制对审计质量及审计收费的影响纳入一个整合的分析框架,推导出影响转制效果的关键因素：除审计师法律责任的增加程度以外,客户经营风险以及转制前审计质量水平也同样影响审计质量及审计收费的提高。基于2007—2015年中国A股上市公司数据,在控制了客户经营风险之后进行实证研究,结果表明审计质量及审计收费的提升确实在初始审计质量较低的中小型事务所样本中更加显著。进一步研究发现,在事务所转制的过程中及完成后,更多的审计客户从中小型事务所转换为前十大事务所,且这种客户流动趋势在异常审计收费较高的样本中更加显著。     

审计师轮换类别与审计结果——基于“关系”的视角

审计师强制轮换制度能够从制度上对审计师独立性给予一定程度的保证,而社会关系的存在会对审计师的独立性产生影响,但同时也能够增加前后任审计师工作交接的效率。以2007—2019年签字审计师轮换为样本研究发现,同一事务所内签字审计师的变更会使得后任审计师出具清洁审计意见的可能性提升,后任审计师审计当年发生财务重述的可能性较低,且可操纵性应计利润较低。但是,后任审计师获取的审计费用并没有显著降低。与不同事务所之间的签字审计师轮换相比,同一事务所审计师轮换情况下,由于更易进行信息共享与沟通,后任审计师的审计质量更高,且与前任审计师审计质量相比,后任审计师审计质量有所提升。     

The impact of litigation risk on the association between audit quality and auditor size: Evidence from China

We examine whether audit quality varies across different sizes of CPA firms under high or low auditor‐specific litigation risk exposure. We measure audit quality by the issuance of modified audit opinions and the audit fees charged to clients, and we use the organizational form of CPA firms as the proxy for auditors’ litigation risk exposure, where a partnership (limited liability) CPA firm represents a high (low) litigation risk exposure. Built on Choi, Kim, Liu, and Simunic's (2008) theoretical framework, we hypothesize that the litigation risk exposure of CPA firm moderates the association between auditor size and audit quality. Our results show that when the auditor's liability is capped (i.e., registered as a limited liability form of CPA firm), larger size CPA firms are associated with higher audit quality when compared to smaller size CPA firms. However, this positive association between auditor size and audit quality disappears for audit firms that are subject to high litigation risk exposures (i.e., registered as a partnership form of CPA firm). Our research provides new insights on the impact of auditor‐specific litigation risks on the relation between audit quality and auditor size. In particular, we show that only when auditor‐specific litigation risk is limited, do large CPA firms appear to perform higher quality audits than small CPA firms.     

Independent directors and earnings management: The moderating effects of controlling shareholders and the divergence of cash-flow and control rights

The research results on the suppressing effect of independent directors on earnings management are not consistent in existing literature. In addition, it has been argued that using financial statements provided by top management to investigate top management's earnings management is not appropriate. Therefore, the purpose of this study is twofold. First, we used external auditors (including the auditors of Taiwan Stock Exchange Corporation and the auditors of two Big Four accounting firms – Deloitte & Touche and KPMG in Taiwan) as respondents in order to obtain less biased data. Second, we investigate the moderating effects of controlling shareholders and the divergence of cash-flow and control rights on the relationship between independent directors and earnings management. The results show that both the existence of controlling shareholders and the divergence of cash-flow and control rights have significant suppressing effects on the relationship between independent directors and earnings management. Theoretical and practical implications are also discussed.