International Journal of Auditing

Publisher:
Wiley
Publication date:
2021-02-01
ISBN:
1090-6738

Latest documents

  • Investigating recent audit reform in the Australian context: An analysis of the KAM disclosures in audit reports 2017–2018

    The aim of this study is to explore the new Australian auditing regulations around Key Audit Matters (KAMs), fully adopted since 2017, by reporting on matters published in over 3,000 Australian statutory audit reports from 2017 to and including 2018 reports. The study provides the first evidence on whether auditors used the same or different disclosures related to audit procedures when reporting on the same KAM in the second year in Australia. The findings suggest the most common KAM disclosures are related to “impairments of goodwill and intangible assets,” “revenue recognition,” “asset valuation,” “acquisitions,” and “exploration and evaluation.” Around 70% of Australian auditees had the same KAMs disclosed in both years 2017 and 2018. The study found differences between large and small audit practitioners related to the average number of KAMs disclosed and the average number of audit procedures undertaken per KAM. There were also differences found between industries and auditee size.

  • Book Review of Disruption in the Audit Market: The Future of the Big Four, Financial Failures & Scandals: From Enron to Carillion, and The Future of Auditing

    This article provides a concise review of the three books, Disruption in the Audit Market: The Future of the Big Four (ISBN: 978–0367–220‐66‐2), Financial Failures & Scandals: From Enron to Carillion (ISBN 978–036‐7,220‐73‐0), by Prof. Krish Bhaskar and Prof. John Flower, together with Mr. Rod Sellers, and The Future of Auditing (ISBN: 978–0367–220‐66‐2) by Prof. David Hay.

  • Issue Information

    No abstract is available for this article.

  • Exploring the antecedents of internal auditors' voice in environmental issues: Implications from China

    The purpose of this article is to explore the antecedents of internal auditors' voice in environmental‐related issues. Using 226 responses from internal auditors and their immediate supervisors from China, we found that internal auditors' perceived organizational environmental orientation and their individual environmental orientation were significantly related to both their promotive and prohibitive voice in environmental issues. Internal auditors' perceived supervisory support for the environment was significantly related to their promotive voice, whereas internal auditors' environmental commitment was significantly related to their prohibitive voice. Moreover, internal auditors' environmental commitment mediated the relationships between the other three antecedents and their prohibitive voice in environmental issues. Our findings provide insights for researchers, practitioners, and regulators.

  • Corporate reputation and the timeliness of external audit and earnings announcement

    We examine the association between corporate reputation and the timeliness of external audit and earnings announcement. Changes in financial reporting regulation have resulted in longer audit delay, leading to an increase in the number of firms that announce earnings prior to audit completion, both of which have implications for the quality and usefulness of financial information. We find that corporate reputation is negatively associated with audit report lag, earnings announcement lag, and the likelihood of firms announcing earnings after audit completion. Our results are robust to a variety of sensitivity tests. We document important benefits in the form of timelier audits and earnings announcements derived from developing and maintaining a good corporate reputation. Our findings have implications for client firms and auditors, particularly given the challenges faced by auditors in terms of more onerous audit requirements and shorter filing deadlines, as well as demands for timelier information faced by firms.

  • Are the Big 4 audit firms homogeneous? Further evidence from audit pricing

    We provide new evidence on audit pricing differences within the Big 4 audit firms in the U.S. market. Industry expertise research argues that an audit firm with greater competencies can differentiate itself from competitors in terms of within‐industry market share and charge an audit fee premium for its services. We show that while KPMG's average fee premium is smaller than those of other Big 4 audit firms, PricewaterhouseCoopers consistently earns an above‐average fee premium and has remained the market share leader across most U.S. industries. More importantly, the supposed effects of industry specialization on audit fees become statistically insignificant after controlling for individual pricing differences within the Big 4. Overall, we conclude that the Big 4 firms are not homogeneous in audit pricing, and that the literature has apparently confounded an individual audit firm reputational effect (as first observed by Simunic, 1980) with an industry specialist fee premium in the U.S. audit market.

  • Organization capital and audit fees around the world

    We examine whether auditors consider organization capital in audit pricing decisions. Utilizing an international sample from 40 countries spanning the period 2001–2017, we find that firms with high levels of organization capital pay high audit fees: a finding that is consistent with both the risk‐ and the agency‐based arguments for audit pricing. Additionally, our results indicate that the positive relationship between organization capital and audit fees is reinforced in firms with pronounced business risks and agency problems, whereas it is relatively weak in countries with protective employment legislation. Our study contributes to the voluminous literature on the determinants of audit fees by showing that auditors price the risks related to clients' intangible assets, especially those embodied in a firm's key talents. Our study also contributes to the scarce literature on the effects of organization capital in international markets.

  • Do key audit matters impact financial reporting behavior?

    This study experimentally examines whether the implementation of key audit matters (KAMs) in auditors' reports affects managers' reporting behavior. In line with prior research in psychology, we argue that greater transparency through KAMs leads to higher accountability pressure as managers may expect their judgments to be scrutinized more strongly in the presence of KAMs and, hence, to an improvement of financial reporting quality. Further, we examine whether informational precision (firm‐specific versus nonfirm‐specific information) in a KAM section moderates the effect of KAM presence on reporting behavior. Our findings show that managers' tendency to make an aggressive financial reporting decision is reduced in the presence of KAMs (compared to the absence of KAMs). This effect remains even when the description of the KAM is of low informational precision. Thus, our results suggest that KAMs serve as a beneficial mechanism for enhancing financial reporting quality by attenuating aggressive financial reporting behavior, regardless of the precision employed by auditors.

  • Political alignment and audit pricing

    This article investigates the impact of political alignment on the pricing of audit service for U.S. firms. While prior studies have mainly focused on the political connectedness stemming from firms' active political effort, our study is different as we exploit changes in the U.S. political landscape, which are exogenous to firms. We employ a political alignment index (PAI) of each state's leading politicians with the presidential party to proxy for U.S. domestic firms' political alignment. We build upon the policy risk theory, and conjecture that auditors take into account the risk emanating from firms' political geography position and price this risk in their audit service fees. Our empirical results show a positive association between PAI and audit fees. Collectively, our findings suggest that auditors perceive firms whose headquarters are located in more politically aligned states to be riskier, while corporate diversification and managerial ability act as effective mitigating factors.

  • The auditor reputation cycle: A synthesis of the literature

    The auditor reputation hypothesis states that auditors conduct high‐quality audits to build a positive reputation in the marketplace so that they can retain clients and earn fee premiums. We consolidate the dispersed literature on this hypothesis and introduce a framework that presents auditor reputation as a cycle. The overall conclusions support the predictions of our framework regarding reputation as an incentive for audit quality. However, challenges remain in isolating and quantifying the impact. We observe moderating factors on both the supply and demand sides. We also find that existing research has emphasized certain aspects of our framework while addressing others more sparsely. Relatively little is known about how audit firms earn their reputation or how they rebuild it after an audit failure. Mixed evidence in some areas, along with research gaps in the framework, provides opportunities for future research on auditor reputation. Our framework can guide these endeavors.

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