Auditing Assurance 14e ppt ch08

Research in Accounting Regulation, 2012

The Public Company Accounting Oversight Board (PCAOB) has conducted well over 1000 inspections of public accounting firms since 2004, the year their inspections began. The PCAOB inspections are mandated by the Sarbanes-Oxley Act of 2002, and are designed to promote high professional audit standards and improve the audit quality of registered public accounting firms (U.S. House, 2002). Since then, a growing body of research has emerged focusing on the process, results, and decision implications of the inspections. Most of the research to date has focused on determining the impact of the inspection regimen from the perspective of regulators, clients, or markets, but there has been very little research focused on the effect of inspections on the accounting firms themselves.

Executives are ‘affiliated’ if they previously worked for their companies’ audit firms. I find most affiliations (71.3%) occur when auditors become employees of audit clients (‘employment affiliations’), but affiliations also arise when companies hire executives’ former CPA firms (‘alma mater affiliations’). Affiliated companies are significantly more likely than unaffiliated companies to receive clean audit opinions—this finding holds for both employment and alma mater affiliations. Executive turnover is significantly lower for affiliated executives than for unaffiliated executives following the issuance of clean audit opinions—this suggests companies perceive affiliations are more valuable after they receive clean audit opinions.

Managerial Auditing Journal, 1990

Journal of Applied Business Research (JABR), 2011

The years 2001-02 were marked with an outburst of huge corporate financial failures that eroded billions of dollars from the stockholders' equity and shook the confidence of the investor community. One of the issues that rose to the surface was the payment of huge nonaudit service fees by publicly traded companies to their auditors. In response to the outcry against the alleged role of the auditors in the corporate scandals, Congress passed Sarbanes-Oxley Act of 2002 (SOX), which imposed a prohibition on the supply of certain nonaudit services by a CPA firm to its audit clients in order to reduce the suspected revenue-dependence of auditors on their audit clients. The study described in this paper examines the pattern of auditor compensation in the years 2001 and 2004 (i.e., pre-and post-SOX periods), for a sample of large public companies, to determine how the auditor compensation has changed during this three-year period and whether the new regulations have decreased such revenue-dependence of the auditor. The study also examines if each of the Big 4 CPA firms that dominate the audit market for large public companies have experienced a change in the pattern of their revenues drawn from different sources of auditor compensation. The results show that not only the composition of auditor compensation has changed after the passage of SOX but also the overall compensation paid by the sampled companies to their auditors has gone up noticeably in many cases, primarily due to a phenomenal rise in audit fees, which still may continue to threaten the auditor's independence in the audit process. Further, during this three-year period, each of the Big 4 CPA firms has shifted its emphasis on the different sources of its revenues from these large public companies.

1997

To ensure compliance with U.S. Treasury rules, unless expressly stat ed otherwise, any U.S. tax advice contained in this publication (including examples, exhibits, and illustrations) is not intended or written to be used as, and shall not be considered, a "covered opin ion" or other written tax advice, and should not be relied upon for the purpose of avoiding tax-related penalties under the Internal Revenue Code; promoting, marketing, or recommending to another party any transaction or tax-related matter(s), IRS audit, tax dispute or other purposes.

Managerial Auditing Journal, 2006

... His contention is that financial statement auditors should be truly independent forensic accountants. ... Giles, JP, Venuti, DK, Jones, RC (2004), "The PCAOB and convergence of the global auditing and accounting profession", The CPA Journal, Vol. 74 No.9, pp.36-9. ...

Auditing-a Journal of Practice & Theory, 2006

A significant body of prior research has shown that audits by the Big 5 (now Big 4) public accounting firms are quality differentiated relative to non Big 5 audits. This result can be derived analytically by assuming that Big 5 and non-Big 5 firms face different loss functions for 'audit failures', and is consistent with a variety of empirical evidence, such as from studies of audit fees, auditor changes, and the stock price reaction to audited earnings. However, there is no existing evidence (of which we are aware) concerning the underlying production differences between Big 5 and non-Big 5 audits. As a result, existing empirical evidence cannot distinguish between the possibility that Big 5 audits are simply perceived to be different (e.g. by investors) or actually differ in how they are produced.

Abacus, 1987

BENZION BARLEV and YORAM C. PELES Accounting: The Structure of a Growing Profession Complete membership records of the Institute of Certified Public Accountants in Israel are analysed to determine the level of concentration and growth of the accounting profession. This study differs from previous studies in that it concentrates on the supply side of the market. Previously, because of the unique characteristics of auditing services, they were assumed to have no substitute. An analysis of firm switching by CPAs in Israel indicates the existence of substitutes in production. Low levels of overall concentration were found, although large ciients are generally audited by large public accounting firms. The profession appears to be competitive as entry is quite easy and switching between firms by CPAs is common.