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Article
Publication date: 5 September 2013

Stephen K. Asare and W. Robert Knechel

112

Abstract

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Journal of Accounting Literature, vol. 31 no. 1
Type: Research Article
ISSN: 0737-4607

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Article
Publication date: 5 October 2015

W Robert Knechel

The purpose of this paper is to summarize the effect that the passage of the Sarbanes–Oxley Act of 2002 (SOX) by the US Congress had on audit research. More specifically, the…

1817

Abstract

Purpose

The purpose of this paper is to summarize the effect that the passage of the Sarbanes–Oxley Act of 2002 (SOX) by the US Congress had on audit research. More specifically, the paper compares the nature of research about auditing conducted before the Act’s passage to the nature of research about audit regulation that dominates the literature since its passage.

Design/methodology/approach

The paper builds on an extensive review of the research literature before and after the passage of SOX to suggest and examine potential future research paths that might develop in auditing. The streams of research are linked and organized around four themes: auditing as a competitive process, auditing as a service process, auditing as a production process and auditing as a quality control process.

Findings

In general, auditing research prior to SOX tended to focus on issues encountered in the practice of auditing with tangential implications for audit regulation. The passage of SOX had the effect of focusing audit research on the nature, costs and benefits of regulation, particularly the components of the law that had the most effect on auditing such as the prohibition against many non-audit services, the establishment of the Public Company Accounting Oversight Board as a standard setter that also inspects audit firms, and the introduction of the requirement that a client’s internal control over financial reporting be examined and opined upon as part of an integrated audit. Although this research has increased our understanding of auditing and regulation, the heavy focus on SOX has pushed research about auditing itself to a lesser role. The profession’s, academy’s and regulatory understanding of auditing may benefit from a more balanced approach to auditing as something separate from the regulation of auditing.

Originality/value

The intent of this paper is to challenge the way researchers think about research questions in auditing. Hopefully, this approach will encourage auditing researchers to look at the audit and audit regulation through a new lens, testing propositions and aspects of auditing that have been overlooked by the dominate focus on audit regulation over the past decade.

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Managerial Auditing Journal, vol. 30 no. 8/9
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 14 November 2017

David Hay and Carolyn Cordery

This paper explores the value of financial statement auditing in the public sector. The study applies theory about auditing from the private sector as well as the public sector to…

1564

Abstract

This paper explores the value of financial statement auditing in the public sector. The study applies theory about auditing from the private sector as well as the public sector to explore ways in which public sector auditing can be expected to be valuable. It shows that there are a number of complementary explanations that can be applied to examine the value of public audit, including agency, signaling, insurance, management control, governance and confirmation explanations. The evidence from research and history is generally consistent with the agency and management control explanations. There is some support for the signaling and insurance explanations, while research evidence suggests that governance has differing impact in the public sector compared to the private. The confirmation hypothesis is also potentially relevant. Reviewing the history of the development of public sector auditing functions shows that at least some developments were consistent with explanations such as agency theory and management control. Auditing in the public sector is an area where more research is valuable. The paper concludes with a discussion of issues for further investigation.

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Journal of Accounting Literature, vol. 40 no. 1
Type: Research Article
ISSN: 0737-4607

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Article
Publication date: 22 June 2012

Monika Causholli and W. Robert Knechel

The purpose of this paper is to examine the circumstances under which high quality audits reduce a firm's cost of debt. The paper extends previous research by Pittman and Fortin…

3524

Abstract

Purpose

The purpose of this paper is to examine the circumstances under which high quality audits reduce a firm's cost of debt. The paper extends previous research by Pittman and Fortin by considering how auditor quality relates to the capital cycle and industry of the firm.

Design/methodology/approach

The paper uses a sample of US initial public offerings (IPOs) from 1986 to 1998 to analyze a firm's debt costs for the five years following the IPO. The paper uses a firm's private age as a proxy for its capital cycle and existing banking relationships to capture the likely extent of debt dependence prior to IPO. The authors separately analyze technology firms from other firms.

Findings

Consistent with prior literature, it is found that firms that are young at the time of an IPO pay higher interest rates and auditor quality plays a significant role in lowering the cost of debt financing. Consistent with the hypotheses made, the authors also observe that the effect of auditor quality is larger for firms in the high tech industry sector. Further, the relationship between auditor quality and age depends on industry, with the benefits of hiring a high quality auditor primarily accruing to younger tech firms and older non‐tech firms.

Originality/value

While the issue of auditor quality and cost of debt has been examined by previous researchers, the additional insight that the effect of auditor quality depends on both capital cycle (age) and industry of a firm, increases understanding of the circumstances under which the audit of financial statements is socially desirable and economically valuable to investors and other stakeholders.

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Managerial Auditing Journal, vol. 27 no. 6
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 25 February 2018

Reiner Quick and Florian Schmidt

As a consequence of the global financial and economic crisis, the European Commission recently reformed the audit market. One objective was to restore public trust in the auditing…

959

Abstract

As a consequence of the global financial and economic crisis, the European Commission recently reformed the audit market. One objective was to restore public trust in the auditing profession and thus to enhance the audit function. This study investigates whether perceptions of auditor independence and audit quality are influenced by audit firm rotation, auditor retention and joint audits, because regulators argue that these instruments can improve auditor independence and audit quality. Therefore, we conduct an experiment with bank directors and institutional investors in Germany. The results indicate a negative main effect for joint audits on perceived auditor independence, and that a rotation cycle of 24 years marginally significantly impairs participant perceptions of audit quality, compared to a rotation cycle of only ten years. Besides the main effects, planned contrast tests suggest a negative interaction between rotation and joint audit on participant perceptions of auditor independence. Moreover, a negative interaction effect is revealed between rotation after 24 years and retention on perceptions of audit quality. It is particularly noteworthy that we failed to identify a positive impact of the regulatory measures taken or supported by the European Commission on perceptions of auditor independence and audit quality.

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Journal of Accounting Literature, vol. 41 no. 1
Type: Research Article
ISSN: 0737-4607

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Article
Publication date: 8 February 2022

Niels van Nieuw Amerongen, Erdi Coskun, Joost van Buuren and Hans B. Duits

The purpose of this paper is gaining more insight into the impact of the strength of the auditor–client relationship on the client’s perceptions about added-value of the auditor…

916

Abstract

Purpose

The purpose of this paper is gaining more insight into the impact of the strength of the auditor–client relationship on the client’s perceptions about added-value of the auditor service including the role of auditor tenure.

Design/methodology/approach

This study is based on both archival data (auditor tenure) and interview data (strength of the auditor–client relationship and client’s perceptions on added-value). The data comprise 497 small- and medium-sized entity (SME) audit engagements in The Netherlands.

Findings

This study finds evidence of a positive relationship between the strength of the auditor–client relationship and client’s perceptions on added-value. The data do not suggest a main effect of auditor tenure on client’s perceptions on added-value. This study finds evidence that auditor tenure, combined with the strength of the auditor–client relationship, has a strong positive influence on the perceived added-value. Therefore, this study argues that a longer tenure turns out to positively influence the auditor’s client-specific knowledge. The findings are relevant to auditing research by extending the scope of application of social exchange theory (SET) to SME settings, and by suggesting that the auditor–client relationship may capture more an audit quality dimension than auditor tenure. Findings are also relevant for audit practitioners in showing the contribution of a strong auditor–client relationship to client satisfaction in terms of perceived added-value. Standard setters may consider the results of this study in proper designing a specific auditing standard for smaller, less complex entities.

Originality/value

This study fits into a development in auditing research where auditing is viewed as a service. Prior studies in this area were mainly build on marketing concepts (e.g. Grönroos 2007). This study uses a sociological lens, particularly building on SET. In particular, this study focuses on the impact of relationship quality on perceived added value. Using this perspective sheds light on the importance of interactions between auditors and their clients. Both the product (audit opinion) and the process of collecting sufficient appropriate audit evidence in interaction with the client are important. This relationship perspective may serve as an explanation to why long auditor tenure can turn out to improve audit quality. Future research may build on this sociological perspective and particularly examine what conditions need to be present to realize benefits of the relationship approach and when a more transactional approach is more suitable.

Details

Managerial Auditing Journal, vol. 37 no. 3
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 10 July 2017

Therese Grohnert, Roger H.G. Meuwissen and Wim H. Gijselaers

This study aims to investigate how organisations can discourage covering up and instead encourage learning from errors through a supportive learning from error climate. In…

720

Abstract

Purpose

This study aims to investigate how organisations can discourage covering up and instead encourage learning from errors through a supportive learning from error climate. In explaining professionals’ learning from error behaviour, this study distinguishes between espoused (verbally expressed) and enacted (behaviourally expressed) values with respect to learning from errors.

Design/methodology/approach

As part of mandatory training sessions, 150 early-career auditors completed an online questionnaire measuring error orientation and help-seeking behavior after making an error as attitude- and behavior-based measures, next to measuring perceived organizational learning from error climate. Multiple mediation analysis is used to explore direct and indirect effects.

Findings

Covering up errors was negatively and learning from errors positively related to an organisation’s learning from error climate. For covering up, this relationship is an indirect one – espoused and enacted values need to match. For learning from errors, this relationship is direct: espoused values positively relate to learning behaviour after errors.

Practical implications

By designing a supportive learning from error climate in which members at all hierarchical levels role-model learning from errors behaviour, organisations can actively discourage covering up and encourage learning from errors.

Originality/value

This study applies the theory of espoused versus enacted values to learning from error using a triangulation of measures in an understudied research setting: auditing.

Details

Journal of Workplace Learning, vol. 29 no. 5
Type: Research Article
ISSN: 1366-5626

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Article
Publication date: 28 May 2020

Astrid Rudyanto and Kashan Pirzada

The purpose of this study is to examine the moderating effect of sustainability reporting on the relationship between tax avoidance and firm value. This study also examines the…

3327

Abstract

Purpose

The purpose of this study is to examine the moderating effect of sustainability reporting on the relationship between tax avoidance and firm value. This study also examines the moderating effect of sustainability reporting in both environmentally sensitive firms and non-environmentally sensitive firms.

Design/methodology/approach

This research uses moderated panel regression with 596 observations and 734 observations for cash effective tax rate (ETR) and generally accepted accounting principles effective tax rate (GAAP ETR) of firms listed on the Indonesian Stock Exchange between 2014 and 2016. Tax avoidance is measured by both cash ETR and GAAP ETR.

Findings

This paper shows that sustainability reporting moderates the relationship between tax avoidance (GAAP ETR) and firm value. The results show that GAAP ETR has a negative association with firm value in non-environmentally sensitive firms and a positive association with firm value in environmentally sensitive firms. Consequently, the sustainability report alters only the effect of GAAP ETR on firm value in non-environmentally sensitive firms. The results imply that, unlike environmentally sensitive firms, non-environmentally sensitive firms need sustainability reporting to reduce the reputational costs of tax avoidance.

Originality/value

How shareholders view tax avoidance remains unclear; research on this topic often fails to produce a uniform result. The present research fills this gap by using the existence of sustainability reporting as proof of companies’ ethical motivations to moderate the association of tax avoidance and firm value, which has not been discussed in previous research.

Details

Social Responsibility Journal, vol. 17 no. 5
Type: Research Article
ISSN: 1747-1117

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Article
Publication date: 12 October 2021

Marziana Madah Marzuki and Muhammad Syukur Muhammad Al-Amin

The purpose of this study is to investigate the effect of audit fees, auditors' quality and board ownership on tax aggressiveness in Thailand.

2287

Abstract

Purpose

The purpose of this study is to investigate the effect of audit fees, auditors' quality and board ownership on tax aggressiveness in Thailand.

Design/methodology/approach

The sample of this study is based on 215 firm-year observations of SET-100 listed companies in Thailand during the 2010–2018 periods. This study employs a panel least square regression with period fixed effects. The study retrieved the corporate governance variables from the downloaded annual reports, whilst the remaining data were collected from the EMIS database.

Findings

This study provides evidence that audit fees reduce tax aggressiveness and board ownership enhance tax aggressiveness among the firms. Nonaudit services provided by auditors impair auditors' independence and lead to higher tax aggressiveness. The result supports the agency theory, which explains that managers and blockholders may enjoy private benefits of control at the expense of other shareholders in the absence of market control. Thus, firms need good governance practices such as incentives paid for the effort of auditors and nonaudit services monitoring to curb such exploitation.

Research limitations/implications

The results provide implications to the firms and regulators that incentives to the monitoring parties such as auditors can reduce tax aggressiveness among the firms. Nevertheless, higher ownership given to boards as incentives may lead to concentrated ownership and thus lead to the type 2 agency problem, which is between majority and minority shareholders. The result also provides caution to the regulators to monitor the nonaudit services provided by the auditors as it might impair their independence and compromise the tax paid to IRB.

Originality/value

This study is pioneer research discussing tax avoidance in Thailand. The Thai Government has been noticing that tax avoidance is being performed in the country, but academic discussion on this topic had never been elaborated.

Details

Asian Review of Accounting, vol. 29 no. 5
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 3 August 2023

Paul L. Baker, Peiwei Lyu and Pietro Perotti

This paper examines the relationship between tax avoidance and accounting comparability. The authors argue that aggressive tax behavior impairs the comparability of financial…

684

Abstract

Purpose

This paper examines the relationship between tax avoidance and accounting comparability. The authors argue that aggressive tax behavior impairs the comparability of financial statements by altering the accounting function, which maps economic events into accounting data.

Design/methodology/approach

The empirical analysis is based on a large sample of United States (US) firms. The authors use raw and industry-adjusted effective tax rates (ETRs) to proxy tax avoidance. The authors use the measure of accounting comparability developed by De Franco et al. (2011), which aims to capture the similarity of the accounting function.

Findings

The authors find that firms with more aggressive tax avoidance strategies have substantially lower accounting comparability. The evidence also shows that the negative effect of tax avoidance on accounting comparability is driven by firms with aggressive tax planning strategies beyond the industry norm. Furthermore, using an alternative measure of accounting comparability as a function of pre-tax income, the authors continue to find evidence of the negative effect of tax avoidance behavior. Importantly, this provides evidence that the effect of aggressive tax planning is not limited to the reported tax expense, but affects the comparability of the overall financial reporting system.

Originality/value

The authors identify a new potential cost of tax aggressive activities, being the loss of accounting comparability as driven by tax aggressive activities. The results contribute to the literature on the costs of tax avoidance and on the determinants of accounting comparability.

Details

Journal of Accounting Literature, vol. 46 no. 4
Type: Research Article
ISSN: 0737-4607

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