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Author: Jagan Krishnan
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Languages : en
Pages :
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This study compares the earnings response coefficients of clients of industry specialist and non-specialist auditors. Prior work (e.g., DeAngelo 1981) has suggested that auditors offer different levels of audit quality, in response to client variations in the demand for different levels of audit quality (Watts and Zimmerman 1986). One component of the quality difference across auditors is industry specialization (Craswell et al. 1995). Empirical evidence on the effect of industry specialization on audit quality proxies such as audit fees, auditor litigation and compliance with accounting standards is mixed. This study examines the hypothesis that industry specialization leads to a better quality of audit by comparing the earnings response coefficients of clients audited by industry specialists with those of clients not audited by industry specialists. Teoh and Wong (1993) argue that audit quality is positively associated with the client's quality of earnings and therefore the earnings response coefficient (ERC), which is the responsiveness of the stock market to information about unexpected earnings. They present evidence that one measure of audit quality, auditors' brand-name (Big 6 or not), is positively associated with the ERC. This paper extends this argument by examining the effect of another facet of audit quality, auditor industry specialization, on the ERC. The results suggest that, after controlling for previously established correlates of the ERC, as well as industry affiliation, clients of industry specialist auditors have higher ERCs than clients of non-specialist auditors.
Author: Jagan Krishnan
Publisher:
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Category :
Languages : en
Pages :
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Book Description
This study compares the earnings response coefficients of clients of industry specialist and non-specialist auditors. Prior work (e.g., DeAngelo 1981) has suggested that auditors offer different levels of audit quality, in response to client variations in the demand for different levels of audit quality (Watts and Zimmerman 1986). One component of the quality difference across auditors is industry specialization (Craswell et al. 1995). Empirical evidence on the effect of industry specialization on audit quality proxies such as audit fees, auditor litigation and compliance with accounting standards is mixed. This study examines the hypothesis that industry specialization leads to a better quality of audit by comparing the earnings response coefficients of clients audited by industry specialists with those of clients not audited by industry specialists. Teoh and Wong (1993) argue that audit quality is positively associated with the client's quality of earnings and therefore the earnings response coefficient (ERC), which is the responsiveness of the stock market to information about unexpected earnings. They present evidence that one measure of audit quality, auditors' brand-name (Big 6 or not), is positively associated with the ERC. This paper extends this argument by examining the effect of another facet of audit quality, auditor industry specialization, on the ERC. The results suggest that, after controlling for previously established correlates of the ERC, as well as industry affiliation, clients of industry specialist auditors have higher ERCs than clients of non-specialist auditors.
Author: Somdeb Bhattacharya
Publisher:
ISBN:
Category : Auditing
Languages : en
Pages :
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Author: Wuryan Andayani
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Category :
Languages : en
Pages :
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This study examined the influence of the company prospector-defender strategy and auditor industry specialization towards the earnings management through real activities and earnings quality. An important finding in this study shows that the auditor specialization and the company's prospector strategy could restrict the earnings management. The prospector strategy was done by the companies which did not do earnings management. On the contrary, defender strategy was done by companies which did earnings management. Another finding shows that the auditor industry specialization influenced the earnings response coefficient (ERC), cummulative abnormal return (CAR) and investors' response. Besides the auditor industry specialization, prospector and defender strategies, other factors which influenced ERC were leverage, company size, company's stock return, beta and market return. The interaction among prospector and defender strategies and unexpected earnings influenced both the CAR and the investors' response. This was probably because the investors pay attention to the strategy used by the company.
Author:
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Category : Auditing
Languages : en
Pages : 930
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Author: Wikil Kwak
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Category :
Languages : en
Pages : 204
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Author: Debra C. Jeter
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Category :
Languages : en
Pages :
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As audit quality is paramount in returning the profession to the “priesthood” in the wake of accounting scandals such as Enron and bank failures, perhaps the most important question with respect to industry specialization is whether or not industry specialists provide truly superior quality audits. Research in industry specialization by auditors has focused to date primarily on addressing this question; the pricing of audits by specialists is a related issue also examined in a number of studies. Research suggests that specialists are associated with higher earnings quality for their auditees, whether due to intervention in the reporting process, or because management anticipates such intervention and constrains opportunistic earnings management. The role of industry specialization in audit pricing has been frequently addressed in the literature, and yet remains largely unresolved. Some studies present evidence of specialist premiums, while others find no premiums or premiums only for certain subsets of clients. In its 2003 report, the GAO expressed some concern that auditor choice was limited for large national and multinational companies requiring industry-specific expertise, noting that an auditor who audits a number of smaller companies within an industry may not have the necessary expertise to handle the larger clients in that industry. Most researchers, however, find little evidence of adverse impacts such as oligopolistic pricing as a result of the increased audit market concentration resulting from the audit firm mergers and demise of Arthur Andersen. Industry specialization, if pursued as a means of enhancing the knowledge and understanding necessary to conduct superior audits, should result in benefits to both client and auditor. Industry specialists may be able to provide higher levels of assurance because they are more likely to assess risks, and to detect financial reporting errors and irregularities, and are thus equipped to deliver better planned and more effective audits.
Author: Mohamed A. Hegazy
Publisher:
ISBN:
Category :
Languages : en
Pages : 23
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This paper aims at investigating the effect of industry specialization on the audit quality and earnings quality. It examines the relation between industry specialization and earnings quality, financial reporting quality, and audit quality. The research posits that industry specialization constrains earnings management. In addition, it hypothesized a positive relationship between industry specialization and financial reporting quality. An experiment was conducted in an audit firm with international affiliation in Egypt to test the research hypotheses. The results indicate that there is no significant difference between industry specialist auditors and non-specialists in constraining earnings management. In addition, findings support that financial reporting quality was significantly higher when specialists conducted the audit. The results provide empirical evidence consistent with the hypothesis that auditor with industry specialization improves audit quality. Finally, industry specialization enables auditors to realize the amendments in auditing standards better than non-specialists.
Author: David Hay
Publisher: Routledge
ISBN: 1136210342
Category : Business & Economics
Languages : en
Pages : 504
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Auditing has been a subject of some controversy, and there have been repeated attempts at reforming its practice globally. This comprehensive companion surveys the state of the discipline, including emerging and cutting-edge trends. It covers the most important and controversial issues, including auditing ethics, auditor independence, social and environmental accounting as well as the future of the field. This handbook is vital reading for legislators, regulators, professionals, commentators, students and researchers involved with auditing and accounting. The collection will also prove an ideal starting place for researchers from other fields looking to break into this vital subject.
Author: Marshall A. Geiger
Publisher: Routledge
ISBN: 1000392031
Category : Business & Economics
Languages : en
Pages : 160
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Book Description
Auditor reporting on going-concern-related uncertainties remains one of the most challenging issues faced by external auditors. Business owners, market participants and audit regulators want an early warning of impending business failure. However, companies typically do not welcome audit opinions indicating uncertainty regarding their future viability. Thus, the auditor’s decision to issue a "going concern opinion" (GCO) is a complex and multi-layered one, facing a great deal of tension. Given such a rich context, academic researchers have examined many facets related to an auditor’s decision to issue a GCO. This monograph reviews and synthesizes 182 recent GCO studies that have appeared since the last significant review published in 2013 through the end of 2019. The authors categorize studies into the three broad areas of GCO: (1) determinants, (2) accuracy and (3) consequences. As an integral part of their synthesis, they summarize the details of each study in several user-friendly tables. After discussing and synthesizing the research, they present a discussion of opportunities for future research, including issues created or exacerbated as a result of the global COVID-19 pandemic. This monograph will be of assistance to researchers interested in exploring this area of auditor responsibility. It will also be of interest to auditing firms and individual practitioners wanting to learn what academic research has examined and found regarding this challenging aspect of audit practice. Auditing standard-setters and regulators will find it of interest as the authors review numerous studies examining issues related to audit policy and regulation, and their effects on GCO decisions. The examination of GCO research is extremely timely given the financial and business disruption caused by the worldwide COVID-19 pandemic. This unprecedented global event has caused companies, auditors and professional bodies to revisit and reassess their approach to going concern, and to think even more deeply about this fundamental business imperative.
Author:
Publisher:
ISBN:
Category : Auditing
Languages : en
Pages : 540
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