Office-Level Characteristics of the Big 4 and Audit Report Timeliness

2014 ◽  
Vol 33 (3) ◽  
pp. 129-152 ◽  
Author(s):  
James D. Whitworth ◽  
Tamara A. Lambert
Keyword(s):  
Financial Reporting ◽  
Low Cost ◽  
Fiscal Year ◽  
Audit Report ◽  
Audit Firm ◽  
Big 4 ◽  
Office Size ◽  
Reporting Environment ◽  
The Impact ◽  
Industry Expertise

SUMMARY: Recent changes in the audit and financial reporting environment have resulted in longer audit report lags and have increased the importance of identifying factors associated with a timely audit. We examine timeliness implications of office-specific attributes of the audit firm. Specifically, we examine whether office-specific industry expertise, office size, and the importance of the client to the local office are associated with audit delay (i.e., the time between fiscal year-end and the audit report date). We explore the sensitivity of our results to various measures and consider the impact of earnings quality. We examine two types of industry expertise and whether the aforementioned audit firm attributes are associated with a propensity to issue an early earnings announcement. We find that office-specific industry expertise is negatively associated with audit delay (for all but the largest quartile of firm offices) while office size and client importance are both positively associated with audit delay; however, the most important clients are associated with a more timely audit. Office-specific industry expertise is positively associated with the propensity to announce earnings substantially early and such expertise garnered via a product-specialist strategy is positively associated with audit delay relative to a low-cost specialist strategy. Our study provides further support for the importance of office-specific characteristics on audit and financial reporting outcomes and provides evidence of the benefit of office-specific industry expertise.

The Impact of Client and Misstatement Characteristics on the Disposition of Proposed Audit Adjustments

2011 ◽  
Vol 30 (2) ◽  
pp. 103-124 ◽  
Author(s):  
Jennifer Joe ◽  
Arnold Wright, and ◽  
Sally Wright
Keyword(s):  
Financial Reporting ◽  
Internal Controls ◽  
Data Availability ◽  
Audit Firm ◽  
Sarbanes Oxley ◽  
Big 4 ◽  
Time Period ◽  
Confidentiality Agreement ◽  
Financial Scandals ◽  
The Impact

SUMMARY We present evidence on the resolution of proposed audit adjustments during a unique time period, immediately following several U.S. financial scandals and surrounding calls for reforms in auditing and financial reporting, which culminated in the passage of the Sarbanes-Oxley Act (SOX). During this period, auditors and their clients faced increased scrutiny from investors and regulators. In addition, auditors had to contend with changed incentives, a new external regulator (i.e., the PCAOB), and upcoming annual PCAOB inspections. We extend prior studies by considering a broader range of factors potentially impacting the resolution of proposed adjustments, including the effect of client tenure, strength of internal controls, and repeat adjustments. Data on 458 proposed adjustments are obtained from the working papers of a sample of 163 audit engagements conducted during 2002 by a Big 4 firm. We find that 24.2 percent of proposed adjustments were subsequently waived. The results indicate audit adjustments are more likely to be waived for clients with whom the audit firm has had a longer relationship, although the pattern does not reflect favoring such clients. We also find that adjustments are more likely to be waived for repeat adjustments. Data Availability: Due to a confidentiality agreement with the participating audit firm the data are proprietary.

Implementing IFRS in Saudi Arabia: evidence from publicly traded companies

2020 ◽  
Vol 28 (2) ◽  
pp. 243-273 ◽  
Author(s):  
Mohammad Nurunnabi ◽  
Eva K. Jermakowicz ◽  
Han Donker
Keyword(s):  
Saudi Arabia ◽  
Financial Reporting ◽  
Critical Role ◽  
Saudi Arabian ◽  
Content Type ◽  
Audit Firm ◽  
Big 4 ◽  
Expected Benefits ◽  
The Impact ◽  
Ifrs Implementation

Purpose The Saudi Organization for Certified Public Accountants (SOCPA) requires that International Financial Reporting Standards (IFRS), as endorsed in Saudi Arabia, be used by all listed and unlisted companies. This study aims to provide insight into IFRS implementation problems, based on a survey sent to Saudi Arabian companies listed on Tadawul, the Saudi stock market (i.e. financial hub in the Middle East). Design/methodology/approach The survey focused on the impact that IFRS conversion has had on companies, their accounting and their finance strategies. The benefits and challenges of the adoption of IFRS are analyzed, including matters pertaining to the level of understanding and experience with IFRS, perceptions about the quality of IFRS and the impact of adoption of IFRS on consolidated equity and net income. Findings The survey had a response rate of 72 per cent. The results indicate a majority of respondents support conversion to IFRS as it results in higher quality financial reporting; the most important expected benefits of adopting IFRS include greater reporting transparency and improved comparability with other businesses; other expected benefits include harmonization of internal and external reporting, and increased cross-border investment opportunities; the IFRS process is costly and ties up resources because of its complexity and training needed and companies expect increased volatility in reported financial results that will impact share option plans and/or other incentive plans tied to profits. However, the authors find strong support among preparers of the financial statements for IFRS, as evidenced by higher agreement among respondents to the survey on the benefits of adopting IFRS, rather than on the costs of its adoption. Furthermore, the analysis shows that the likelihood of Saudi Arabian firms that are in favor of adopting IFRS decreases if the audit firm is one of the Big 4. The reason for this negative relationship could be that the cost of transition toward IFRS will be high. Therefore, Saudi Arabian firms will not favor a transition toward IFRS when their audit firm belongs to the Big 4. Most difficult to implement IFRS, as listed by respondents, include those on financial instruments, revenue, leases and employee benefits. Originality/value The authors show how economic and environmental factors play a critical role in the IFRS implementation process. This study should be important to all countries worldwide that are in the process of adopting IFRS.

‘Big 4’ influence on audit market

2020 ◽  
Vol 7 (54) ◽  
pp. 143-156
Author(s):  
Marta Tache
Keyword(s):  
Financial Reporting ◽  
Stock Exchange ◽  
Business Group ◽  
Anova Analysis ◽  
Group Influence ◽  
Audit Firm ◽  
Financial Reporting Standards ◽  
Audit Market ◽  
Big 4 ◽  
The Impact

AbstractThe main purpose of this paper is to determine the impact that Big 4 companies have had after the adoption of International Financial Reporting Standards (IFRS) became mandatory on the audit market. Thus, after thorough research of the specialised studies, the impact of the financial reporting based on IFRS is analysed, while considering that Big 4 companies have created a strong monopoly that led to several changes on the audit market. All the companies listed on the Bucharest Stock Exchange that traded premium shares from 2011 to 2019 were analysed. With the use of ANOVA analysis, this paper verifies if the profitability, shareholders’ funds, firm size and the size of the business group influence the choice of the audit firm. Our results confirm that the choice of an audit firm is influenced by the shareholders’ funds, number of employees and the size of the business group. Besides, this paper presents an analysis of the changes that have occurred from 2011–2019 on the audit market of Romania.

Tax avoidance and audit report lag in South Africa: the moderating effect of auditor type

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hela Gontara ◽  
Hichem Khlif
Keyword(s):  
Tax Avoidance ◽  
Fiscal Year ◽  
Audit Report ◽  
Effective Tax Rate ◽  
Audit Risk ◽  
Content Type ◽  
Tax Rate ◽  
Big 4 ◽  
High Degree ◽  
The Impact

Purpose The purpose of this paper is to examine the association between audit report lag (ARL) and tax avoidance and test whether external auditor type affects this relationship. Design/methodology/approach ARL is measured as the number of days from fiscal year-end to the date of the auditor’s report, while tax avoidance is measured using effective tax rate. Findings Using a sample of 45 South African companies over the period of 2010–2013, the authors document that ARL is positively associated with tax avoidance and this relationship remains positive when the company is audited by a Big-4 audit firm and not significant when the company is audited by a non-Big-4. Originality/value The authors’ findings have important implications for auditors aiming to reduce audit risk as they may consider the impact of tax avoidance and pay more attention to companies with a high degree of tax avoidance.

scholarly journals The Impact of the Prohibition of Non–Audit Services on the Profitability of Big-4-affiliated Audit Firms in Bangladesh

2016 ◽  
Vol 1 (1) ◽  
pp. 1-7
Author(s):  
Md Jahidur Rahman ◽  
Mo Lai Lan Phllis ◽  
Lam Mo
Keyword(s):  
Financial Reporting ◽  
Securities And Exchange Commission ◽  
Audit Firm ◽  
Big 4 ◽  
Audit Firms ◽  
Depth Study ◽  
Stable Source ◽  
The Impact ◽  
Depth Interviews ◽  
Non Audit Services

The purpose of this paper is to study the impact of the prohibition of certain non-audit services by the Securities and Exchange Commission (SEC) of Bangladesh on the profitability of the audit firms which are affiliated with Big-4 international audit firms. This paper is based on personal in-depth interviews with the Big-4-affiliated audit firms. A qualitative approach, in a way which is descriptive and illustrative, is adopted in this research. This research provides evidence for the fact that audit services are the most significant and stable source of income for an audit firm. Although respondents generally admit that non-audit services might be more profitable, they all agree that audit services are indeed the core operations of an audit firm. Findings in this paper reveal a contemporary picture of the auditing profession in Bangladesh and elucidate the impact that the implementation of Corporate Governance Order 2006 has on an audit firm's profitability. This research is the first in-depth study of the impact of the prohibition of non-audit services on the profitability of the Big-4-affiliated audit firms in Bangladesh. Financial reporting regulatory authorities in Bangladesh or other developing countries may find the findings in this paper useful.

Has Sarbanes-Oxley standardized audit quality?

2017 ◽  
Vol 32 (1) ◽  
pp. 2-23 ◽  
Author(s):  
Matthew Hoag ◽  
Mark Myring ◽  
Joe Schroeder
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Earning Forecast ◽  
Content Type ◽  
Audit Firm ◽  
Sarbanes Oxley ◽  
The Impact ◽  
Industry Expertise

Purpose The purpose of this paper is to examine whether the institutional changes accompanying the passage of the Sarbanes-Oxley Act of 2002 (SOX) have standardized the audit’s role in the overall financial reporting process, thereby reducing the impact of auditor characteristics on financial reporting quality. Design/methodology/approach To test this hypothesis, the association between audit quality characteristics (auditor size and industry expertise) and measures of financial reporting quality (analyst earning forecast dispersion and accuracy) are estimated using regression analysis. Results of this analysis are compared across the pre- and post-SOX periods. Findings The results of the study document a significant relationship between auditor size (Big N vs non-Big N) and financial reporting quality (as proxied by analyst earnings forecast properties) during the pre-SOX period but not in the post-SOX period. Auditor industry expertise is significantly associated with financial reporting quality throughout the entire sample period. Thus, financial reporting quality continues to be dependent on the degree of specialization of an audit firm in both the pre- and post-SOX periods; however, the impact of auditor size as a surrogate for quality has diminished. Originality/value The SOX Act of 2002 represented one of the most significant changes in the regulation of audits. This paper adds to the literature by examining the Act’s effects on financial professionals’ perception of the impact of audit firm characteristics on their client’s financial reporting quality.

Does Audit Firm Tenure Matter to Audit Committee Members? Evidence from an Accounting Dispute

2018 ◽  
Vol 33 (2) ◽  
pp. 25-41 ◽  
Author(s):  
Janice E. Rummell ◽  
F. Todd DeZoort ◽  
Dana R. Hermanson
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Committee Member ◽  
Audit Firm ◽  
Big 4 ◽  
Analyst Expectations ◽  
Public Company ◽  
Management Experience ◽  
Support Relation

SYNOPSIS This study examines the effects of Big 4 audit firm tenure on audit committee member support for the auditor in an auditor/management dispute over a subjective accounting issue. One hundred eighteen U.S. public company audit committee members participated in an experiment with audit firm tenure (short/long) manipulated randomly between subjects. The results indicate that participants in the long audit firm tenure group provide more support for the auditor in the dispute than participants in the short tenure group. Audit committee support for the auditor is positively related to audit committee member experience and CPA status, as well as perceived management pressure to meet analyst expectations, but negatively related to perceived management experience in financial reporting. Finally, audit committee members' perceptions of audit firm reliability (i.e., credibility and dependability) mediate the audit firm tenure-auditor support relation. Overall, our results suggest enhanced audit committee support for longer-tenured auditors.

scholarly journals The adoption of IFRS in publicly listed enterprises of high and medium capitalization and the impact of the size of the audit firm in Greece

2014 ◽  
Vol 11 (4) ◽  
pp. 707-716 ◽  
Author(s):  
Michail Pazarskis ◽  
Andreas Koutoupis ◽  
George Drogalas ◽  
Konstantinos Tsakiris
Keyword(s):  
Stock Exchange ◽  
Accounting Standards ◽  
Financial Statements ◽  
International Accounting Standards ◽  
Audit Firm ◽  
The Past ◽  
Big 4 ◽  
The Difference ◽  
Athens Stock Exchange ◽  
The Impact

In 2002, developments in the global markets during the past decades have highlighted the need for common accounting standards among companies all around the world so as the financial statements to be comparable. From 2005 onwards the Greek Companies listed on the Athens Exchange was an accounting “revolution” of the 21st century, given the difference in philosophy between the Greek GAAP and the International Accounting Standards-IAS (next, IFRS). This study evaluates the implementation of IFRS on the financial statements of Greek publicly listed companies of high and medium capitalization, which are companies that are included in the FTSE 20 and FTSE 40 indexes of the Athens Stock Exchange-ASE, respectively. Also, for those firms we examined the effect of the size of the audit firm. The research was conducted based on the analysis of thirteen ratios. According to our analysis only few of the ratios have changed significantly. Finally, regarding the impact of the size of the audit firm the results reveal controversy with the present bibliography concerning “Big 4” in comparison with “non-Big 4” firms in Greece

scholarly journals A review of the empirical determinants of audit delay

2012 ◽  
Vol 9 (2) ◽  
pp. 511-514 ◽  
Author(s):  
Salem Eghlaiow ◽  
Guneratne Wickremasinghe ◽  
Stella Sofocleous
Keyword(s):  
Financial Reporting ◽  
Accounting Information ◽  
Fiscal Year ◽  
Audit Report ◽  
Financial Reports ◽  
Significant Characteristic

Timeliness in financial reporting is considered to be a significant characteristic of accounting information. Since audit delay has been found to be the single most important factor in determining the timing of financial reports releases, this concept paper discuss the determinants of “audit delay”, the number of calendar days from fiscal year-end to the audit report date. The first section sheds some light on the significance of studying the determinants of audit delay. Next, it reviews the literature on audit report delay (ARL) and its determinants.

The impact of audit quality on earnings management and cost of equity capital: evidence from a developing market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ben Le ◽  
Paula Hearn Moore
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Discretionary Accruals ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Content Type ◽  
Big 4 ◽  
The Government ◽  
The Impact

Purpose This study aims to examine the effects of audit quality on earnings management and cost of equity capital (COE) considering the impact of two owner types: government ownership and foreign ownership. Design/methodology/approach The study uses a panel data set of 236 Vietnamese firms covering the period 2007 to 2017. Because the two main dependent variables of the COE capital and the absolute value of discretionary accruals receive fractional values between zero and one, the paper uses the generalised linear model (GLM) with a logit link and the binomial family in regression analyses. The paper uses numerous audit quality measures, including hiring Big 4 auditors or the industry-leading Big 4 auditor, changing from non-Big 4 auditors to Big 4 auditors or the industry-leading Big 4 auditor, and the length of Big 4 auditor tenure. Big 4 companies include KPMG, Deloitte, EY and PwC, whereas the non-big 4 are the other audit companies. Findings The study finds a negative relationship between audit quality and both the COE capital and income-increasing discretionary accruals. The effects of audit quality on discretionary accruals and the COE capital depend on the ownership levels of two important shareholders: the government and foreign investors. Foreign ownership is negatively associated with discretionary accruals; however, the effect is more pronounced in the sub-sample of state-owned enterprises (SOEs), the firms where the government owns 50% or more equity, than in the sub-sample of Non-SOEs. Originality/value To the best of the knowledge, no prior similar study exists that used the GLM with a logit link and the binomial family regression. Global investors may be interested in understanding how unique institutional settings and capital markets of each country impact the financial reporting quality and cost of capital. Further, policymakers of developing markets may have incentives to improve the quality of financial reporting and reduce the cost of capital which should result in attracting more foreign investments.

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