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Article
Publication date: 31 May 2022

Justyna Skomra, Pervaiz Alam and Piotr Antoni Skomra

The paper aims to explore the impact of two types of monitoring mechanisms, namely, Securities and Exchange Commission (SEC) comment letters (CLs) and short sellers, on…

366

Abstract

Purpose

The paper aims to explore the impact of two types of monitoring mechanisms, namely, Securities and Exchange Commission (SEC) comment letters (CLs) and short sellers, on management’s demand for audit quality.

Design/methodology/approach

Using information on the short interest positions and a panel data of SEC CLs between 2005 and 2015, this study applies logit regression model to estimate the likelihood of hiring Big 4 and industry expert audit firm. This study also applies an ordinary least squares regression technique to estimate audit fees.

Findings

Consistent with disclosure and agency theories, results from empirical analyses provide that management demands higher quality audits measured by higher audit fees, and higher likelihood to hire Big 4 and industry expert audit firm. However, this study finds that the effect varies depending on the specific monitoring mechanisms. Additionally, when both monitoring mechanisms are in place, the SEC CLs drive the overall direction of the demand for audit quality when audit demand is captured by propensity to hire Big 4/industry expert audit firm.

Research limitations/implications

This study provides researchers with enhanced understanding of the factors having effect on the demand side for audit quality. Furthermore, it adds to the stream of literature on economic consequences of SEC CLs and short selling.

Originality/value

To the best of authors’ knowledge, this is the first comprehensive study to document the effect of two types of monitoring mechanisms, namely, SEC CLs and short selling, on the demand for audit quality.

Details

Managerial Auditing Journal, vol. 37 no. 6
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 27 April 2023

Justyna Skomra, R. Drew Sellers and Piotr Antoni Skomra

This study aims to investigate the busy season contagion effects on other clients of the Big 4 auditor’s local office associated with the non-timely (NT) filing(s) by large…

201

Abstract

Purpose

This study aims to investigate the busy season contagion effects on other clients of the Big 4 auditor’s local office associated with the non-timely (NT) filing(s) by large accelerated filer (LAF) client(s) of the office. Specifically, the authors examine the influence such events have on the audit quality and timeliness of other clients of that office.

Design/methodology/approach

Using panel data of annual NT filings of LAF clients between 2006 and 2019, the authors apply the ordinary least squares regression technique to model audit reporting lag (ARL) and the logistic regression technique to model the probability of restatements.

Findings

Controlling for audit firm, industry and year-fixed effects, the authors find that a LAF NT filing reduces audit quality and audit timeliness of other clients of the office, as measured by restatement risk and ARL. The impact on ARL is most pronounced on the medium and small clients within the office. The deteriorated audit quality is observed for medium clients.

Research limitations/implications

The results of this study have practical implications for auditors and regulators. They reveal the contagion effect in the auditor’s local office with the NT LAF client. The main limitation of the study is the lack of staffing utilization data to allow for drawing conclusions on causality.

Originality/value

To the best of the authors’ knowledge, this is the first study to document the contagion effect of NT filings of LAF clients conducted at the auditor’s local office level.

Details

Managerial Auditing Journal, vol. 38 no. 6
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 16 May 2023

Barry Hettler, Justyna Skomra and Arno Forst

Motivated by significant global developments affecting the sell-side industry, in particular a shift toward passive investments and growing regulation, this study examines whether…

164

Abstract

Purpose

Motivated by significant global developments affecting the sell-side industry, in particular a shift toward passive investments and growing regulation, this study examines whether financial analyst coverage declined over the past decade and if any loss of analyst coverage is associated with a change in forecast accuracy.

Design/methodology/approach

After investigating, and confirming, a general decline in analyst following, the authors calculate the loss of analyst coverage relative to the firm-specific maximum between 2009 and 2013. In multivariate analyses, the authors then examine whether this loss of coverage differs across geographic region, firm size and capital market development, and whether it is associated with consensus analyst accuracy.

Findings

Results indicate that between 2011 and 2021, firm-specific analyst coverage globally declined 17.8%, while the decline in the EU was an even greater, 28.5%. Within the EU, results are most pronounced for small-cap firms. As a consequence of the loss of coverage, the authors observe a global decline in forecast accuracy, with EU small-cap firms and firms domiciled in EU non-developed capital markets faring the worst.

Originality/value

This study is the first to document a concerning global decline in analyst coverage over the past decade. The study results provide broad-based empirical support for anecdotal reports that smaller firms in the EU and those in EU non-developed capital markets bear the brunt of consequences stemming from changes in the sell-side analyst industry.

Details

Accounting Research Journal, vol. 36 no. 2/3
Type: Research Article
ISSN: 1030-9616

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Article
Publication date: 2 May 2023

Renee Flasher, Lydia Didia and Justyna Skomra

Leveraging lobbying theory, the authors analyze responses to the American Institute of Certified Public Accountants (AICPA) proposal suggesting the removal of state and local…

120

Abstract

Purpose

Leveraging lobbying theory, the authors analyze responses to the American Institute of Certified Public Accountants (AICPA) proposal suggesting the removal of state and local governmental accounting from the content tested on the uniform certified public accountant (CPA) examination. Furthermore, the authors compare the responses to a prior exam content review to place the uniqueness of the more recent response in perspective.

Design/methodology/approach

The authors examine 181 comment letters obtained from the AICPA website. In addition, the relative concentration of governmental entities across the USA is studied for correlation with the response rate.

Findings

Consistent with lobbying theory, the authors find that participating governmental entities overwhelmingly argued for the retention of governmental accounting. In contrast, most other groups of respondents (accounting firms, state societies, etc.) had at least one letter that agrees with the removal of the content.

Originality/value

While the letter writers appear to be successful in retaining the governmental accounting content on the CPA exam, the majority of the detailed content has been placed within a specialized area on the new version of the CPA exam, expected to be deployed in 2024. This means that fewer CPA candidates will be exposed to governmental accounting than under the current regime. It has implications for governmental units seeking qualified candidates to fill their staffing needs especially as fewer universities offer governmental accounting courses.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 35 no. 5
Type: Research Article
ISSN: 1096-3367

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