How do “gatekeepers” affect credit risk?

This study investigates the relationship between auditor tenure and credit default swap (CDS) spreads of U.S. firms based on quantile regression. After allowing for common determinants of CDS spreads, auditor tenure exerts both statistically and economically significant additional impacts on the CDS market. Furthermore, there are differential effects of common CDS spread determinants and auditor tenure. While common determinants of CDS spreads (e.g., leverage, volatility, risk free rate, credit ratings, and earnings) have monotonically increasing impacts when CDS spreads (and their changes) are increasingly higher, auditor tenure primarily has the impact when CDS spreads are of low or median levels for less risky firms.     

审计意见购买:理论分析与治理路径

审计意见购买的治理是审计监管的重要议题。本文以代理理论、契约理论、信号理论以及管制理论对审计意见购买的产生机理及动机进行了深刻分析,指出委托代理关系变异、契约的不完全性、信号传递失灵及管制失败是影响审计意见购买行为发生的重要因素。审计意见购买行为的治理需要从需求、供给及监管等三方分别采取合适的措施与策略。其中,引导自愿性审计需求,发挥审计市场的信号机制和声誉机制作用,是治理的根本出路。     

审计师行业专长对审计收费的影响分析——来自2006～2007年我国审计市场的证据

本文在借鉴传统审计收费模型的基础上,采用我国A股上市公司2006～2007年的数据,对审计师行业专长与审计收费之间的相关关系进行实证分析.研究表明,我国的审计师行业专长程度较低,审计师行业专长与审计收费之间存在正相关关系.研究审计师行业专长与审计收费之间的关系对于规范审计定价行为、形成有效市场结构有重要意义.     

The Determinants and Effects of Clients Following Audit Partners Who Switch Audit Firms

Abstract

We examine the determinants of clients’ decision to follow departing partners to new audit firms and the effect of this decision on the likelihood of financial restatements. Using Taiwanese audit partner turnover data from 1984 to 2010, we find that clients are more likely to follow departing partners when the partners have more clients, longer tenure, and when both lead and concurring partners leave simultaneously. By contrast, clients are more likely to stay with their incumbent audit firms when the firms are one of the Big Four or when only the concurring partners leave. The extended partner tenure due to clients following departing partners, however, does not enhance audit quality. In fact, clients that stay at the incumbent firm experience a significant decrease in the probability of financial restatements in the first year after the audit partners leave, but clients that follow do not.     

Is the quality of female auditors really better? Evidence based on the Chinese A-share market

Unlike previous studies in which a single index was used to measure audit quality, this study establishes a new comprehensive index to measure audit quality via Discretionary Accrual, as estimated by Jones’ basic model (1991) and Audit Opinions. The former is used to measure the quality of financial statements, and the latter is used to measure the auditors’ independence in the mainstream international literature. We examine whether and how an auditor’s gender affects the quality of his or her audits under the framework of empathy theory and gender role socialization theory. Using a large sample of 9861 auditor-firm-year observations from Chinese A-share–listed companies from 2011 to 2015, we find that the audit quality of signed auditors shows significant gender differences: these significant gender differences differ from the findings of previous studies that female auditors could provide a higher-quality audit than male auditors; that is, in our study the audit quality of the male auditors exceeds that of the female auditors. After distinguishing the positive and negative directions of the Discretionary Accrual, we find no significant gender differences in audit quality between male and female auditors when the earnings had been adjusted upward by the client; that is, female and male auditors had the same audit risk perception. However, when the client adjusted earnings downward, which indicates a lower audit risk for the auditor, the audit quality of female auditors was significantly lower than that of the male auditors. After controlling for the age and position of the auditors, we also find that the gender differences in the auditors’ audit quality decreased significantly or even disappeared when the auditor’s age exceeded 45?years and/or their position was manager or above. These results are consistent with the empathy theory and gender role socialization theory.     

Corporate governance,accounting and finance: A review

We review accounting and finance research on corporate governance (CG). In the course of our review, we focus on a particularly vexing issue, namely endogeneity in the relationships between CG and other matters of concern to accounting and finance scholars, and suggest ways to deal with it. Given the advent of large commercial CG databases, we also stress the importance of how CG is measured and in particular, the construction of CG indices, which should be sensitive to local institutional arrangements, and the need to capture both internal and external aspects of governance. The ‘stickiness’ of CG characteristics provides an additional challenge to CG scholars. Better theory is required, for example, to explain whether various CG practices substitute for each other or are complements. While a multidisciplinary approach to developing better theory is never without its difficulties, it could enrich the current body of knowledge in CG. Despite the vastness of the existing CG literature, these issues do suggest a number of avenues for future research.     

Opaque auditor dismissal disclosures: What does timing reveal that disclosures do not?

Auditor resignations provide a clear signal of accounting problems or heightened audit risk; however, registrants label the vast majority of auditor changes as dismissals, which carry more ambiguity. Motivated by the opacity of current dismissal disclosures, this study explores the usefulness of these disclosures compared to an alternative signal – the timing of the dismissal within the reporting year – for inferring the causes and implications of dismissals. Dividing the reporting year into key periods, we find that the probabilities of future restatements, material weaknesses, and delistings following a dismissal generally increase within the reporting year while negative circumstances disclosed do not. Analyses suggest that the timing patterns are caused by burgeoning, yet undisclosed, conflicts between the client and the outgoing auditor, rather than by transition difficulties involving the new auditor (as prior literature claims). The timing patterns strongly persist after controlling for negative circumstances that registrants disclose in the dismissal filing, suggesting that the disclosures are not fully revealing. In fact, disclosed negative circumstances have no incremental predictive power for future restatements and delistings. Our results suggest a severe lack of informativeness of current disclosures and support previous calls for improvement of dismissal disclosure regulation.     

Is investment decision-making influenced by perceptions relating to auditors’ client dependence and amount of audit fees?

The objectives of this study are to examine whether investing decisions are affected by knowledge about the auditor's revenue dependence on a client and whether the amount spent by a company on audit fees affects decisions to invest in the company. A behavioral experiment is conducted where risk assessments and investing decisions are made for four hypothetical investing scenarios. The study finds that investing decisions are affected by knowledge about an auditor's revenue dependence on a client, but are not affected by knowledge about the size of a client's audit fees.     

Are fully independent audit committees really necessary?

Accounting scandals and concerns about the quality of financial statements have led to many calls for improved audit committee effectiveness. Prior research indicates that audit committee independence is positively related to effective oversight of the financial reporting process. Unfortunately, prior research has not provided an answer as to how much independence on the audit committee is enough. This is an important unanswered question because while Section 301 of the Sarbanes-Oxley Act of 2002 (SOX) currently requires all listed companies to maintain an audit committee that is 100% independent there has been much debate regarding easing the SOX requirements for smaller and foreign companies. In this paper we examine whether the regulatory requirements of a completely independent audit committee are necessary to obtain the monitoring benefits related to audit committee independence that have been documented in prior literature. Our results suggest that the benefits of audit committee independence are consistently achieved only when the audit committee is completely independent. These results provide support for the SOX requirement of 100% independent audit committees.     

Audit Firm Attributes and Auditor Litigation Risk

This study examines the association between auditors' litigation risk and audit firm attributes. Using professional liability insurance premiums as a proxy for auditors' litigation risk, we present evidence that the risk is lower in audit firms having: (1) separate non-audit and audit divisions; (2) a higher proportion of partners; and (3) a higher annual growth in number of CPAs employed. Additionally, we find that the risk is higher in audit firms having: (1) operating losses; and (2) high revenue growth. Our results are consistent with the idea that audit firms' financial condition and organizational structure affect their independence/ expertise, and, in turn, their litigation risk. Our results are broadly supportive of the PCAOB's (2015) and US Department of Treasury's (2008) views that investors, audit committees, management, and other regulators could benefit from having access to financial and organizational information about audit firms.