In this study, we examine the association between industry homogeneity and auditor specialization. We find a significant association between our proxies for industry homogeneity (change in industry-member operating expenses) and auditor specialization (auditor concentration and auditor focus) after controlling for extent of industry regulation, litigiousness, growth, client-industry concentration, and the number of industry members. The positive relation between our specialist proxies and industry homogeneity indicates that auditors seek additional firms to audit in industries in which members have similar operations. This suggests that auditor specialization provides a cost-based competitive advantage because the cost of developing expertise is spread over more clients. Thus, in contrast to recent criticisms of auditor concentration, specialization results in more efficient audits.
SUMMARY This study examines the relationship between a client industry's homogeneity and audit fees. We assume that audit efficiencies occur in audits in industries whose members have similar operations and, therefore, are where auditors benefit from the use of similar audit procedures and experience lower average audit costs. To identify industries with similar operations, we use operational expense homogeneity, which is based on the correlations between the changes in operating expenses among industry members. Adapting a standard fee model (Hay, Knechel, and Wong 2006), we find that homogeneity is negatively associated with audit fees. Further, we find that specialist auditors charge lower fees in homogenous industries. Finally, we observe a lower standard deviation of fees in more homogenous industries. Together, these results suggest that auditors sustain lower costs in audits of homogenous clients and that the similarly lower costs incurred across auditors are passed on to clients in the form of lower fees. Data Availability: Data used in this paper are available from the sources listed in the paper.
RFID TECHNOLOGYRFID technology implants a small microchip and antenna in or on an item, carton, or pallet. An RFID tag (chip and antenna), which is programmed with an identifying code and possibly other information, is scanned by a reader using radio frequency waves. The quantity of data stored on the tag depends on the vendor and the application. Typically, a tag stores no more than 2 KB of data. The reader, which can cost $1,000 or more, sends out electromagnetic waves that form a magnetic field when they meet an antenna on the RFID tag. Readers, which can be stationary, mobile, or handheld, scan the tags, convert the radio waves to digital format, and transmit the data to a computer, where it is automatically captured and stored in a database. The database can then process the RFID tag data.Key factors that determine what type of RFID tag is used for a particular application include:1. Whether the tag is active or passive; 2. Whether the tag is read-only or readwrite; 3. The quantity of data stored on the tag; 4. What level of radio frequency is used; and 5. The size of the antennae on the chips and readers.These factors affect the range from which a tag can be read, the type of object tagged, and the cost of the tag. Active vs. Passive TagsThree types of RFID tags exist. Active tags include a battery allowing the tags' antennae to transmit signals to a reader. Active tags currently sell for anywhere between $1 and $50 each; those with a sensor sell for about $100 each. These tags can be read at distances greater than 100 feet and, because of the increased power, work well with metals and liquids. Active tags with sensors can be used for process monitoring by transmitRadio frequency identification (RFID) is an emerging technology that companies can use in many ways. It can increase a company's efficiency and provide benefits to both companies and consumers. But like any new technology, it also presents new risks. And because RFID monitors the movement of inventory and equipment, it may affect your compliance with the Sarbanes-Oxley Act.
Purpose This study aims to examine the association between audit report lag (ARL), the length of time between the fiscal year end and the date the auditors’ report is signed, and client industry homogeneity, a measure of the similarity of operations of members of an industry. Design/methodology/approach Regression models are used to test the significance of industry homogeneity on the ARL, of specialists in homogenous industries on the ARL, and the completion of the audits of homogenous industry clients in the year of tightening Securities and Exchange Commission (SEC) filing deadlines. Findings The evidence suggests that auditors complete audits of clients more quickly in more homogenous industries. The association between ARL and homogeneity is negative, which indicates that auditors are more efficient in audits in homogenous industries. The association between ARL and specialist audits in homogenous industries is also negative. Finally, homogenous industry audits are better able to be completed by the compressed filing dates imposed by the SEC on accelerated and large accelerated filers in 2003 and 2006. Originality/value This study extends recent research on industry homogeneity’s influence on the audit market. By reporting an association between the homogeneity of a company’s industry and the ARL, investors and regulators have additional information to better evaluate the timing and monitor trends in the timing of the audit report dates.
This paper examines the role the options market plays in the dissemination of private information. We find abnormal volume in the options market for three days prior to management forecasts, controlling for concurrent equity volume. Classifying trades as long or short, we find more informed options volume relative to equity volume (1) with relatively greater options market liquidity; (2) when equity is listed on the NYSE or AMEX; (3) for larger surprises; (4) with fewer analysts; (5) for shorter times between the forecast and period end; (6) for good news forecasts; and (7) for smaller percentage institutional holdings. Copyright Blackwell Publishing Ltd, 2004.
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