Do Big-Four affilitates earn audit fee premiums in emerging markets?

The paper investigates whether Big-Four affiliated (B4A) firms earn audit premiums in an emerging economy context, using Bangladesh as a case. The joint determination of audit and non-audit service fees is also examined using a sample of 122 companies listed in the Dhaka Stock Exchange. Our findings reveal that although the B4A firms do not generally earn a fee premiumin Bangladesh, they charge higher audit fees for clients not purchasing non-audit services. This suggests that the B4A firms may actually lower audit fees to attract non-audit services, and cross subsidizes audit fees through non-audit-services fees. The lack of a B4A premium implies that there is lack of quality audit in emerging markets. We also document that audit and non-audit service fees are jointly determined in Bangladesh. Thus, we provide evidence of joint determination of audit and non-audit service fees in an emerging economy context.

Meta-regulation approach to raise social accountability In global supply firms

This Article proposes a meta-regulation approach to address the gap between the objectives, commitment, practice and outcome in the accountability practice of the global supply chain in the developing countries. The literatures on the accountability practice in the global supply chains typically focuses on the strategies for raising corporate social accountability standards in multinational buying firms and seldom focuses on this strategies in the outsourced firms in the developing countries. This article tries to fill this void by examining the situation in Bangladesh, the third largest RMG supply country in the world. It conceptualizes a meta-regulation approach with the aim of raising social accountability practice in this industry. It shows that this regulation approach is suitable to effectively raise this practice standard in a perspective where the non-legal drivers are meagrely low, global buying firms are highly profit driven and the governmental agencies are either inadequate or highly corrupt.

Fair values and audit fees: Evidence from asset revaluations in Australia

This paper examines the association between the level of audit fees paid and asset revaluations, one use of fair value accounting. This Australian study also investigates attributes of asset revaluations and the association with the level of audit fees paid. We find that firms choosing the revaluation model incur higher audit fees than those that chose the cost model; asset revaluations made by directors lead to the firm incurring higher audit fees than for those made by external independent appraisers; and revaluation of investment properties leads to lower audit fees. The findings suggest that asset revaluations can result in higher agency costs and audit fees vary with the reliability of the revaluations and the class of assets being revalued.

The intra-industry effects of going concern withdrawn audit reports

Dissertação de mestrado, Finanças Empresariais, Faculdade de Economia, Universidade do Algarve, 2014

The marketing audit and business performance: an empirical study of large Australian companies

The conceptual framework of the marketing audit has been well developed by different contributors since the late 1950s. At the present time, the popular marketing textbooks and the published academic and general literature deal primarily with the theoretical and practical aspects of the marketing audit without offering any rigorous empirical justification of the practice. The teaching of the marketing audit appears to be based on the logical expectation of its usefulness, isolated case studies, and anecdotal evidence. There is little indication of how the marketing audit is actually being used, the procedure in conducting it, and how the industry perceives and evaluates its benefits. This paper attempts to explore and profile the current practice of the marketing audit in larger Australian firms. The results of this industry-based survey of 216 large Australian businesses indicated that about 48 per cent of the respondents have used the marketing audit, with 75 per cent using the self-audit method in conducting it. The respondents’ perception was that the implementation of the recommendations of the marketing audit had contributed mostly between one per cent and 10 per cent to their organisational performance.

Risk management and ethical environment : effects on internal audit and accounting control procedures

This study examines the impact of the scope of risk management and ethical environment on internal audit activities and the quality of accounting control procedures (ACPQ). The conceptual framework for the study is guided by COSO’s frameworks on internal controls and enterprise risk management and data from a questionnaire survey of 64 Australian firms are analysed using a structural equation model. The results of the study support that (1) internal audit activities have a significant intervening effect on the relationship between the scope of risk management and ACPQ, and (2) a direct and positive relationship exists between ethical environment and ACPQ. Our findings suggest that widening the scope of risk management activities do not directly improve ACPQ, but that it leads to more extensive internal audit activities and in turn such activities promote better ACPQ. Further, the results indicate that fostering a more ethical environment directly leads to higher ACPQ. These results have implications for the design of internal controls, namely with respect to the role of internal audit activities and ethical environment in enhancing ACPQ.

Internal auditors' assessment of their contribution to financial statement audits : the relation with audit committee and internal audit function characteristics

This paper examines the relation between audit committee characteristics, internal audit function characteristics and internal auditors' assessment of their contribution to financial statement audits. Using survey data from chief internal auditors of 76 Malaysian publicly-listed firms, we provide evidence of a positive relationship between internal auditors' assessment of their contribution to financial statement audits and three audit committee characteristics: the proportion of independent audit committee members, their knowledge and experience of accounting and auditing, and the extent of audit committee review of internal audit programmes, budget and coordination proposals. Further, a positive relationship is found between internal auditors' evaluation of their contribution to the financial statement audit and internal audit function characteristics including size, prior experience of staff in auditing, time availability and the closeness of the function's relationship with the external auditor. The results indicate that more effective audit committees and well-resourced internal audit units tend to be positively associated with the internal auditors' assessment of their contribution to the external audit.

The association between corporate governance attributes and audit fees in Malaysia : ethnicity implications

This study extends the literature on audit pricing by examining the relationship between audit fees and corporate governance factors, namely audit committee and CEO characteristics of 605 public-listed companies in Malaysia. The study specifically investigates the association between audit fees and the ethnicity attributes of the CEO (bumiputra or not) and audit committee members (i.e. proportion of bumiputra membership), as well as audit committee characteristics pertaining to the proportion of independent members, financial expertise and diligence. The findings indicate audit committee independence is significantly and positively associated with audit fees, while financial expertise has a negative association with audit fees. We however do not find any relationship between audit fees and audit committee diligence as measured by meeting frequency. In addition, the data also reveals that firms with bumiputra CEOs and bumiputra dominated audit committees hold significant and positive relationships with audit fees.

Audit committee characteristics, internal auditors' contribution to financial statement audits and audit fees : Malaysian evidence

This paper provides empirical evidence on the impact of audit committee characteristics on the extent of internal auditor’s contribution to financial statement audits in an emerging economy. Using a cross-sectional regression model, based on Felix, Gramling and Maletta’s (2001) study, it provides evidence of a positive relationship between internal auditor contribution to financial statement audits and three dimensions of audit committee characteristics: the proportion of independent audit committee members; the extent of audit committee members’ knowledge and experience in auditing, accounting, and finance; and the extent of audit committee review of IA proposal related to program, budget and coordination. A second model examines a relationship between internal audit contribution to financial statement audits and audit fees. However, the results did not yield a significant relationship between the two variables. These results are based on a unique data set comprised of publicly available data matched with survey data from chief internal auditors or financial controllers of 90 firms listed on the Kuala Lumpur Stock Exchange (KLSE).

Internal audit attributes and external audit's reliance on internal audit : implications for audit fees

This study aims to examine two aspects of internal audit quality, namely internal audit competency and internal audit contribution to financial statement audits. Consistent with the substitution view, this study predicts a negative relationship between the competency aspects of internal audit (the tenure of the existence of internal audit in the organization, internal audit staff expertise in IT and computer skills, training hours, internal audit staff professional certifications in accounting and auditing, and internal audit staff experience in auditing) and audit fees. Second, this study tests whether the contribution of internal auditors to financial statement audit reduces audit fees. The data analysis is based on a cross-sectional regression model with observations of 73 public-listed firms in Malaysia, which include publicly available data matched with survey responses from their internal and external auditors. The results of the study suggest that the competency of internal audit, namely the tenure of the existence of internal audit in the organization, training, internal audit staff prior experience in auditing and accounting, and certifications are associated with lower audit fees. Our findings for both aspects of internal audit quality (competency and internal audit contribution) lend support to the substitution view for explaining the links between internal audit quality and audit fees.

Factors affecting capital program performance audit findings

Complex capital programs require specialized management techniques, in order to address the volatility, cost overruns, significant delays in completion, and failures with which such programs are typically associated. The need is greater than ever for careful oversight, especially for programs that expend public monies.

Audit is commonly a statutory or governance requirement on such programs, but traditional performance audit techniques and standards may be insufficient for certain types of programs and industries, providing a mere illusion of oversight adequacy instead of the assurance that is needed. In order to most appropriately define the performance audit scope, phrase the solicitation for services, select the audit team, and provide support to the auditors during the engagement, public and private sector entity auditees need to understand the factors that impact performance audit results and effectiveness. The question becomes one of how performance audit can be improved, and stakeholders satisfied regarding program achievements, accountability for resource use, transparency in operations, and risk management.

The author considered program complexity, governance, project controls, the history and evolution of the audit function, stakeholder expectations, assurance, and obstacles to audit, and used this information in conjunction with data from a large sample of 775 audit reports from complex construction programs, to derive questions and conclusions about performance audit results and effectiveness, and comparisons to expenditure audit results. The ultimate goal was to define key components in the execution of performance audits, based on theconclusions of the analysis, in order to improve performance audit findings and thus their applicability and usefulness.

While this study focused on program performance audit, it was also related to the field of program management. Although the data population was concentrated in the area of construction programs, conclusions from this research may also be applied to other complex, multifaceted or phased activities such as projects and programs in other industries (manufacturing, information technology), and also pursuits such as major event planning, company launch, mergers, and large program implementations or rollouts.

The research results clearly demonstrated that different types of findings were generated by different audit scopes. The author observed that typical audit findings focused on routine procedural, accounting, and controls errors. On average, contract expenditure audits questioned only 2.65% of expenditures, and performance audits of large complex programs questioned only 0.03% of expenditures. The majority (72.56%) of the performance audits in the sample yielded no findings or questioned costs.

There were significant positive correlations between: the number of expenditures tested and the number of qualitative findings, inclusion of construction experts on the audit team and the percentage of expenditures questioned, inclusion of construction experts on the audit team and the number of qualitative findings, broader audit scope and the percentage of expenditures questioned, and broader audit scope and the number of qualitative findings. Of these, auditor expertise and audit scope were the driving factors.

There were significant negative correlations between the application of agreed-upon procedures and the percentage of expenditures questioned, and the application of agreed upon-procedures and the number of qualitative findings. It was determined that the significant negative correlation between the application of audit standards and the number of qualitative findings was due to other factors, such as the application of agreed-upon procedures and the lack of construction experts on the audit team.

Other findings, resulting from review of the data, were unrelated to the research questions yet of considerable importance to industry. An extremely high percentage (81%) of the “performance audits” instead applied a very limited set of agreed-upon-procedures (AUP) in the engagement, According to the American Institute of Certified Public Accountants (CPAs), AUP engagements could not be classified as audits. Thus, it was inappropriate for the accounting firms to apply AUP engagements in lieu of a performance audit, and it was especially egregious for them to state in their report that the engagements were conducted in accordance with audit standards, as AUP engagements and the specific audit standards were by their very nature mutually exclusive.

Institutional Ownership, Audit Committee and Risk Disclosure – Evidence from Australian Stock Market

This study investigates the influence of institutional ownership and audit committees corporate risk disclosures. Focusing on analysing firms’ risk disclosures make in their 2009 annual reports, our sample constitutes a sample of 66 Australian listed firms. We divide institutional shareholders into dedicated-type institutional block shareholders and transient-type institutional block shareholders. We find that while there is no significant relationship between dedicated-type institutional block shareholders and risk disclosure, there is a positive relationship between transient-type institutional block shareholders and risk disclosures. Our result is consistent with a principal that wields limited monitoring resources while achieving high resource dependency over management. We also find a significant and positive relationship between audit committee independence and risk disclosures, showing the positive role played by audit committee in improving the information transparency and reducing information asymmetry in capital market.

Audit fees, auditor choice and stakeholder influence: Evidence from a family-firm dominated economy

Despite the dominance of family-owned publicly listed companies in developing economies, prior research has paid relatively little attention to this area and the socio-economic context of these countries has been mostly ignored. This study contributes to the accounting literature by providing empirical evidence of the effects of family control and ownership on audit pricing and auditor choice in a developing economy context. Using 1058 firm-year observations of publicly listed companies in Bangladesh, where family firms are the most dominant form of public companies, we find that in comparison with non-family firms, our sample family firms pay significantly lower audit fees and choose lower quality auditors. However, for export-oriented industries, family firms seem to pay significantly higher audit fees and recruit better quality auditors compared to non-family firms. Collectively, our findings have important implications for audit markets in emerging economies in which the sustainability of family firms is crucial for overall economic development.