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analysis of the impact of non-audit services on financial reporting quality: A test of two competing theories of auditor independence
Title
An analysis of the impact of non-audit services on financial reporting quality: A test of two competing theories of auditor independence.
Creator
Dickins, Denise., Florida Atlantic University, Skantz, Terrance R.
Abstract/Description
Auditor independence has been a long-standing issue for regulators resulting in numerous studies on the subject on how to enhance it and numerous rules that attempt to ensure it (e.g. Cohen Report 1978; ASR 250 1978; SEC Rule 2-01 2000). One of regulators' most recent attempts to shore up auditor independence is evident in the provisions of the Sarbanes-Oxley Act of 2002 (SOX). As a test of two competing theories of auditor independence, and to determine whether SOX mandates have successfully...
Show moreAuditor independence has been a long-standing issue for regulators resulting in numerous studies on the subject on how to enhance it and numerous rules that attempt to ensure it (e.g. Cohen Report 1978; ASR 250 1978; SEC Rule 2-01 2000). One of regulators' most recent attempts to shore up auditor independence is evident in the provisions of the Sarbanes-Oxley Act of 2002 (SOX). As a test of two competing theories of auditor independence, and to determine whether SOX mandates have successfully enhanced financial reporting quality, I examine post-SOX changes in non-audit fees (as a proxy for changes in quasi-rents) and the extent of changes in two measures of financial reporting quality. Results suggest that SOX mandates have been effective, and that the proposition of DeAngelo (1981b) that non-audit services may impair auditor independence may more-closely describe the relationship between changes in quasi-rents and changes in financial reporting quality than does the theory of Lee and Gu (1998). Further, supplemental analyses suggest that, as proposed by the theories, the amount of low-balling is positively related to the amount of quasi-rents.
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Date Issued
2006
PURL
http://purl.flvc.org/fcla/dt/12195
Subject Headings
Auditors--Evaluation, Accounting--Standards--United States, Auditing--Standards--United States, Auditing--Quality control, Disclosure in accounting
Format
Document (PDF)
Corporate Tax Aggressiveness, Auditor Provided Tax Services, And Audit Quality: Evidence From Recent PCOAB Rules Concerning Independence And Tax Services
Title
Corporate Tax Aggressiveness, Auditor Provided Tax Services, And Audit Quality: Evidence From Recent PCOAB Rules Concerning Independence And Tax Services.
Creator
Carr, Kellie M., Cao, Jian, Florida Atlantic University, College of Business, School of Accounting
Abstract/Description
Using tax accrual quality as a proxy for audit quality, I investigate whether companies that significantly decreased APTS surrounding the effective date of the Public Company Accounting Oversight Board’s 2006 Rules on Ethics, Independence, and Tax Services experienced an improvement in audit quality after the change. Given the specific target of the PCAOB 2006 restrictions is companies aggressively avoiding taxes with the assistance of APTS, I also investigate whether companies associated...
Show moreUsing tax accrual quality as a proxy for audit quality, I investigate whether companies that significantly decreased APTS surrounding the effective date of the Public Company Accounting Oversight Board’s 2006 Rules on Ethics, Independence, and Tax Services experienced an improvement in audit quality after the change. Given the specific target of the PCAOB 2006 restrictions is companies aggressively avoiding taxes with the assistance of APTS, I also investigate whether companies associated with tax aggressive services are also more likely to experience an improvement in audit quality following the reductions in APTS. Results suggest an increase in audit quality due to a reduction in economic bonding following APTS restrictions. Consistent with the economic bonding theory, companies that significantly reduced APTS experienced a larger improvement in audit quality after the change compared to companies that did not significantly reduce APTS. For tax aggressive companies, those that reduced APTS did experience a significant increase in audit quality after the change compared to tax aggressive companies that did not significantly reduce APTS. Moreover, companies considered important tax clients by their audit firms that significantly reduced APTS did experience a marginally greater increase in audit quality after the change compared to other important tax clients that did not significantly reduce APTS. Overall, my results indicate that the PCOAB 2006 restrictions were effective in decreasing APTS and economic bonding, thereby leading to improved audit quality, especially among companies associated with tax aggressive services. Accordingly, concerns for loss of knowledge spillover seem to be minimal. There are few studies that investigate the effectiveness of the PCAOB 2006 restrictions on audit quality. Therefore, my study fills this void by using a tax specific measure of audit quality, tax accrual quality, to specifically examine the target of the restrictions— audit clients that are associated with aggressive tax services. My study confirms and expands APTS, economic bonding, audit quality, tax accrual quality, and tax aggressive research, and also provides insight into and support for current policy debates concerning APTS and tax aggressive services.
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Date Issued
2017
PURL
http://purl.flvc.org/fau/fd/FA00004884, http://purl.flvc.org/fau/fd/FA00004884
Subject Headings
Auditing--Standards--United States., Corporations--Standards--United States., Corporations--Auditing., Organizational effectiveness--Measurement., Financial services industry--Management.
Format
Document (PDF)
Economic Consequences of Implementing the Engagement Partner Signature Requirement in the UK
Title
Economic Consequences of Implementing the Engagement Partner Signature Requirement in the UK.
Creator
Liu, Min, Kohlbeck, Mark, Florida Atlantic University, College of Business, School of Accounting
Abstract/Description
I investigate the effects of requiring the audit engagement partner (EP) signature and individual EP’s quality on information asymmetry, analysts’ forecast errors and forecast dispersion. I predict and find that, ceteris paribus, there is a significant decline in information asymmetry, analysts’ forecast errors and forecast dispersion from the pre- to post-EP signature period in the UK over both of short-term (e.g., 2008-2010) and long-term (e.g., 2004-2014). These findings hold when using a...
Show moreI investigate the effects of requiring the audit engagement partner (EP) signature and individual EP’s quality on information asymmetry, analysts’ forecast errors and forecast dispersion. I predict and find that, ceteris paribus, there is a significant decline in information asymmetry, analysts’ forecast errors and forecast dispersion from the pre- to post-EP signature period in the UK over both of short-term (e.g., 2008-2010) and long-term (e.g., 2004-2014). These findings hold when using a control sample approach and a different proxy for the information asymmetry, which indicate that my results are not likely due to the effect of concurrent events and correlated omitted variables. These findings provide timely and important empirical evidence to the ongoing debate about whether the Public Company Accounting Oversight Board should pass a similar requirement in the U.S.
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Date Issued
2016
PURL
http://purl.flvc.org/fau/fd/FA00004651, http://purl.flvc.org/fau/fd/FA00004651
Subject Headings
Auditing -- Standards -- United States, Corporate governance, Corporations -- Auditing -- Standards -- United States, Disclosure in accounting, Financial risk management -- Forecasting, Financial services industry -- Management, International standard on auditing, Public Company Accounting Oversight Board
Format
Document (PDF)
Big 4 global networks: degree of homogeneity of audit quality among affiliates and relevance of PCAOB inspections
Title
Big 4 global networks: degree of homogeneity of audit quality among affiliates and relevance of PCAOB inspections.
Creator
Kassawat, Paulina M., Higgs, Julia, Florida Atlantic University, College of Business, School of Accounting
Abstract/Description
The Big 4 global networks (Deloitte, Ernst & Young [E&Y], KPMG, and PricewaterhouseCoopers [PwC]) market themselves as providers of worldwide seamless services and consistent audit quality through their members. Under the current environment in which these auditors operate, there are three types of global network members: inspected non-U.S. affiliates (inspected affiliates, hereafter), non-inspected non-U.S. affiliates (non-inspected affiliates, hereafter), and inspected U.S. offices (U.S....
Show moreThe Big 4 global networks (Deloitte, Ernst & Young [E&Y], KPMG, and PricewaterhouseCoopers [PwC]) market themselves as providers of worldwide seamless services and consistent audit quality through their members. Under the current environment in which these auditors operate, there are three types of global network members: inspected non-U.S. affiliates (inspected affiliates, hereafter), non-inspected non-U.S. affiliates (non-inspected affiliates, hereafter), and inspected U.S. offices (U.S. offices, hereafter). The recent suspension of the China-based Big 4 affiliates from auditing U.S.-listed companies calls into question whether these global networks can deliver the same level of audit quality across all their members and whether those located in jurisdictions denying access to the Public Company Accounting Oversight Board (PCAOB or Board, hereafter) to conduct inspections may benefit from such inspections. This study examines the effect of being an affiliate and the effect of PCAOB inspections on perceived audit quality. I use earnings response coefficients (ERCs) as a proxy for perceived audit quality.
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Date Issued
2015
PURL
http://purl.flvc.org/fau/fd/FA00004385, http://purl.flvc.org/fau/fd/FA00004385
Subject Headings
Auditing standards -- United States, Business enterprises -- Computer networks, Corporate governance, Disclosure in accounting -- United States, Financial services industry -- Management, Government accountability, Intternational standard on auditing, Public Company Accounting Oversight Board
Format
Document (PDF)
Are the regulatory reforms working?
Title
Are the regulatory reforms working?: evidence from audit committee members' selection of auditors.
Creator
Looknanan-Brown, Veena., College of Business, School of Accounting
Abstract/Description
The Sarbanes-Oxley Act made audit committees directly responsible for the appointment, compensation, and supervision of companies' auditors. Limited research in the auditor selection process and PCAOB inspections suggest that managers, not audit committees, may still be selecting the auditors, and that inspection reports are not useful. This study addresses both of these areas. This paper considers two theories of governance, Agency Theory and Institution Theory, to analyze the audit...
Show moreThe Sarbanes-Oxley Act made audit committees directly responsible for the appointment, compensation, and supervision of companies' auditors. Limited research in the auditor selection process and PCAOB inspections suggest that managers, not audit committees, may still be selecting the auditors, and that inspection reports are not useful. This study addresses both of these areas. This paper considers two theories of governance, Agency Theory and Institution Theory, to analyze the audit committee members' auditor selection process. The study examines whether Audit Committee Members use two specific types of audit quality indicators, other than managers' recommendation, in evaluating auditors. In a setting where the manager recommends the auditor, the auditors' inspection results (favorable/unfavorable) and a prior manager/auditor affiliation (absent/present) are manipulated in a between-subject research design, using financially literate professionals as a proxy for audit committee members. The study finds that audit quality perception and auditor selection are jointly determined. Inspection results are positively associated with audit quality perception and auditor selection. The nature of a manager-auditor affiliation is directly associated with audit quality perception and inversely related to auditor selection. Further, controlling for perception, audit committee members are more likely to recommend auditors with unfavorable inspection results, if a prior affiliation with management is present than if an affiliation is absent. Overall, the results indicate that audit committee members are diligent in evaluating auditors, and PCAOB inspection results are useful. The results of this study contribute to the audit committee effectiveness and PCAOB literature.
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Date Issued
2011
PURL
http://purl.flvc.org/FAU/3318671
Subject Headings
Financial services industry, Management, Financial institutions, Law and legislation, Corporate governance, Law and legislation, Auditing, Standards, Corporations, Auditing, Standards
Format
Document (PDF)