Search Results (36)

The purpose of this research is to examine how relationships between corporate control environments and stakeholders mediate the different dimensions of pressure on auditor independence. In France, two (joint) auditors are required by law for listed companies. In this context, we analyze the experiences of higher-echelon professionals of audit firms, controllers, and managers who could elucidate the essence of pressure on auditor independence in their lived environment. An interpretative approach and empirical analysis were adopted for this study to expand on the literature and proffer an answer to the following research question: How does the relationship between a control environment and a stakeholder mediate the pressures on auditor independence? Interviews involved seven participants, mainly higher-echelon professionals of Big Four firms, as well as two members of auditee organizations, and a member of an audit committee. In addition, the narratives from the documents gathered from the EU audit legislation implementation database constitute our data corpus. Thematic coding was used to organize the results. The findings reveal that control environment best practices and down-to-earth corporate governance policies, participated in by both auditors and audited organizations, cushion the pressures on auditors. This, in turn, presents a positive and significant impact on auditor independence. Overall, the dimensions that mediate the pressures on auditors are as follows: the consciousness of pressure in itself; the reputation and experience of the audit firm; and the interactions between the auditors and corporate governance. Other factors include the cordiality of the relationship between the auditor and corporate management and the resulting healthy end of the negotiation between auditors and auditees. This study contributes to the theory and practical discussion of the relationships between the corporate control environment, corporate governance, auditing, and pressure on auditor independence. Full article

This study empirically examines how Big4 audit firms mediate the relationship between family-controlled enterprises and their earnings management practices. Analyzing a dataset of 61 non-financial family-listed companies listed on the Indonesia Stock Exchange from 2017 through 2019 reveals that family-controlled businesses and Big4 auditors are associated with lower earnings management, resulting in improved financial reporting quality. The study also shows that family-owned enterprises are more inclined to hire a higher-quality auditing firm for their financial statement assessments. Moreover, our results suggest that Big4 auditors partially mediate the relationship between family businesses and their earnings management practices. The additional tests conducted in this study highlight the significant role of family-run firms and Big4 auditors in curbing earnings management, primarily when corporate management is prone to decrease reported earnings. Robustness tests validate the reliability of the conclusions drawn from the primary findings. Our study shows that family managers align their goals with the firm and shareholders, enhancing company financial reporting integrity. Our finding also emphasizes the crucial role of Big4 auditors in minimizing intra-family agency conflicts in family firms, promoting transparency, and aligning family managers’ interests with external stakeholders. Full article

We investigate the association between voluntary assurance of a firm’s corporate social responsibility (CSR) report and earnings management. A concern with CSR reports is they are used to promote a socially responsible image without a meaningful commitment to CSR activities, referred to as “greenwashing”. To credibly signal the CSR report is reliable, a firm can incur the additional costs to voluntarily obtain assurance. Our results show that strong corporate governance plays a crucial role in limiting earnings management. The most consistent improvements in earnings quality occur when firms combine strong governance with CSR assurance from a non-accounting provider (NonACCT). The combination of strong governance and NonACCT assurance appears to be mutually reinforcing, suggesting a symbolic legitimacy strategy that is also substantively effective. Full article

This paper investigates whether the external audit quality has an impact on the link between ESG performance and firm valuation using a sample of publicly listed Nordic firms. The results from a fixed-effect panel regression show that higher ESG scores lead to higher valuation when a Big Four audit firm is engaged as the external auditor, highlighting the impact of audit quality on the the reliability of the ESG evaluation. The finding highlights the importance of intense external audits in reinforcing investors’ confidence in ESG–firm valuation assessment. Full article

In 2006, the PCAOB implemented new restrictions on the auditor provision of some tax and contingent fee services provided to issuer audit clients. These restrictions were implemented to reduce auditor conflicts of interest inherent when the auditor provides any of these specific services and a financial statement audit. Subsequent research found that these tax service restrictions did not impact audit quality, measured as the probabilities of going concern opinions or financial statement restatements. We reexamine this research question in the context of the regulation’s earnings management effects. Our investigation of this question uses a difference-in-difference regression approach and 20,043 issuer company fiscal year observations from 2002 to 2009, consistent with that used in prior studies, and four measures of earnings management (discretionary accruals, abnormal working capital accruals, current accruals, and the likelihood of meeting or slightly beating the zero earnings change benchmark) to proxy for audit quality. We find, consistent with findings in prior studies, no detectable effects of the 2006 PCAOB tax service restrictions. These null results persist through a series of robustness tests that include re-estimating our primary regressions on a Big 4 subsample, adding multiple alternative treatment variable definitions, generating a propensity-score-matched sample, and adding a control for internal control weakness. These findings raise further doubt about the need for these non-audit service restrictions. Full article

The purpose of this study is to investigate the impact of corporate governance on ESG performance in large publicly listed firms in Indonesia from 2016 to 2023. The study adopts both stakeholder-agency theory and resource dependency theory to explore the relationship between sustainability assurance, board governance characteristics, and the extent of ESG performance. Fixed effects regression controlling both industry and year fixed effects is used to measure the relationship between sustainability assurance, corporate governance characteristics, and ESG performance. We find a positive significant relationship between assurance sustainability reports and ESG performance. Additionally, we also document a positive association between sustainability committees and ESG performance. Adopting the Big Four auditors as a moderating variable, we find a positive relationship between gender-diverse boards and firms audited by the Big Four auditors and sustainability performance. This result suggests that firms with gender-diverse boards audited by the Big Four auditors enhance sustainability performance. Additional robustness tests using GMM estimation, conducted to address endogeneity concerns, corroborated the main test results. Full article

As environmental, social, and governance (ESG) issues become increasingly important, ESG ratings have become a significant factor influencing audit fees for businesses. However, ESG ratings are typically assessed by multiple agencies or rating firms and, due to differences in evaluation criteria, methodologies, and data sources, the ratings provided by different institutions may vary considerably. Therefore, research on the impact of discrepancies in ESG ratings on audit fees is of great significance. This paper examines this phenomenon by analyzing a sample of Chinese listed companies from 2015 to 2022, yielding 3056 observational values through various methodologies. The study employs two-way fixed effects methods. The findings indicate that discrepancies in ESG ratings significantly elevate enterprises’ audit expenses, with operating risk and analyst earnings forecast errors serving as intermediary factors. Additionally, media attention intensifies these effects by increasing corporate disclosure, intensifying regulatory pressure, and heightening reputational risks for the company, and the positive impact of ESG rating discrepancies on audit fees is more significant when the “Big 4” accounting firms are involved in the audit. The research offers insights for enterprises, auditors, and regulatory bodies, contributing to the enhanced implementation of the ESG concept and fostering sustainable enterprise development. Full article

Most prior studies found that job well-being and job performance are in a linear relationship. Audit firms are a type of highly professional organization. Based on the affective events theory, this study argues that job well-being can accelerate the improvement of audit performance thus forming a curvilinear relationship. Additionally, auditing is a job that demands highly professional skills and responsibility. This study argues that an auditor’s passion for work can strengthen the relationship between job well-being and audit performance. The study employed a quantitative survey approach, collecting data from 178 auditors who are in a position of in-charge, deputy manager, and manager in the Big Four CPA firms in Taiwan. The empirical evidence confirmed that job well-being and audit performance are in a curvilinear relationship. In addition, the effect of job well-being on audit performance is greater in the presence of high passion and will diminish when the passion is low. According to the research results, the managerial implications for audit firms are provided. Full article

Our study explores auditors’ perceptions of the triggers and hurdles of implementing continuous auditing (CA) in Egypt. It also explores auditors’ perceptions of the impact of CA on their independence. A survey of ninety-five auditors working in Big Four and non-Big Four firms was conducted to gather data. Descriptive statistics and the Friedman test were used to test our hypotheses. In addition, using the Mann–Whitney U test, we delve deeper into auditors’ perceptions to examine differences across audit firm types. The results reveal that addressing the increasing demand of stakeholders for real-time reporting and enhancing the quality of financial reporting significantly affect auditors’ perceptions of the triggers for adopting CA. In addition, the lack of standards related to CA and the high cost of implementation significantly affect auditors’ perceptions of the obstacles to implementing CA. The lack of clear guidelines regarding the work required in CA and auditing data that the auditors have previously corrected during the CA process is perceived by auditors as among the most significant factors that can impair their independence. The significance of this study stems from the fact that it is one of the few studies to explore continuous auditing practices in developing countries. To the best of our knowledge, this study is one of the first to investigate how CA affects auditor independence in developing countries. Full article

This study aims to respond to the new auditing standard on the information reporting of Key Audit Matters (KAMs) as a separate section in the auditor’s report, which will increase the transparency and quality of the report. It not only explores the current practice of KAM reporting among Thai listed companies but also seeks factors that influence KAM reporting in Thailand. This study explores the quantitative methodology through secondary data collected from the Thai Stock Exchange. This archival research explores 343 listed companies in the Thai Stock Exchange from 2016 to 2020. Descriptive statistics, a correlation matrix, and regression analysis are employed. The results suggest that the type of auditor (Big 4 or non-Big-4 audit firms), audit fee, audit independence, and industry have a direct positive impact on Key Audit Matter reporting at a 0.05 significance level. However, the evidence also suggests that the presence of females on the board, year, ROA (return on asset), risk, and size were not validated factors that have direct positive impacts on Key Audit Matter reporting at a 0.05 significance level. Full article

The purpose of this study is to examine the influences of external auditor firm type, auditor tenure, and external auditor changes on the quality of Saudi Arabian financial reports. In particular, this study examines the quality of financial reports of companies listed on the Saudi Stock Exchange using a widely accepted evaluation model modified by JonesThis study aims to determine whether Big Four and non-Big Four audit firms, auditor tenures of three or more years, and external auditor changes have any impact on the quality of financial reports of Saudi-listed companies. This study uses 175 firm-year observations of 35 companies listed on the Tadawul Saudi Stock Exchange between 2017 and 2021. Using discretionary accruals (DACC) as modified by Jones to measure the quality of financial reports, the findings illustrate that there is a significant negative relationship between Big Four audit firms and DACC. However, the study also shows a significant positive correlation between auditor tenure and DACC. The research revealed that there is no significant relationship between auditor change and DACC. These results have practical implications for policy development. According to the outcomes of this research, there are numerous ramifications for both companies and the government in Saudi Arabia in terms of enhancing the relationship between companies and audit firms and determining the most suitable auditor tenure to improve the quality of financial reports. Full article

This paper investigated how hiring one of the Big 4 auditing firms helps initial public offering (IPO) owners attract venture capitalists’ (VCs) backing when going public to address the gap in auditing and venture capital literature. For this, the paper examined a large dataset from 1995 to 2019 consisting of 33,536 IPO firms from 22 countries with diverse socioeconomic, political, and cultural contexts. The study found that hiring Big 4 auditors increases IPO owners’ chances of recruiting VCs by up to 50%. The analysis also supports prior findings, which state that IPO owners strategically choose Big 4 audit firms to lower agency costs and send quality signals to improve openness and disclosure as well as boost VCs’ confidence in the IPO market. This research offers multiple benefits to academics, policymakers, investors, and issuers. Full article

This paper addresses a void in the research on auditing and initial public offering (IPO) failure by investigating the impact of the Big 4 auditing firms on the likelihood of an IPO failure. This research is the first comprehensive analysis of more than 33,000 global IPOs that either failed or were successful between 1995 and 2019 across a wide range of nations with vastly different regulatory, cultural, and economic settings. A cross-sectional probit regression model is utilized to investigate the influence of hiring the Big 4 auditing firms on IPO failure, building upon prior studies on IPO failure. We found strong evidence that IPO failure rates were diminished by up to 67% when one of the Big 4 auditing firms was involved in auditing the IPO prospectus. For IPO founders, hiring Big 4 auditors before an IPO is a quality signaling strategy that minimizes the risk of a failed IPO by reducing information asymmetry among IPO participants. Our findings provide useful policy implications. Hiring one of the Big 4 auditing firms before an IPO is a reassuring signaling strategy for founders, since it decreases information asymmetry among IPO investors and so lowers the risk of the IPO failing. Primary market investors now have access to credible evidence indicating that backing IPOs from companies that use the Big 4 auditing firms increases the likelihood of such IPOs being listed on stock exchanges and yields positive returns. This is the first time, as far as the academicians are aware, that conclusive evidence has been found of a strong inverse association between the presence of Big 4 audits and failure risk for IPO firms. Our research could be helpful to primary market regulators since it shows how crucial it is to encourage Big 4 audits in IPO companies. The quality work of the Big 4 auditors does lower the risk of failure in the IPO market, which might help owners of small private equities to list their firms on the IPO market, boosting economic growth. Full article

Taiwan’s auditors have suffered from processing excessive audit data, including drawing audit evidence. This study advances sampling techniques by integrating machine learning with sampling. This machine learning integration helps avoid sampling bias, keep randomness and variability, and target risker samples. We first classify data using a Naive Bayes classifier into some classes. Next, a user-based, item-based, or hybrid approach is employed to draw audit evidence. The representativeness index is the primary metric for measuring its representativeness. The user-based approach samples data symmetrically around the median of a class as audit evidence. It may be equivalent to a combination of monetary and variable samplings. The item-based approach represents asymmetric sampling based on posterior probabilities for obtaining risky samples as audit evidence. It may be identical to a combination of non-statistical and monetary samplings. Auditors can hybridize those user-based and item-based approaches to balance representativeness and riskiness in selecting audit evidence. Three experiments show that sampling using machine learning integration has the benefits of drawing unbiased samples; handling complex patterns, correlations, and unstructured data; and improving efficiency in sampling big data. However, the limitations are the classification accuracy output by machine learning algorithms and the range of prior probabilities. Full article

The importance of intellectual capital (IC) in past decades unfolds several dimensions of firm performance (FP). Still, the contradictory and inconclusive relationship between IC and FP in the literature motivates the researchers to explore further and understand the empirical connection using both linear and curvilinear approaches. Using the fixed-effect panel regression models on a sample of 795 non-financial firms of India from the financial years 2004–2005 to 2020–2021, this study reveals that, undoubtedly, the IC enhances the FP up to a certain threshold, and with any marginal investment, IC reduces the FP by forming the inverted U-shaped curve. Interestingly, the presence of BIG4 auditors in Indian firms helps to increase the FP with the help of IC, even for the group-affiliated firms. Thus, this study aligns with both value creation and cost concern perspectives and implies that management and regulatory bodies may adopt a balanced approach while enhancing the FP through IC, as the result suggests that investment in IC will not endlessly improve the FP in the Indian context. Full article