Received: 31 May 2020; Accepted: 13 July 2020; Published: 15 July 2020 Abstract: One of the main controversial aspects of sustainability metrics relies on the accuracy, transparency, and reliability of the information at the basis of environmental, social and governance (ESG) scores. This paper investigates whether firms that have their ESG reporting audited by independent firms exhibit a higher quality of ESGscores. We performed an analysis investigating the change in ESGscores following the unveiling of a corporatemisconduct. We documented that, overall, no significant ESG score adjustment occurs after the scandal becomes public, thus, implying that rating agencies provide an accurate interpretation of the firm’s sustainability. However, our results differed when we distinguished between audited and unaudited reports. Firms whose reports are audited by third parties did not exhibit significant changes in their scores after a scandal, whereas for companies whose reports are not audited, we detected a worsening of the ESGscores that are statistically significant. Our findings were also confirmed in a multivariate analysis. Overall, our results suggest that the reliability of ESGscores can benefit from the auditing of sustainability reporting by third parties, which has an assurance effect on the quality of the company’s ESG information. Keywords: ESGscores; audit; ESG reports; ESG transparency; non-financial reporting audit; corporate scandals
Based on the transformation of accounting ﬁrms from limited liability to LLPs in China, we analyze whether an increase in auditors’ debt risk improves auditquality. Debt liability generally comes from lawsuits against auditors. Legally, if the users of ﬁnancial statements suﬀer losses due to improper audit opinions issued by auditors, they have the right to require compensation from the auditors. Thus, the debt risk is also closely associated with the national legal system. Studies have found that accounting ﬁrms in China actually assume a lower legal risk ( Liu and Xu, 2002 ) because the Chinese audit market is mainly formed by government regu- lation ( Liu and Lin, 2000 ). Meanwhile, the provisions on CPAs’ legal liability are still relatively vague in China and the operability is also poor, such as the lack of clear auditquality requirements. In seeking economic inter- ests, some accounting ﬁrms do not adequately investigate the audited entity when facing ﬁerce competition. Although some accounting ﬁrms are warned about, ordered to address, or reprimanded for corporate ﬁnancial reporting irregularities, the processes are limited to administrative penalties, which makes the CPAs’ violation costs very low. As long as the accounting ﬁrms are not withdrawn, the ﬁrms can still earn money through IPO and annual audits. Lu and Chen (2005) analyze the relationship between legal risk and auditquality using a sequential game mode and ﬁnd that legal risk has no signiﬁcant eﬀect on auditquality, possibly due to the defects in the Chinese judicial system. However, with the improvement of the environment of Chinese laws
Our study has provided an overview of the impact of the corporate governance quality on auditquality in Malaysia during the period from 2003 to 2012 (i.e., pre-and post-2007 Code period), using the effectiveness of the board and AC to proxy for corporate governance quality and audit fees to proxy for auditquality. The timeframe is interesting and appropriate as the Code was revised in 2007 and the 2007 Code was aimed at strengthening the roles and responsibilities of the board and AC. The sample has focused on 457 non- financial companies that had listed and traded their shares on the main board of Bursa Malaysia from 2003 to 2012. There is no evidence to show that the effectiveness of AC has a significant influence on audit fee in the pre- and post-2007 Code period. The results also show that the effectiveness of the board does not has a significant influence on audit fees in the pre-2007 Code period but it has significant influenced on the audit fees in the post-2007 Code period. This suggests that the existing corporate governance framework particularly on the board has an influence on the quality of audit process, but the corporate governance framework in relation to audit committee has limitation in its governance role on audit process. Our results partially support the regulatory initiatives intention at enhancing role and responsibilities of the board and AC in order to improve the audit process.
management and investors. These points lead us to the conclusion that the enhancement of auditquality due to auditor industry specialization can improve the quality of information disclosure of financial statements which ultimately leads to the decrease of information asymmetry. However, with regard to rejecting the research hypothesis, it is concluded that there is no significant relationship between auditor industry specialization and quality of information disclosure of financial statements. It can conclude that auditor industry specialization does not decrease or increase the quality of information disclo- sure of financial statements of the companies. Since most of the audit firms in this research were industry specialists this matter could result from the fact that auditing companies by industry expert auditors cannot be in such a way to affect the quality of information disclosure of financial statements of companies. Thus, the investors cannot ensure the quality of information dis- closure of financial statements just by relying on expert auditors. Furthermore the results also revealed that that there is no significant relationship between auditor tenure and quality of information disclosure of financial statements. Kamran (2008) believes that high complexity of companies’ workplace has
The debate on the desirability of Mandatory Auditor Rotation (MAR) is far from being resolved. Periodically we observe it resurfacing in policy documents that discuss the way forward in terms of audit regulation. A MAR rule—which sets a limit on the maximum number of years an audit firm can audit a given company’s financial statements—has often been proposed as a means to preserve auditor independence and possibly to increase investors’ confidence in financial reports. In the US, the Government Accounting Office (GAO), which was delegated by the SEC to study the issue of MAR, concluded that there is no clear evidence regarding the potential benefits of a MAR rule (GAO 2008). However, more recently the PCAOB issued a concept release "on auditor independence and audit firm rotation" (PCAOB, 2011) in which the Board solicits public comments on the advantages and disadvantages of mandatory audit firm. Public hearings were subsequently held in 2012. In Europe, the European Commission has recently proposed mandatory rotation for all European listed companies (European Commission, 2011).
Due to the fact that quarterly financial statements are not generally audited and have less detailed disclosures as compared to annual financial statements, managers may find it easier to manipu- late the quarterly numbers than annual numbers (Jeter and Shivakumar, 1999). Thus, fraudulent financial reporting often commences with quarterly misstatements (Yang and Krishnan, 2005). Yang and Krishnan (2005) investigated the effects of an AC on restraining quarterly earnings management. Earnings management was measured using discretionary accruals from Jones (1991) model and current accruals from the model adopted by Teoh, Welch and Wong (1998). AC characteristics were measured as its independence, number of meetings, financial expertise, stock ownership, directorships and tenure; 895 publicly firm-year observations were randomly collected from 1996 to 2000 in the US. They found that quarterly earnings management nega- tively related to ACMs’ average tenure and positively related to their stock ownership after con- trolling for the effects of leverage, size of firms and unexpected earnings scaled by stock price at the end of the year. These results imply that although it is easier for managers to manipulate quarterly earnings, long tenure did allow ACMs to become more capable of overseeing earnings management. However, this study was conducted at a time when the economy was stable, so it did not provide insights into the effectiveness of an AC in adverse economic shocks.
The earliest study conducted by Palmrose (1986) shows that the audit ﬁrm is charging higher fees for a better AQ. Meanwhile, another research has an extended view of the Palmrose (1986) study. It stated that in order not lose their proﬁtable client, auditor tries not to be harsh towards their client (Hoitash, Markelevich, & Barragato, 2007). As per the research by Huang, Chang, and Chiou (2015) demonstrates that greater audit fees in market concentration will be improved indirectly the AQ. In Malaysia very few credible research that gives the evidence on the role of audit fees in relation to AQ compared to research done by the overseas counterparts. In addition, Yatim, Kent, and Clarkson (2006) stress that the higher the auditquality required by the institutional investor, the higher the audit fee. With the rise of the agency problem, management needs for a higher qualityaudit to solve the discrepancy. Hence, it is hypothesized that:
necessarry to review the exact process that was used in varying time pressure to determine if the research was oriented toward examining time budget or time deadline pressure (Margheim et al., 2005). Auditors constantly have to trade off the time dedicated to auditing with the cost of performing it (Otley and Pierce, 1996). Pierce and Sweeney (2004) found that time pressure has increased in audit firms and is far higher than optimal on auditors performance. In general, time pressure has been shown to have a detrimental impact on individuals’ decision-making ability (Svenson and Edland, 1987). Research by Margheim et al. (2005) examined the impact of time budget pressure and time deadline pressure on auditor. The results indicated that both types of time pressure had negative effects on the occurance of the auditor quality. However, information system expertise will very helpful auditors to expedite the auditing (shorten the time of the auditing), which could ultimately result in a higher qualityaudit reports (Bierstaker et al., 2001). There is a scarce number of auditing research has assessed what interrelations the deadline pressure have on auditquality. When time deadline pressure incresed, audit effectiveness declined and their efficiency improved (McDaniel, 1990). Choo (1995) indicates that as deadline pressure increases to higher levels, performance declines because relevant cues are also ignored.
We study events surrounding ChuoAoyama’s failed audit of Kanebo, a large Japanese cosmetics company whose management engaged in a massive accounting fraud. ChuoAoyama was PwC’s Japanese affiliate and one of Japan’s largest audit firms. In May 2006, the Japanese Financial Services Agency (FSA) suspended ChuoAoyama for two months for its role in the Kanebo fraud. This unprecedented action followed a series of events that seriously damaged ChuoAoyama’s reputation. We use these events to provide evidence on the importance of auditors’ reputation for quality in a setting where litigation plays essentially no role. Around one quarter of ChuoAoyama’s clients defected from the firm after its suspension, consistent with the importance of reputation. Larger firms and those with greater growth options were more likely to leave, also consistent with the reputation argument.
This paper investigates the relationships between non-audit services, audit fee, audit hours and accounting quality. Previous studies have not provided consistent results for how simultaneous provision of audit and non-audit services by an independent auditor to a client company affects the auditquality. In addition, further studies have identified endogeneity in research method as the primary reason. Therefore, this study analyzed auditquality comprehensively using empirical analysis on data specific to Korea. This study employs research methods contrasting with existing studies in order to present a solution for the controversy related to the endogeneity from the effects of non-audit service provided by an independent auditor on auditquality. This study used audit compensation and abnormal accruals variables simultaneously, and audit time variable includes empirical data from Korean clients for comprehensive analysis. Study results found that the non-audit service significantly affects audit service quality before controlling for endogeneity. However, after controlling for endogeneity, even when the same independent auditor provides audit and non-audit services together, it did not affect the accounting quality.
We investigate whether auditors input additional audit hours according to the sizes of book-tax differences (hereinafter BTD) and request additional audit fees for additional audit hours. In addition, the interaction effects of corporate governance on the relationships between BTD and audit hours/audit fees are examined using the total corporate governance (TCG) scores, data from the Korea Corporate Governance Service (KCGS). We predict that since auditors have the incentive and ability to consider BTD, audit hours and audit fees will increase when BTD are larger. Empirical results of our study are as follows. First, BTD and audit hours (LnAH) show a negative (-) association that is not statistically significant. Second, audit fees (LnAF) were shown to increase along with BTD. This can be interpreted as a result of requests for additional audit fees for increased audit risks due to individual firms' BTD. Third, the interaction effect of corporate governance on the relationship between BTD and audit hours (LnAH) showed a positive (+) association, but the association was not statistically significant. Fourth, the interaction effect of corporate governance on the relationship between BTD and audit fees (LnAF) showed a statistically significant positive (+) association. This be understood as meaning that firms with better governance make more efforts for financial reporting in order to maintain their reliability in the market. This study contributes to the literature in several important aspects. First, it empirically demonstrates whether auditors properly reflect BTD on audit risks. Next, our study is analyzes the effects of corporate governance on the relationship between BTD and audit hours/audit fees using the total corporate governance (TCG) scores presented by the Korea Corporate Governance Service (KCGS). Finally, our findings empirically showed social proof function of accounting audits as a strategy to reduce information risks.
Accounting manipulation is a current problem, reported in many different contexts. Several auditquality studies indicate that there is a relationship between the quality of the audit and the manipulation of the results. These also show that accruals reduce when the auditor is independent or the audit company is large, and suggest that Big 4 Audit Firms present higher levels of auditquality, when compared with other companies. The aim of this paper is to examine if there is a relationship between the manipulation of results and the quality of the audit, based on the study of the behavior of discretionary accruals in Portuguese non-listed companies. Collected on the SABI (Iberian Balance sheet Analysis System) database, the sample is composed of 4723 companies from 2013 to 2015. The empirical model of this study consists of a multiple linear regression in order to explain the relationship between the discretionary accruals and the firm size, debt, volume business and profitability, based on the Modified Jones Model. The results suggest that there is a relationship between auditquality and earnings manipulation. The level of earnings management is significantly lower among companies contracting a Big 4 audit firm, as compared to companies using a non-Big 4 audit firm.
Because of the importance of completion rates in MOOCs, there is a considerable amount of literature that tries to understand the drivers of drop-outs and how to increase completion rates. In particular, many papers believe that the key to improve completion rates is social engagement among students in the discussion board (Kizilcec et al. 2013, Anderson et al. 2014, and Lamb et al. 2015). For instance, Anderson et al. (2014) design a new badge system in discussion boards to reward students’ participation by assigning them different badges, and show that this badging system increases students’ social engagement levels. Lamb et al. (2015) study several reminding methods and their impacts on discussion board participation rates of students. Kizilcec et al. (2013) carefully analyzes various types of students on MOOCs and conclude from observational data that “participation on the board creates a positive feedback loop for some learners, as they are provided with social and informational inputs that help them stay on their trajectory towards completion.” In this paper, instead of studying how to design a more engaging discussion board, we take a step back and ask the following questions: does social engagement in the discussion board causally increase learning outcomes in MOOCs? If so, which groups of students are affected the most? Do other forms of social engagement outside the MOOC platform benefit students? In order to precisely answer theses causality questions, we design and implement two field experiments to conduct our study. Therefore, this is one of the few papers that conducts large-scale field experiments in operations settings (Buell and Norton 2011).
The Taiwanese government responded to these instances seriously. In 2014, the Taiwan Stock Exchange Corporation (TSEC) and GreTai Securities Market (GTSM) require listed companies with capital more than NT$10 Billion, or firms in the food finance chemical industries are required to file CPA certified CSR report in GRI format. In total, 233 firms are required to file CSR report beginning in 2014 although 77 of them have voluntarily done so beforehand. However, the establishment of board committee responsible for social and environmental issues is still not mandated. In the practical realm, there is no agency formally rate corporate social related performance except for two magazines awarding 30-50 best corporate citizens in Taiwan. Overall, Corporate Social Responsibility is still on the budding phase. Taiwan is not yet quite mature in CSR accreditation system and leaves plenty of rooms for future development ahead.
In the high-beta subsample, even though the high-low flex hedge portfolio is significant, the hedge profit is driven by the poor performance of the low-flex firms rather than the high abnormal returns of the high-flex firms. This suggests that when systematic risk is high, it is extremely costly if the firm does not have a flexible workforce to respond to the changing environment. Importantly, this finding is consistent with the interpretation that investors underreact to information in the flex score: investors do not fully appreciate the value of employee flexibility and overvalue low-flex and high-beta firms at the portfolio formation time, and the market gradually corrects this misvaluation in subsequent periods, delivering lower returns for those firms. On the other hand, in the low-beta subsample, even the low-flex firms earn positive alphas, possibly because not having to ensure employee flexibility is cost-efficient for firms with little exposure to exogenous risk. The Fama-MacBeth regressions shown in Table 2.5 control for firm characteristics and show that high-flex firms actually underperform unless they have a high beta.
Second, although extensive literature is available about audit and price differences between Big 4 and non-Big 4 auditors for listed companies (Becker et al.1998; Kim et al. 2003; Choi et al. 2010), significantly less research has been carried out on privately owned unlisted companies (Maijoor and Vanstraelen 2006; Van Tendeloo and Vanstraelen 2008). In general, empirical evidencefrom European private firms provides rather weak support for superior quality among Big 4 audit firms. The available literature has almost solely focused on the Big 4/non-Big 4 dichotomy. However, there are some non-Big 4 audit firms that also belong to international networks. From the existing research on private firms it is not clear whether those auditors provide the same quality as Big 4 auditors. We therefore complement the existing literature on quality differentiation at firm level by specifically studying the quality and pricing of the fifth and sixth largest audit firms in Sweden, namely Grant Thornton and BDO. In this study, we use ‘Top 6 auditors’ when collectively referring to the Big 4 audit firms and Grant Thornton and BDO as one category of auditors.
Auditing is an attest function that authenticates the credibility of financial statements. Without audit certification, financial statements could be misleading by failing to present a true and fair view of the financial position of an organization. Auditing involves systematically and objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users (Messier, Glover and Prawitt). Financial Statement audit is performed by Certified Public Accountants (CPAs) who are independent of the company being audited. From Agency perspective, an auditor acting on behalf of the principal (shareholders) will check whether or not the agents (managers) have acted in the interest of the principal . An auditor has to ascertain that the financial information submitted by agents reflect the true financial performance of the company in an effort to protect the principal from information risk. Minimizing information asymmetry between the agents and the principal is a crucial role for the auditor . Information risk is reduced if accountants prepare financial statements in accordance with Generally Accepted Accounting Principles (GAAP). The auditors are expected to perform the audit in accordance with the Generally Accepted Auditing Standards (GAAS). To benefit consumers of audit reports, auditquality must be emphasized. Wang et al.  measure auditquality by audit failure rate. Most archival research including Choi et al.  measure auditquality by unsigned abnormal accruals. Francis and Moches  define a low qualityaudit as the presence of one or more clients with overstated earnings that were subsequently corrected by a downward restatement.
Although the results of this study provide some valuable insights, some of its caveats need to be addressed. First and foremost, the accuracy of the discretionary accrual models have been highly debated (e.g. Dechow et al., 1995; Subramanyan, 1996 and Kothari et al., 2005). Dechow et al. (1995) mention the requirement of the Modified Jones model to use cross-sectional time-series data. Due to limited availability this requirement could not entirely be fulfilled. Therefore, the betas used have been estimated based on the available data. Moreover, proxying earnings management by discretionary accruals remains an estimation and despite the accuracy and reliability of the models being scientifically proven, results should always be treated with caution. In addition, it is possible that managers apply other earnings management techniques outside of the measurement range of the discretionary accruals. For example, managers could engage in classification shifting or expectations management rather than accrual-based earnings management (Doukakis, 2014). Graham et al. (2005) provides evidence that suggests that managers are much more willing to engage in real earnings management than accrual-based earnings management. This study has solely focused on the detection of accrual based earnings management and therefore may not be fully representative.
The surprising confirmation of the productivity paradox in US banking provides the major motivation for this study which aims to investigate the relationship between performance and IT investments in the banking industry in the period between 1995 and 2000. This responds to the direction for future research as suggested by Dedrick et al. (2003). Furthermore, although the productivity paradox also appears to be an international phenomenon, virtually all of the considerable debate on the subject has been restricted to the US economy. As far as we are aware there are no studies on IT investment and its impact on bank performance in Europe. This is due in part to the difficulties of modelling successfully the peculiar nature of bank’s production processes (mainly in terms of the identification of variables that accurately represent the activities of firms), and also in part to the lack of good quality data on bank IT spending. Our aim is to extend the scope of the established literature by examining the experience of EU banking industries and IT investment during the 1990’s to see if such spending has had an influence on bank performance and efficiency.
The main purpose of this study is to analyze International Financial Reporting Standard (IFRS) adoption and quality of financial reporting by commercial banks in Ethiopia using qualitative characteristics of accounting information such as: Relevance, Understandability, Comparability, and Faith Representation. The study used the perceptions of preparers of banks financial reports (accounting & finance officer, finance managers as well as IFRS implementation team members) to analyze about IFRS adoption in commercial banks. The study adopted mixed research approach and descriptive research design. More specifically, the study used purposive sampling technique to collect a data; the data was collected through primary and secondary source of data. The primary data was collected through questionnaire and secondary data was from different source of documents. The data was analyzed using descriptive statistics. The finding of the study reveals that; the quality of financial report which is measured through (relevance, understandability, comparability and faith representation) was improved after adoption of international financial reporting standards.