ABSTRACT Our paper examines whether audit quality is higher for industry specialists at the national and city‐office levels using framework developed in Ferguson et al. [2003] Francis [2005] . We find that auditors who are both city‐specific have clients with lowest abnormal accruals, suggesting joint highest quality. In addition, we some evidence accruals of firms audited by city‐industry alone (without also being specific specialists) lower than those nonindustry specialists. Using...

The pricing of Big 5 industry leadership in the U.S. audit market is investigated using fee disclosures for 2000–2001 fiscal years and joint nationalcity framework Ferguson et al. (2003). There a significant premium 19 percent on those engagements where auditors are both nationally top-ranked auditor city-level leader city client headquartered, indicating that national city-specific jointly affect reputation pricing. However, there never any tests leaders alone without also being leaders, by...

SUMMARY: After the demise of Arthur Andersen, public accounting industry has witnessed a significant migration clients to second-tier (Grant Thornton and BDO Seidman) smaller third-tier firms. While prior literature documents that auditors are perceived by stock market as an inferior substitute for Big 4 auditor, this perception appears have changed in recent years. In paper, we analyze responses auditor switching from firms during 2002 2006. We break our sample period into two separate...

SUMMARY Little is known about the relationship between disclosure quality and auditor quality. We measure as likelihood of a firm fully disclosing identity their major customers in Form 10-K filing. also voluntary by exempt smaller reporting companies (SRCs) disclosing, all firms audited notes, or affirming no customers. expect that are more likely to disclose when they engage higher-quality auditors who have specialized knowledge regulations. hand-collect sample than 26,000 (34,000)...

Based on a quadratic form of audit tenure in explaining quality, we estimate reference point that is potentially optimal for firm rotation 22 countries across legal regimes with high versus low levels investor protection. We find our the protection regime longer than (24 years vs. 14 main measure). However, very few firms from sample would have been affected if there were requirement mandatory term, suggesting may not be necessary. In additional analyses, only evaluate empirical validity but...

Our study examines how a short audit partner horizon affects quality. A originates from the joint requirement of mandatory firm rotation and rotation. We unique setting in Italy where 9-year term 7-year are jointly imposed. The outcome is at least two horizons, one shorter than other. predict that with will likely invest less effort acquiring client knowledge. Namely, expected payoffs fewer, tacit knowledge not sufficiently transferred previous partner, monitoring by successor insufficient....

Purpose Student evaluation of teaching (SET) questionnaires are used in many countries, although much current research questions the validity these surveys. US indicates that more than 90 percent academic accounting departments use this performance measurement. This paper aims to focus on SET data. Design/methodology/approach A mail survey was sent a random sample 1,000 professors employed at four‐year universities and colleges USA. total 447 responses were returned for response rate 44.7...

Purpose This paper empirically examines whether the order of liability and preferred stock accounts presented on balance sheet is consistent with how market values their riskiness. Design/methodology/approach measures a firm’s riskiness idiosyncratic risk employs first-difference design to test relation between current liabilities, noncurrent liabilities stock, respectively. Further, tests operating are viewed as riskier than financial liabilities. Finally, authors partition sample based...

ABSTRACT Increasingly, firms are subject to rising cybersecurity risks. One way that can communicate uncertainty and reduce information asymmetry with external stakeholders is through risk disclosures. SEC (2011, 2018) guidance encourages the disclosure of significant factors. However, not all provide informative or quality disclosures following a breach event. In this study, we examine firms' use after breach. We find breached alter their behavior similarly Rather, firm prior experience...

As administrators are pressured to increase retention rates in accounting departments, and higher education general, a deadly symbiosis is occurring. Most students parents only wish high grades, so year after many educators engage unethical grade inflation course work deflation. Since use the audit educators' performance order achieve their goal of rates, instructors abusive Student Evaluation Teaching (SET) management under education's dysfunctional evaluation system protect job pay.

We propose that audit quality is likely to increase in the earlier years due a Learning Effect and later it decreases Bonding Effect. Adopting quadratic model, we find average turning point between 12 16 for large sample of U.S. firms. With an tenure 9 our sample, these findings imply mandatory auditor firm rotation may not be necessary. Further, varies by - longer non-Big N auditors, non-specialist auditors with high client importance, deterioration exists low litigation industries only,...

SUMMARY We examine the effect IFRS adoption has had on audit effort and effectiveness of greater constraining earnings management. find that following Italy's IFRS, hours (but not hourly rate) increased, suggesting (in hours) increased adoption. then whether more are associated with improved quality in regime. Consistent prior literature (Caramanis Lennox 2008), we is lower abnormal accruals period before Interestingly, after Italy adopted lower, but were less accruals, implying needed to...

PCAOB recently solicits comments on a 10-year mandatory audit firm rotation for the largest 100 S&P firms. We propose that quality is likely to increase with tenure due dominant Learning Effect in earlier years and decrease Bonding later years. Adopting quadratic model empirically estimate year when decline, we find average point optimizes 12 large sample of U.S. With an 9 only our sample, these findings imply auditor may not be necessary. Further, negative impact long driven by non-Big N...

The Financial Accounting Standards Board (FASB) and the International (IASB) are currently working together towards a comprehensive standard of accounting for financial instruments with characteristics equity, liability, or both. An important facet this project is to determine appropriate liability vs. equity classification preferred stock. In its preliminary views, FASB has selected an ownership approach. Recent deliberations resulted in majority vote (with two dissenting board members)...

This paper investigates the decline in audit quality during an firm’s tenure across countries with varying degrees of legal liability. We propose that can increase through a learning effect early years but later it is likely to decrease due bonding effect. Using quadratic model, we estimate year when quality, measured by earnings starts tenure. should be weaker stricter liability regimes, which implies begins regimes. find takes 14 16 for stronger regimes while only 4 10 decline. Our results...

ABSTRACT We develop a measure of disclosure quality using disaggregation financial statement items from the Form 10-K XBRL filing. Our (ITEMS) extends Chen, Miao, and Shevlin’s (2015)DQ is distinct R. Hoitash U. Hoitash’s (2018)ARC measure. provides simple by counting balance sheet income line items, it does not depend on data aggregators’ collection process readily available shortly after filed. validate ITEMS showing that firm fundamentals correlate to in predicted direction OLS...

Our study examines whether aggressive revenue management by a supplier is greater when the and their major customer engage same office-level auditor significant purchases are made from supplier. We posit that more accommodating to clients who jointly audited because of implicit threat losing not just client but also client. The arises potential loss synergies planned audit engagement customer. find income-increasing discretionary positively associated with customer’s percentage engaged fail...

We demonstrate that investors in initial public offering (IPO) firms value revenues and the number of U.S. Securities Exchange Commission (SEC) revenue recognition comment letters issued on S-1 registration statement are positively associated with reported revenues. also find IPO managers report opportunistically fiscal year just prior to offer. In additional analysis, we discretionary significantly higher first day stock returns but lower 1 returns. Our results consistent incentives...

This paper documents the association between market risk measures and leverage components of a firm’s capital structure over last four decades. High increases to common stockholders; however, definition liability reported on balance sheet has been subject debate in recent years. Motivated by ongoing joint project IASB FASB defining equity an inconclusive decision preferred stock, this how perceived various components, (i.e., as debt or equity), including right-hand side sheet. We find that...

We investigate the coinciding effects of implementation Auditing Standard No. 5 (AS5), change in Public Company Accounting Oversight Board’s (PCAOB) inspection regime, and Great Recession on audit fees quality accelerated filers. AS5 took effect November 2007 promulgated a top-down, risk-based approach to SOX 404(b) audits Concurrently, PCAOB adopted stricter its inspections firms, which encouraged them improve reduce fees. Moreover, pressured firms find that, following three events,...

Preferred stock is a hybrid security that possesses features of debt and equity, but has been traditionally classified as equity under current accounting standards. Recent studies have shown preferred stocks increases risk cost capital for common holders, hence, are more like. We use several different measures to show positively associated with implied capital. However, financially distressed firms high investment opportunity, tend mitigate risks behave equity-like. also find these...