Under the assumption that audit quality relates positively to unobservable financial reporting quality, we investigate whether is associated with predictability of accounting earnings by focusing on analyst forecast properties. The evidence shows analysts' accuracy higher and dispersion smaller for firms audited a Big 5 auditor. We further find auditor industry specialization less in non-Big sample but not sample. Overall, our results suggest high-quality provided auditors specialist better...

SUMMARY: Using a large sample of U.S. audit client firms over the period 2000–2005, this paper investigates whether and how size local practice office within an firm (hereafter, size) is significant, engagement-specific factor determining quality fees beyond at national level auditor industry leadership city or level. For our empirical tests, measured by unsigned abnormal accruals, in two different ways: one based on number clients each other total earned office. Our results show that has...

SUMMARY: This study examines whether and how audit quality proxied by the magnitude of absolute discretionary accruals is associated with abnormal fees, that is, difference between actual fee expected, normal level fee. The results various regressions reveal association two asymmetric, depending on sign For observations negative there no significant In contrast, fees are negatively for positive fees. Our findings suggest auditors’ incentives to deter biased financial reporting differ...

SUMMARY Using a large sample of audit client firms, this paper investigates whether and how the geographic proximity between auditor affects quality proxied by accrual-based earnings quality. We define an as local (1) if auditor's practicing office is located in same metropolitan statistical area (MSA) client's headquarters, (2) distance two cities where headquarters are within 100 kilometers, or they MSA. As predicted, our empirical results consistent with auditors providing higher-quality...

ABSTRACT We find that financial statement comparability enhances the ability of current period returns to reflect future earnings, as measured by earnings response coefficient (FERC). This suggests improves informativeness stock prices and allows investors better anticipate firm performance. In addition, using both FERC price synchronicity tests, we increases amount firm‐specific information (rather than market/industry‐level information) reflected in prices. Analysts play an important role...

ABSTRACT This study investigates whether and how a firm's real earnings management (REM) is influenced by the strength of country's legal regime presence Big 4 auditor. In cross‐country examination using data from 22 countries, we find that REM increases in countries with stronger regimes as firms switch accrual‐based (AEM) to REM. The auditor reduces (as well AEM) attenuates positive relation between Our results suggest higher‐quality auditors limit client firms’ use REM, especially strong regime.

The several accounting scandals that have occurred recently in the USA suggest importance of well-functioning audit committees. This study examines how characteristics committees – independence, competency and activity are related to earnings management. data used analyses collected from Korean stock market during period 2000-2001. empirical results demonstrate independence committee associated with management a firm. Specifically, members' shareholdings positively management, while presence...

SUMMARY Despite regulatory concerns over opinion shopping (OS) behavior, there exists little systematic evidence on the prevalence and consequences of OS to avoid a going concern (GCO). Using Lennox's (2000) framework identify OS, we find that distressed firms successfully engage in GCO. Moreover, clients engaging exhibit higher ex post Type II error rate audit opinions than do not, is salient for switching auditors but not retaining OS. We continue this asymmetric effect two types quality...

Using a large sample of U.S. audit client firms over the period 2000-2005, this paper investigates whether and how size local practice office within an firm (henceforth, size) is significant, engagement-specific factor determining quality fees beyond at national level auditor industry leadership city or level. For our empirical tests, measured by unsigned abnormal accruals, in two different ways: one based on number clients each other total earned office. Our results show that has...

SUMMARY This paper investigates the effect of human resource investment in internal control over financial reporting on disclosure weaknesses at both firm and individual department level. Using a unique requirement for Korean-listed firms, this study uses ratio number employees involved with implementation controls (hereafter, IC personnel) to total as proxy firm's control. We find that proportion personnel change within several key departments are negatively associated weaknesses. also is...

SUMMARY This study examines how auditors’ reputational damage resulting from litigation affects banks’ assessment of audit clients’ creditworthiness. Focusing on a sample syndicated loans, we find that banks require higher loan spreads when borrowers’ auditors are sued for alleged failures. Further analysis reveals the results more pronounced participating perceive greater information asymmetry between themselves and either borrowers or lead banks. These effects last up to two years...

Under the assumption that audit quality relates positively to unobservable financial reporting reliability, we investigate whether is associated with predictability of accounting earnings by focusing on analyst forecast properties. The evidence shows analysts' accuracy higher and dispersion smaller for firms audited a Big Five auditor. We further find auditor industry specialization less in non-Big sample but not sample. Overall, our results suggest high provided auditors specialist better...

ABSTRACT: We study the effects of cross-listings on audit fees. first develop a model in which legal environments play crucial role determining auditor's liability. Our and analysis predict that auditors charge higher fees for firms are cross-listed countries with stronger regimes than they do non-cross-listed cross-listing fee premium increases difference strength between foreign country home country. then empirically test these predictions. The results our cross-country regressions...

Abstract We investigate whether the financial riskiness of large U.S. audit firm clienteles varied with changing litigation liability environment during period 1975‐99. Partitioning study into four distinct periods (a benchmark (1975‐84), a increasing concerns about (1985‐89), lobbying for reform (1990‐94), and post‐relief (1995‐99)), we find some evidence risk decreases 1985‐89, strong 1990‐94, increases 1995‐99. However, also that over our study, time which Big 6 market shares grew...

This study examines whether and how audit quality proxied by the magnitude of absolute discretionary accruals is associated with abnormal fees, that is, difference between actual fee expected, normal level fee. The results various regressions reveal association two asymmetric, depending on sign For observations negative there no significant In contrast, fees are negatively for positive fees. Our findings suggest auditors’ incentives to deter biased financial reporting differ...

Abstract Prior studies document a negative association between B ig 4 auditor choice and the implied cost of equity capital, suggesting that auditors mitigate information asymmetry ( IA ) shareholders managers. This study extends this line research reports is more pronounced in multiple‐segment firms, where severe than single‐segment firms. We also find capital becomes as number segments increases. Taken together, our findings suggest role reducing significant when greater exists.

Abstract Prior research regarding management earnings forecasts has failed to reject the null hypothesis that are not biased. In this study, we find short-term pessimistically biased, while long-term optimistically When pool forecast observations, consistent with prior studies, able existence of bias. addition, our evidence suggests magnitude bias is associated ex ante information—the unexpected portion forecast, firm size, horizon, performance, and growth potential firm. Since information...

This paper uses a set of firm-level data across 39 countries to study whether national legal environments increase or decrease auditors' governance functions in serving the bonding and signaling role. On one hand, Big Five auditors may play stronger role weaker because they are good substitutes for protection outside investors risky firms find more affordable due lower litigation costs. other country's poor environment significantly weaken demand supply quality audits, lessening their as...

Abstract We examine the effects of 1998 merger Price Waterhouse ( PW ) and Coopers & Lybrand CL on audit quality merged firm PricewaterhouseCoopers (PwC) at both office levels, where is surrogated by auditor's propensity to issue a going‐concern opinion, clients’ likelihood meeting or beating analysts’ earnings forecasts, accrual quality. At level, we find that increased for PwC relative other Big N firms. our findings, albeit mixed, collectively suggest improvement in firm‐level was...