The Governance Role of Audit Committees: Reviewing a Decade of Evidence

Even though audit committees have traditionally been a key component of corporate governance regulation, the last decade has witnessed a greater emphasis on audit committee regulation and a parallel intensification of academic research on the subject. This review synthesizes recent empirical research seeking to investigate various aspects of audit committees’ governance role. The review is structured around current regulatory expectations of audit committees seeking to document the extent to which specific characteristics of good practice influence various components of audit committee effectiveness. It is found that larger and more independent audit committees as well as those with financial expertise are more likely to seek a higher level of external audit coverage and assurance. There is also evidence that more independent audit committees are associated with the purchase of lower levels of non‐audit services from auditors, thereby seeking to preserve the independence of the external audit process. There seems a consensus that more independent audit committees and those with greater accounting/financial expertise have a positive impact on the quality of financial statements. Evidence on the stock market reaction to audit committee issues suggests that investors both welcome the presence of audit committees and react positively when members are appointed with relevant expertise. It is also found that internal auditors view certain audit committee characteristics, specifically independence, expertise and frequency of meetings, as leading to more effective audit committee performance. In summary, therefore, this review documents a significant amount of evidence offering support to current regulations concerning the desired characteristics of audit committees.     

Audit quality and earnings management in less developed economies: the case of Saudi Arabia

This paper aims to determine if significant associations exist between audit quality and earnings management in less developed economies, providing their various shortcomings and differences. Five different measures of audit quality (auditor size, auditor industry specialization, auditor opinion, auditor change and timeliness of auditor report) were examined based on a sample of 337 non-financial Saudi listed firms from 2006 to 2009. The absolute value of discretionary accruals is used as a proxy for earnings management by using a cross-sectional variation of the Kothari model. The results of this research indicate that only auditor opinion indicates earnings management practice. The results support the argument that auditors are powerless in front of managerial opportunistic activities. Issues that may impair audit quality in Saudi Arabia are discussed.     

Explaining the influence of time budget pressure on audit quality in Sweden

This paper is aimed at explaining how time budget pressure influences audit quality in the Swedish context. A hypothesis is deduced and tested through a survey sent to Swedish auditors. The Swedish context provides a special setting since audit firms and auditors have been facing new pressures due, for example, to the removal of statutory audits for a majority of the companies in Sweden. The findings show that time budget pressure lowers the quality of audits performed by Swedish auditors, but it is not the only explanation. Audit quality is also related to other factors such as gender, position, experience, number of clients, local office size and audit firm. Thus, the model is useful for explaining the factors influencing audit quality and could be used and expanded in future studies. The study also has practical implications showing that when trading-off between audit efforts and available resources and setting time budgets for each audit assignment, audit firms should also consider the personal characteristics of the auditors.     

Great Expectations?: The Dubious Financial Legacy of Quality Audits

In recent years there appears to have been a veritable boom in the provision of ‘quality audits’– that is, audits of organizations' production processes and management systems. Despite the rising significance of this international audit movement affecting hundreds of thousands of organizations world‐wide, there has been limited interest in, or critique of, the practice of quality audit by academic auditing researchers. This paper traces the history of quality assurance standards and auditing and finds that quality auditing is not simply an outgrowth of an engineering inspection function. Rather, for several decades, quality auditors have consciously modelled their practice on that of the statutory financial audit, which in turn, exposes them to similar issues with regard to the long standing ‘expectations gap’ debate. Yet, despite what the authors argue are critical links with the financial audit, there has not been any notable involvement on the part of the accounting profession with quality auditing. The growing demand for ‘added‐value’ audits poses considerable questions for the future development and organizational significance of quality auditing. Current developments in both quality and financial audit services suggest that these two influential audit movements are now competing against each other to promote business excellence and contribute to business strategy.     

公司治理、控制权性质与审计定价

借鉴Simunic的审计定价模型,构建关于审计定价影响因素的多元线性回归方程,并以沪深两市上市公司2007年数据为研究对象,对股权结构、公司治理与审计定价之间的关系进行实证检验.研究结果表明,总体而言,公司治理因素对中国上市公司审计定价的解释力有限,说明中国会计师事务所在决定审计收费时对被审计单位的公司治理因素考虑较少.具体而言,终极控制人为政府的上市公司审计费用较低,股权集中度、管理层持股比例与审计定价之间大体上呈U型关系,即股权适度集中和管理层适度持股最有利于降低审计定价,进一步的研究发现,管理层持股比例与审计定价的U型关系仅存在于非国有控股公司样本中.研究还发现,中国会计师事务所在确定审计费用时会结合公司控制权的性质考虑风险因素时审计定价的影响.     

Modeling the Audit Opinions Issued to Bankrupt Companies: A Two‐stage Empirical Analysis*

Many observers are dissatisfied with the accounting profession's ability to warn the public of upcoming bankruptcy filings. Since regulators and users tend to treat an unmodified audit opinion as a “clean bill of health,” they do not expect the business to fail in the near future. Research has shown that more often than not, auditors end up letting users down when it comes to predicting bankruptcy filings with audit opinions. Although auditors assert they are not responsible for predicting future events, it is very clear that their opinion decision is evaluated, at least in part, based on events that occur after the audit report date. The interesting and logical next step is to find out how companies exit bankruptcy. Do they liquidate or reorganize? Successful reorganization may, in the end, exonerate auditors and preserve their role as an early warning device. The opinion prediction model developed in the paper introduces a new bankruptcy resolution variable that proxies for the auditor's prognosis of the ultimate disposition of the soon‐to‐be‐bankrupt company. Using a sample of bankruptcy filings between 1982 and 1992, we find that auditors do not seem to be able to predict filings or resolution. Our tests of bankruptcy resolution support what auditors have been arguing for years: that they are not clairvoyant with respect to a client's future.     

审计委员会制度与盈余质量的改善

本文采用2002年至2004年上市公司的数据.以盈余质量视角研究审计委员会制度的有效性.研究发现,基于各年截面数据,设有审计委员的上市公司均具有较高的盈余质量,同时也发现这种盈余质量上的差异已经存在于上市公司成立审计委员会的上一年.当控制这种成立前的盈余质量差异之后,本文发现,设立审计委员会前后,上市公司盈余质量没有显著变化.因此,本文结论并没有发现审计委员会在提高会计盈余质量方面已发挥了应有的作用.     

External audit and goodwill write-off

Building on agency theory, we investigate whether and how salient external auditor characteristics (size, audit fees, non-audit fees, tenure) impact on the reported goodwill write-off. We use a sample of US firms applying SFAS 142. We find that Big-4 auditors are more prone to limit underestimated write-offs rather than overestimated write-offs and that auditors require higher fees from companies underestimating the write-offs. The findings are consistent with the auditors’ preference for more conservative goodwill and earnings values, which reduce their litigation and reputation costs. This preference can converge with the managerial interest to use unnecessary overestimated goodwill write-offs for earnings management purposes (e.g. to smooth the income or take big baths). Our findings do not support the hypotheses that non-audit fees and tenure affect the goodwill write-off. Our paper contributes to prior literature on external audit and financial accounting choices. Our study suggests that leniently audited discretional fair value estimates are likely to compromise the role of auditing (and of financial reporting) as an external control mechanism. Our study can contribute to the current policy debate around goodwill accounting.     

Auditors' Assessment of Management's Disposition: An Attributional Analysis*

Auditors' assessment of management's dispositions presumably affects their subsequent judgments. However, little is known about the process by which auditors infer characteristics of management. This paper proposes the theory of correspondent inferences [25] as a framework for examining auditors' assessment of management's dispositions; the model is tested in a laboratory experiment using experienced audit managers. The results are consistent with the proposed theoretical framework. Implications for future research are discussed.     

The Impact of Performance Audit on Public Sector Organizations: The Case of Estonia

The results of a survey of 118 Estonian public officials show that auditees can perceive performance audit to be useful even if it does not lead to specific changes in policies or organizational practices. No trade-off between the accountability and improvement functions of performance audit could be observed, though a surprisingly low percentage of the respondents considered performance audit to have been used to hold the audited organization accountable for their actions. While the factors internal to the audit process – including the perceived expertise of the auditors, their openness to dialogue with the auditees and the quality of audit report – influenced the perceived usefulness of the audit, they had less bearing on the adoption of changes by the audited organizations. The study indicates that when parliamentarians pay attention to performance audit and when media attention leads to political debate, the adoption of changes recommended by the performance audit report is more likely.     

Experimental evidence on external auditor reliance on the internal audit

With the revised version of ISA 610 (revised 2013), external auditors now face both requirements and guidance addressing their responsibilities when relying on the internal audit function (IAF). The reliance decision of an external auditor has important economic consequences and implications for the efficiency and effectiveness of the annual audit. Using an experimental design, we explore how German external auditors’ reliance decisions regarding the IAF are affected by varying levels of environmental factors, like client business risk, effectiveness of the internal control system, and quality of the corporate governance. Furthermore, the experiences of external auditors in collaborating with an IAF are taken into consideration. The results indicate main effects for each factor and a two-way interaction between the effectiveness of the internal control system and the quality of corporate governance. Specifically, a strong internal control system can compensate for weaknesses in corporate governance with respect to the confidence of external auditors in the IAF. Also, the type of audit procedure influences the willingness of auditors to rely on the IAF, and the inherent risk of the examined transaction strengthens the negative impact of client business risk on the reliance decision. Moreover, past experiences of external auditors with an IAF have a significant impact on their reliance decision. Overall, the findings suggest that organizations can foster internal–external auditor coordination by enhancing corporate governance effectiveness and strengthening the internal control system.

     

审计在基金会治理中能够有效发挥作用吗?

本文以2005年至2009年中国全国基金会为样本,研究基金会捐赠收入与外部审计师选择之间的关系,即在中国慈善市场上,外部监督机制之一的外部审计是否具有治理效应及治理职能如何有效实现。实证结果表明:当基金会选择百强事务所审计时,能够有效实现审计的治理职能,吸引更多的捐赠者进行捐赠;当基金会选择民政部中标事务所审计时,不能有效实现审计的治理职能,从而不能显著增加捐赠收入。上述结论在一定程度上验证了在慈善市场中,外部审计具有治理效应,其有效治理效应依赖于高质量的审计。     

审计师关注客户所在地区社会信任水平吗? ——基于Pecking Order模型的研究

文章利用CGSS调查数据度量客户所在地区的社会信任水平,进而考察其对审计师决策的影响。文章首先分别考察了社会信任水平与审计定价、出具非标审计意见的倾向、审计师变更之间的关系,结果发现,公司所在地区的社会信任水平与审计定价、审计师变更均呈显著负向关系,表明审计师会对位于高社会信任地区的客户收取更低的审计费用、审计契约更为稳定,但社会信任与审计师出具非标意见的倾向之间没有显著关联。有序Logistic检验结果表明,在审计定价和审计师变更决策之间,审计师存在优先选择次序:对于低社会信任地区客户,他们会优先通过提高审计收费的手段来控制相关风险。只有在风险超出其承受力、不能通过提高审计费用来控制时,才会放弃客户。此外,文章还发现,地区法治水平能够缓解社会信任对审计师决策的影响。这一研究有助于加深社会信任与审计师决策之间关系的理解,并有助于理解审计师的风险管理策略。     

Related party transactions and audit fees: the role of the internal audit function

Related party transactions (RPTs) are viewed as genuine transactions that rationally fulfil other economic demands of a company. However, RPTs can also be used to transfer wealth from minority shareholders to controlling shareholders. The existence of such transactions may deteriorate financial reporting quality, increase audit risk, and as a result increase audit fees. This study examines the relationship between RPTs and audit fees in Malaysia, where ownership is often concentrated within a controlling family and corporate governance mechanisms are poor. It also investigates the moderating effect of the internal audit function (IAF) on this relationship. We find that external auditors base their fees on the types of RPTs undertaken. Specifically, our results show that audit fees are higher for firms that undertake RPTs involving the sale and purchase of assets, goods, and services. We also document that external auditors rely on the IAF, and thus their fees are lower for firms that undertake RPTs and that have made a large investment in an IAF. Our study is the first to provide evidence that RPTs in Malaysian firms may be abused as a channel to facilitate tunnelling and that the IAF plays a vital role in controlling such transactions.     

中国证券市场审计任期与盈余质量关系的实证检验

安然事件以来,审计任期与盈余(经审计的)质量的关系成为了研究热点.本文运用中国证券市场1998-2004年上市公司的公开数据,同时从事务所任期与合伙人任期两大层面实证检验了审计任期与盈余质量之间的关系.实证结果显示:随着会计师事务所审计任期的增加,盈余质量显著地表现出先逐渐上升后逐渐下降的倒U型趋势,且拐点稳定在6-8年之间;而随着签字注册会计师审计任期的增加,盈余质量虽然总体逐渐上升,但此趋势尚不足够显著.     

中国审计判断质量的实验研究

近年来,审计质量问题引起了社会的广泛关注,审计判断作为影响审计质量的主要因素之一,日益受到我国审计理论界和实务界的重视。本文以我国注册会计师审计为背景,以内部控制风险评估为案例,采用实验的方法对我国注册会计师的审计判断质量进行了检验。研究结果表明,我国注册会计师的共识、稳定性和自我洞察力已经达到了相当高的水平,但与国外的相似实验研究结果相比,还存在着明显的差距,需要继续提升；在判断过程中,我国注册会计师的判断模型明显呈线性化。     

审计师任期、事务所任期与审计质量

利用审计师对财务危机的公司是否出具持续经营的查核意见,以及企业的异常营运资本,作为研究衡量审计质量良莠的代理变量,分析了中国审计师任期与会计师事务所任期对审计质量的影响。如果以查核意见作为被解释变量,没有发现审计师任期或事务所任期与审计质量有关联性的证据。然而,一旦以异常营运资本作为分析对象时,则发现较长的审计师任期有助于提高审计质量的证据。此外,当企业有增加盈余的动机时,还发现会计师事务所内的审计师之间有审计经验传承的效果。进一步的分析则显示,前述的发现主要来自于非四大会计师事务所。换言之,审计师任期的经验效果对于非四大会计师事务所更为重要。     

Expanding the HRD Role: Improving employee well-being and organizational performance

Abstract

An important opportunity for the HRD profession lies in assessing and reshaping the psychosocial work environment to create a healthy, mentally focused workforce that provides their organization with a competitive advantage. We explain why HRD professionals should be concerned with employee well-being, offer suggestions for assessing the work environment through a stress audit and discuss four key work factors that affect well-being: job control, role overload, social support and supervisor behaviour. By expanding their role to these concerns, HRD professionals can improve quality of life and contribute to organizational effectiveness. If they do, the result should be healthier employees, healthier organizations and a greater recognition of HRD's potential for transforming organizations.     

内部控制鉴证报告的信号失灵和甄别——一个本土化的实证研究

本文从内部控制的三个关键点——内部控制实施、评价和审计师鉴证——分析了内部控制鉴证报告的信号失灵原因和甄别工具,采用我国上市公司数据进行检验并发现,公司披露鉴证报告与否和会计信息质量无关,但披露高质量(声誉)审计师签署的鉴证报告,公司的操控性应计更低,会计信息质量更高。研究结果表明,内部控制鉴证报告作为传递内部控制信息的二次信号是失灵的,而审计师质量具有信号甄别的作用。本文结论不仅有助于公司制定有效的内部控制信息披露策略,还为内部控制信息市场的监管导向决策提供依据。     

Risk Pooling Advantages of Manufacturing Network Configuration

The decision of a firm to set up a plant network is influenced by a number of factors, including demand fluctuations across its portfolio of products, logistics costs, and service level requirements. Product plant networks offer the benefits of consolidated production and reduced transshipment costs; on the other hand, process plant networks allow intensive dedication to process expertise and economies of scale. In this paper, we show that, aside from these benefits, process plant networks offer significant risk pooling advantages under a wide range of conditions. We analytically demonstrate that, even without accounting for economies of scale advantages, firms may prefer the process plant network configuration due to the risk pooling benefits offered.