Jacqueline A. Burke and Hakyin Lee
Mandatory auditor firm rotation (mandatory rotation) has been a controversial issue in the United States for many decades. Mandatory rotation has been considered at various times…
Abstract
Mandatory auditor firm rotation (mandatory rotation) has been a controversial issue in the United States for many decades. Mandatory rotation has been considered at various times as a means of improving auditor independence. For example, in the United States, the Public Company Accounting Oversight Board (PCAOB) has considered mandatory rotation as a solution to the independence problem (PCAOB, 2011) and the European Parliament approved legislation that will require mandatory rotation in the near future (Council of European Union, 2014). The concept of implementing a mandatory rotation policy has been encouraged by some constituents of audited financial statements and rejected by other constituents of audited financial statements. Although there are apparent pros and cons of such a policy, the developmental process of such a policy in this country has not necessarily been an open-democratic, objective process. Universal mandatory rotation may or may not be the ideal solution; however, an open-democratic, objective process is needed to facilitate the development of a solution that considers the needs of all major stakeholders of audited financial statements – not simply accounting firms and public companies, but also investors. The purpose of this paper is to critically examine key issues relating to mandatory rotation and to encourage and stimulate future research and ongoing dialogue regarding this issue, in spite of efforts by certain constituents to silence the issue. This paper provides an overview of the various reasons, including practical, theoretical, political, and self-motivated reasons, why a mandatory rotation policy has not been implemented in the United States in order to address the potential conflict of interest between the auditor and client. This paper will also discuss how some deliberations of mandatory rotation have been flawed. The paper concludes with a summary of key issues along with two approaches for regulators, policy makers, and academics to consider as ways to improve the process and address auditor independence. The authors are not advocating for any specific solution; however, we are advocating for a more objective, unified approach and for the dialogue regarding auditor rotation to continue.
Details
Keywords
Sir Raymond Streat, C.B.E., Director of The Cotton Board, Manchester, accompanied by Lady Streat. A Vice‐President: F. C. Francis, M.A., F.S.A., Keeper of the Department of…
Abstract
Sir Raymond Streat, C.B.E., Director of The Cotton Board, Manchester, accompanied by Lady Streat. A Vice‐President: F. C. Francis, M.A., F.S.A., Keeper of the Department of Printed Books, British Museum. Honorary Treasurer: J.E.Wright. Honorary Secretary: Mrs. J. Lancaster‐Jones, B.Sc., Science Librarian, British Council. Chairman of Council: Miss Barbara Kyle, Research Worker, Social Sciences Documentation. Director: Leslie Wilson, M.A.
Sir Raymond Streat, C.B.E., Director of The Cotton Board, Manchester, accompanied by Lady Streat. A Vice‐President: F. C. Francis, M.A., F.S.A., Keeper of the Department of…
Abstract
Sir Raymond Streat, C.B.E., Director of The Cotton Board, Manchester, accompanied by Lady Streat. A Vice‐President: F. C. Francis, M.A., F.S.A., Keeper of the Department of Printed Books, British Museum. Honorary Treasurer: J. E. Wright, Institution of Electrical Engineers. Honorary Secretary: Mrs. J. Lancaster‐Jones, B.Sc., Science Librarian, British Council. Chairman of Council: Miss Barbara Kyle, Research Worker, Social Sciences Documentation. Director: Leslie Wilson, M.A.
In a paper of this nature it is difficult to avoid presenting a catalogue in the what we do in our …' vein. Yet any claim to usefulness will probably lie in providing an outline…
Abstract
In a paper of this nature it is difficult to avoid presenting a catalogue in the what we do in our …' vein. Yet any claim to usefulness will probably lie in providing an outline of the service for comparison purposes and, incidentally, in showing possible areas of co‐operation with other information units. For that reason, before describing the information activities of the Central Electricity Generating Board (CEGB), it may be appropriate to outline the structure of the British electricity supply industry, bringing out the position in it of the CEGB, and then to consider the organization of the Generating Board itself.
Nonna Martinov‐Bennie, Jeffrey Cohen and Roger Simnett
The purpose of this paper is to examine the potential impact of two affiliation factors, as encapsulated by the chief financial officer's (CFO) prior organizational (alumnus vs…
Abstract
Purpose
The purpose of this paper is to examine the potential impact of two affiliation factors, as encapsulated by the chief financial officer's (CFO) prior organizational (alumnus vs non‐alumnus) and professional background (audit vs non‐audit ex‐partner), on auditor independence in post‐Enron and post‐HIH era.
Design/methodology/approach
The study is a 2×2 factorial between subjects experimental design with 52 audit partners and managers as participants. The two manipulated independent variables are client CFO prior firm affiliation (alumni vs non‐alumni) and professional background (audit partner vs non‐audit partner providing taxation, accounting and other non‐audit services).
Findings
The results of the study do not appear to signal loss of independence and professional skepticism in auditors' judgment when dealing with an alumni or ex‐auditor CFO. On average, auditors' endorsement of the client's preferred aggressive accounting treatment is low and the audit adjustment is material and significantly greater than the client's proposed adjustment.
Originality/value
The 2001 corporate collapses of Enron in the USA and HIH in Australia have reshaped the auditing profession. HIH, the most publicized corporate fraud in Australia resulting in estimated losses of $5 billion, was partly blamed on Arthur Andersen yielding to management's aggressive accounting policies and failure to display independence as a result of close relationships between the former partners and the audit team. As distinct from a number of prior studies conducted pre‐Enron and pre‐HIH, the results of this study, conducted with experienced audit professionals in Australia, do not support a loss of independence and professional skepticism by auditors in the current post‐Enron and post‐HIH environment and are consistent with the findings of the only other recent experimental study by Kerler III and Killough examining the closeness of the auditor‐client relationship. The results are also consistent with results of recent archival studies which find a decline in earnings management behavior, either because of reduced management incentives or reduced auditor willingness to consent. The evidence of this study lends supports to the latter explanation.
Details
Keywords
Before discussing in detail the range of information bulletins issued by CEGB Information Services, I should like to give a few details of the structure of the British electricity…
The purpose of the paper is to examine the extent to which there is shared meaning of the concept of auditor independence between the three major groups of parties on the demand…
Abstract
Purpose
The purpose of the paper is to examine the extent to which there is shared meaning of the concept of auditor independence between the three major groups of parties on the demand and supply sides of the audit services market – auditors, financial report preparers and financial report users.
Design/methodology/approach
The paper utilises the measurement of meaning framework (semantic differential analysis) originally proposed by Osgood et al. in 1957. The framework is used to investigate the extent to which there is shared meaning (agreement in interpretations) of the independence concept, in response to alternative audit engagement case contexts, between key parties to the financial reporting communication process. The study's research data was collected in the period March 2004‐May 2005.
Findings
Findings indicate a robust and stable single‐factor cognitive structure within which the research participants interpret the connotative meaning of the auditor independence concept. An analysis of the experimental cases finds similarities in connotations (interpretations) of an audit firm's independence for the participant groups for most cases, with the exception of cases involving the joint provision of audit and non‐audit (taxation) services.
Research limitations/implications
The usual external validity threat that applies to experimental research generally applies to the study. That is, the results may not be generalisable to settings beyond those examined in the study. An important implication of the study is that it emphasises the continuing problematic nature of the joint provision of audit and non‐audit services, even in situations where the non‐audit services comprise only traditional taxation services.
Originality/value
The study is the first to examine the concept of auditor independence by means of the Osgood et al. measurement of meaning research framework using, as research participants, the three major groups on the demand and supply sides of the audit services market.
Details
Keywords
I lovepublishers. Let me make that point crystal‐clear before I embark on the main theme. I love publishers. Apart from the fact that their activities provide me with my job, I…
Abstract
I lovepublishers. Let me make that point crystal‐clear before I embark on the main theme. I love publishers. Apart from the fact that their activities provide me with my job, I think that they are one of the most important, if not the greatest, factors in the growth of civilization—from the ancient Greeks to the atom bomb. Scientific research on its present scale is impossible without the publishers. Technological advance and the application of research to industry would be atrophied without them. We should, therefore, acknowledge our great debt and be grateful for the very high standard of achievement of publishers. We should recognize also the high ethical standards of the majority of them.
Discusses one application of a commercially available computer software package suitable for scientific and technical information storage and retrieval. Source documents, mode of…
Abstract
Discusses one application of a commercially available computer software package suitable for scientific and technical information storage and retrieval. Source documents, mode of input, indexing technique and thesaurus control are described. The various forms of output which are generated and the services available to users are explained. These services include retrospective searching of the database, and provision of printed indexes and personalised current awareness.