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Author: Chenyang Dai
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Languages : en
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Using discretionary accruals as a proxy for audit quality, this paper examines the association between mandatory audit firm rotation and audit quality. The study contributes to the debate on the effect of the mandatory audit firm rotation policy by bringing evidence directly from a setting where such an audit policy is in place. The results of multivariate regressions find no evidence that the adoption of such a policy improves average audit quality in the period thereafter. Other tests focus on the period where the mandatory rotation policy is already in place and examine the potential fluctuation of audit quality in the antecedent and decedent years of a mandatory rotation. The results find no significant difference of the audit quality in the last engagement year of a preceding auditor or in the first engagement year of an incoming auditor. Together with empirical findings in a few other markets where similar audit policies is or was in place, the results of the study argues against the necessity of introducing a mandatory audit firm rotation policy, The study provide implications of relevance for regulators who are considering taking similar measures to improve audit quality.
Author: Chenyang Dai
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Using discretionary accruals as a proxy for audit quality, this paper examines the association between mandatory audit firm rotation and audit quality. The study contributes to the debate on the effect of the mandatory audit firm rotation policy by bringing evidence directly from a setting where such an audit policy is in place. The results of multivariate regressions find no evidence that the adoption of such a policy improves average audit quality in the period thereafter. Other tests focus on the period where the mandatory rotation policy is already in place and examine the potential fluctuation of audit quality in the antecedent and decedent years of a mandatory rotation. The results find no significant difference of the audit quality in the last engagement year of a preceding auditor or in the first engagement year of an incoming auditor. Together with empirical findings in a few other markets where similar audit policies is or was in place, the results of the study argues against the necessity of introducing a mandatory audit firm rotation policy, The study provide implications of relevance for regulators who are considering taking similar measures to improve audit quality.
Author: 陳亞蓮
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: R. Narayanaswamy
Publisher:
ISBN:
Category :
Languages : en
Pages : 31
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In India, the government introduced mandatory audit firm rotation following calls to improve audit quality and auditor independence in the wake of the Satyam accounting scandal. The absence of strong institutional mechanisms to prevent and detect audit failure in a timely manner has led the government to require periodical audit firm rotation. Evidence from firms for the years 2014 to 2017 suggests that mandatory audit firm rotation does not appear to have improved audit quality, reduced audit costs and increased audit market competition.
Author: Soo Young Kwon
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Category :
Languages : en
Pages : 0
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Using a unique setting in which mandatory audit firm rotation was required from 2006-2010, and in which both audit fees and audit hours were disclosed (South Korea), this study provides empirical evidence of the economic impact of this policy initiative on audit quality, and the associated implications for audit fees. This study compares both pre- and post-policy implementation and, after the implementation of the policy, mandatory long-tenure versus voluntary short-tenure rotation situations. Where audit firms were mandatorily rotated post-policy, we observe that audit quality (measured as abnormal discretionary accruals) did not significantly change compared with pre-2006 long-tenure audit situations and voluntary post-rotation situations. Audit fees in the post-regulation period for mandatorily rotated engagements are significantly larger than in the pre-regulation period, but are discounted compared to audit fees for post-regulation continuing engagements. We also find that the observed increase in audit fees and audit hours in the post-regulation period extends beyond situations where the audit firm was mandatorily rotated, suggesting that the introduction of mandatory audit firm rotation had a much broader impact than the specific instances of mandatory rotation.
Author: Zixuan Lina Li
Publisher:
ISBN:
Category : Auditing
Languages : en
Pages : 264
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In 2013, audit firm mergers created two “Chinese” audit firms – Ruihua and BDO Lixin – that outranked EY and KPMG to become two of the four largest audit firms in China in terms of total audit revenue. In this thesis, I examine the impact of this change in audit industry structure on the economic behavior, i.e. audit pricing and audit quality, of these two large local audit firms – or Big L – relative to the Big 4 and the other local audit firms. Using a difference-in-differences design, I find that the pre-post change in audit fees for the Big L auditors is significantly higher than that for the Big 4 and the other local audit firms around the mergers. In addition, I find that the Big L firms had a significant improvement in audit quality after the mergers, relative to the Big 4 firms over the same period. That is, holding everything else constant, the Big L had higher propensity to issue modified audit opinions and their clients exhibited improved earnings quality in the post-merger period. In contrast, I find evidence of a decline in audit fees and deterioration of earnings quality for clients of the Big 4 auditors around the mergers. I interpret the results as consistent with a shift in the relative market power among the large audit suppliers in China and the development of brand name reputations by the Big L firms, which provided the ability and incentive for the Big L firms to conduct higher quality audits in the post-merger period. On the other hand, the Big 4 audit firms lost some market power and auditor independence as new large competitors emerged in the industry. This thesis answers calls by Francis (2011) and DeFond and Zhang (2014) for further research on the effects of changes in market structure in the audit industry. Implications for various regulators, including the Ministry of Finance of PRC, the European Commission, and the U.S. SEC, are discussed.
Author: United States. General Accounting Office
Publisher:
ISBN:
Category : Accounting firms
Languages : en
Pages : 172
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Author: Christopher Bleibtreu
Publisher:
ISBN: 9781680839005
Category :
Languages : en
Pages : 200
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Audit Regulations, Audit Market Structure, and Financial Reporting Quality provides a structured overview of the empirical and analytical literature on the effects of audit market regulations. After a short introduction, the monograph is organized as follows. Chapter II addresses the structure of the audit markets of industrialized countries. First presenting an overview of the concentration metrics used to describe the structure of an audit market or a market segment, then providing the empirical findings on audit market concentration at the national level and presenting an overview of the main reasons that led to the currently high degree of concentration. Chapter III summarizes the reasons why regulators worldwide consider a high degree of concentration to be a concern. In particular, it reviews the regulator's assumption that a high degree of concentration inevitably leads to a low degree of competition and to the corresponding effects of low audit quality and high audit fees. It also provides an overview of the empirical findings on the association between concentration and audit quality and fees, respectively. Chapter IV introduces the mandatory audit firm rotation, the prohibition on the joint supply of audit and non-audit services, and joint audits as examples for regulations that are likely to have both incentive and market structure effects. Chapter V summarizes the empirical findings on the effects of these regulations on audit quality and market structure. Chapter VI summarizes models that regard the market structure as given. The results from these models show that the effects of regulations are not straightforward, but depend on various factors related to the auditor, the client, and the legal environment. Chapter VII gives an overview of analytical research that simultaneously considers incentive effects and market structure effects. It also provides a brief overview of industrial organization models that seem suitable to expand the models applied to investigate the effects of audit regulations. Chapter VIII concludes and highlights avenues for future research.
Author: Linda Smith Bamber
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ISBN:
Category :
Languages : en
Pages : 0
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We discuss the Chi, Huang, Liao, and Xie (2009) study of the effects of mandatory audit partner rotation, and then identify areas where we see the greatest potential for future research on audit partner rotation and audit quality. First, we discuss how Chi et al. (2009) fits in the context of the extant literature, and we review challenges of examining audit partner rotation versus audit firm rotation. Second, we consider the study's research design. As Chi et al. suggest, the Taiwanese data provide an opportunity to address a research question that cannot be similarly addressed in a North American context. But the data and research design carry their own set of problems, including issues of statistical power. Third, we consider measures of audit quality. Interpreting the study as providing evidence on audit quality assumes not only that audit quality and earnings quality are the same, but also that abnormal accruals and ERCs are good measures of earnings quality, and by extension, audit quality. While such arguments are common in the archival audit literature, we believe it is time to move beyond these generic proxies. Our discussion concludes with suggestions for future research.
Author: Andrew B. Jackson
Publisher:
ISBN:
Category :
Languages : en
Pages : 28
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This study investigates the effect a regime of mandatory audit firm rotation would have on audit quality in an Australian setting. Using two measures of audit quality, being the propensity to issue a going-concern report and the level of discretionary accruals, the study examines the switching patterns of clients in their current voluntary switching capacity, and the levels of audit quality. We find that audit quality increases with audit firm tenure, when proxied by the propensity to issue a going concern opinion, and is unaffected when proxied by the level of discretionary accruals. We conclude that given the additional costs associated with switching auditors there are minimal, if any, benefits of mandatory audit firm rotation. Other initiatives to address concerns about auditor independence and audit quality therefore need be considered before imposing mandatory audit firm rotation.
Author: United States. General Accounting Office
Publisher: DIANE Publishing
ISBN: 1428937056
Category : Accounting firms
Languages : en
Pages : 167
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