Limei Che and Tobias Svanström
The purpose of this paper is to describe, illustrate and provide a deeper understanding of team composition and labor allocation in audit teams by quantifying the exact value of…
Abstract
Purpose
The purpose of this paper is to describe, illustrate and provide a deeper understanding of team composition and labor allocation in audit teams by quantifying the exact value of resources at different levels of the audit production. Audit teams have been considered as a black box in audit research. Therefore, this paper reports descriptive statistics on (levels and proportions of) hours and costs allocated to auditor ranks (and the number and value, i.e. billing rates, of auditors for different ranks and the entire team) to shed new light on audit teams.
Design/methodology/approach
This study uses a proprietary data set containing disaggregated information on hours, costs and billing rates for each team member in each of 908 audit engagements. The data are provided by a Swedish Big 4 audit firm. The study uses a purely descriptive approach and categorizes auditors into seven ranks. As size and the publicly listed status are crucial determinants of audit production, the paper splits engagements in public and private companies and reports statistics for size quartiles of both public and private clients.
Findings
The paper provides descriptive statistics for (1) client size, (2) audit team members, (3) audit hours, (4) audit costs, (5) proportion of audit hours, (6) proportion of audit costs, (7) billing rates and (8) variation of billing rates. Results show that compared to private clients, the audit firm allocates higher effort from auditors in higher ranks and lower effort from auditors in lower ranks to public clients. Another finding is that allocation varies with client size for private clients, but less so for public clients.
Originality/value
In an area with sparse literature, this descriptive study serves as a first step to improve our understanding and guide future research. It provides concrete support for previously known theory.
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Irina Alexeyeva and Tobias Svanström
The paper aims to investigate audit and non-audit fees during the global financial crisis (GFC) in an environment that is relatively sparsely regulated with regard to the…
Abstract
Purpose
The paper aims to investigate audit and non-audit fees during the global financial crisis (GFC) in an environment that is relatively sparsely regulated with regard to the provision of non-audit services.
Design/methodology/approach
Audit and non-audit fees were studied during pre-GFC (2006-2007), GFC (2008-2009) and post-GFC (2010-2011) periods.
Findings
During the GFC, Swedish companies benefited from an increase in sales and total assets, although return on assets decreased. In this setting, the auditors charged higher audit fees compared with the pre-GFC period, despite the absence of increased audit reporting lags. A significant increase in audit fees continued during the post-crisis periods with auditors paying more attention to companies’ leverage and whether they report losses. At the same time, the companies spent less on non-audit services.
Research limitations/implications
This study is limited to companies from Sweden, which was less affected by the GFC.
Practical implications
GFC auditors are able to charge higher audit fees to public companies including those that are well-performing during financial crises, and they are also able to increase the audit fees in the post-crisis period. This implies that auditors put in extra audit effort to compensate for higher risk, or that they are good at negotiating prices with their clients. However, non-audit fees decreased during the same period, implying that the demand for these services drops under financial instability.
Originality/value
The study highlights auditors’ behavior in the liberal economic environment and it studies both audit fees and non-audit fees before GFC, during GFC and after the GFC. The GFC appears to have provided audit firms the opportunity to extract higher audit fees. Our findings are of interest to managers, auditors and regulators.
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ABM Fazle Rahi, Jeaneth Johansson and Catherine Lions
This study aims to examine the factors that influence the relationship between sustainability and financial performance (FP) of the European listed companies.
Abstract
Purpose
This study aims to examine the factors that influence the relationship between sustainability and financial performance (FP) of the European listed companies.
Design/methodology/approach
This study analyzed data from 795 companies in 21 European countries by applying linear mixed-effects multilevel regressions, a two steps system generalized method of moments and quantile regression models to uncover the links between sustainability and FP.
Findings
The past four decades have witnessed abundant research to determine the relationship between corporate sustainability and FP. Thus, conducting further research in 2023 could be seen as “reinventing the wheel.” Yet, earlier research considered firms as isolated entities with sustainability and FP being dependent only on that firm’s actions. By contrast, with the help of network governance theory, this study shows that a firm’s sustainability and FP depend on an interplay among interorganizational actors, such as institutional qualities, macroeconomic factors and an embrace of sustainability. Here, large firms play an essential role. Three significant findings are drawn. First, sustainability performance has a significant impact on FP in the European context. Second, the institutional quality (IQ) of the rule of law and control of corruption plays a crucial role in enhancing sustainability and FP, and finally the interaction of IQ and economic growth helps to increase companies’ market value (Tobin’s Q). The consistent and empirically robust findings offer key lessons to policymakers and practitioners on the interplay among multiple actors in corporate sustainability and FP.
Practical implications
A synergetic multifaced relationship between governmental institutions and corporations is inevitable for ensuring sustainable development. The degree of intimacy in the relationship, of course, will be determined by the macroeconomic environment.
Originality/value
In this research, this study theoretically and empirically identified that corporate sustainability and FP are not solely dependent on corporate operation. Rather, it is transformed, modified and shaped through an interaction of multiple actors’ trajectories in the macro business environment.
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This paper aims to examine how information sharing affects cash flow performance through the competitive capabilities of low cost or product quality.
Abstract
Purpose
This paper aims to examine how information sharing affects cash flow performance through the competitive capabilities of low cost or product quality.
Design/methodology/approach
In total, 159 survey responses were collected from Norwegian manufacturing firms in 2018. Structural equation modelling (SEM) was used to analyse the data collected.
Findings
The low-cost competitive capability was found to positively mediate the effect of information sharing on cash flow performance. However, product quality competitive capability did not have a significant mediating effect between information sharing and cash flow performance. Rather, customer satisfaction fully mediated the relationship between product quality, capability and cash flow performance. The empirical results not only support how the competitive capabilities can be developed through information sharing but also illustrate that the competitive capabilities affect cash flow performance through different mediating routes.
Originality/value
While information sharing and competitive capabilities have been studied previously with regard to financial performance, less emphasis has been placed on how customer satisfaction might explain the mediated relationship between product quality, competitive capability and financial performance. In addition, financial performance is measured by the proxy of cash flow. The use of cash flow as a performance measure leads to a more forward-looking financial performance measure. This is especially appropriate for non-listed firms.
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The purpose of this paper is to examine three different responses to the Finnish 2005 tax reform that, among other things, reduced the corporate tax rate and hiked dividend…
Abstract
Purpose
The purpose of this paper is to examine three different responses to the Finnish 2005 tax reform that, among other things, reduced the corporate tax rate and hiked dividend taxation. Focus lies on the factors influencing the decision to change the fiscal year-end and whether earnings management is more prevalent when the decision is not taken.
Design/methodology/approach
This study uses the financial statement data of Finnish private firms and studies 350 fiscal year-end changing firms and 700 non-changing firms with logistic and linear regression analysis. Discretionary accruals are the proxy for earnings management.
Findings
The results suggest that firms seize the window of opportunity and extend fiscal years depending on the magnitude of the expected tax savings. Firms that do not change their fiscal year-end engage in more tax-induced earnings management. In terms of economic consequences, the earnings management approach is less economically significant.
Research limitations/implications
This study only examines a limited number of firms that change their fiscal year-end, hence, care has been exercised in generalising the findings.
Practical implications
The findings may be considered when structuring future tax reforms, particularly when considering transition rules relating to changes in fiscal year-ends. The study may also have implications beyond tax reforms since the evidence of opportunistic changes in the fiscal year-end can be informative for tax authorities, independent auditors and creditors.
Originality/value
This study contributes to the relatively scarce literature on private firm responses to tax policy changes by analysing both upward and downward earnings management, as well as changes in the fiscal year-end. This is in contrast to previous research that mainly focusses on listed firms and absolute earnings management or earnings management in one direction.
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Anouk Mertens, Maarten B. Eppinga, Patrick Arens, Tobia de Scisciolo, Nigel John, Salys Sultan, Nadine Buys and Eric N. Mijts
The GreenComp framework identifies 12 competences for sustainability as common ground for higher-education curricula. The framework can be used for self-assessment and the review…
Abstract
Purpose
The GreenComp framework identifies 12 competences for sustainability as common ground for higher-education curricula. The framework can be used for self-assessment and the review of curricula. However, a step-by-step method to conduct such a self-assessment is not yet available for the GreenComp framework specifically. Therefore, the authors present the GreenComp Evaluation Roadmap allowing to evaluate the extent to which the frameworks’ competences for sustainability are integrated in higher-education curricula. The application of the GreenComp Evaluation Roadmap to a curriculum taught at the University of Aruba, allows to report on the benefits, limitations and future potential of the approach.
Design/methodology/approach
The proposed mixed-method approach combines hybrid qualitative and quantitative data collection on the integration of the 12 competences for sustainability of the GreenComp framework in higher-education curricula. The authors showcase its potential through application of the GreenComp framework as an evaluation tool to a science, technology, engineering and mathematics-based bachelor program taught at the University of Aruba.
Findings
The GreenComp Evaluation Roadmap not only allows for an evaluation of the curriculum and identification of competence gaps. It also supports educators to conduct a self-reflection on individual course(s) and the program as a whole. The paper shows promising results that the roadmap developed could be a reproducible approach. Moreover, it provides guidance to other higher education institutes for self-evaluation and self-reflection on how the competences for sustainability are integrated in their curricula and how this can be enhanced in the future.
Originality/value
The need to integrate sustainability throughout higher-education curricula is broadly recognized. The GreenComp Evaluation Roadmap contributes to the literature by offering a methodological approach to evaluate the integration of the 12 competences for sustainability throughout a curriculum.