Affiliation of Indonesian audit firms with Big4 and second‐tier audit firms and the cost of debt

Kurniawati, Heny; Cauwenberge, Philippe Van; Bauwhede, Heidi Vander

doi:10.1111/ijau.12167

Cited by 6 publications

(7 citation statements)

References 72 publications

(164 reference statements)

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“…Previous external audit research (e.g., DeAngelo, 1981; Prawitt, Sharp, & Wood, 2012) recognizes that the type of auditor plays a significant role in the quality of audit and considers the big N firms as high‐quality auditors who can constrain earnings manipulation. Recent research (e.g., Boone, Khurana, & Raman, 2010; Cassell, Giroux, Myers, & Omer, 2013; Kurniawati, Van Cauwenberge, & Vander Bauwhede, 2019) also differentiates between nonbig4 firms and describes second‐tier audit firms such as Grant and BDO as high‐quality providers who are able to curb irregular accounting practices. In the context of IAF, Prawitt, Sharp, and Wood (2012) find that big N audit firms who perform both external audit and IAF are less likely to be associated with the risk of fraudulent financial statements.…”

Section: Additional Analysismentioning

confidence: 99%

Outsourced internal audit function and real earnings management: The role of industry and firm expertise of external providers

2021

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As the outsourced internal audit function (IAF) and real earnings management are attracting widespread attention among firms, it is vital for stakeholders to understand how these two practices affect the quality of financial reporting. This study examines how the expertise of an external IAF provider reduces real earnings management. Using a pooled panel data regression of 928 firm‐observations, we find that the external IAF provider's firm‐specific expertise is significantly associated with lower real earnings management. Conversely, we report no such association for external IAF providers with industry expertise. These findings are robust under a battery of sensitive analyses. The results of additional analyses show that the industry and firm‐specific expertise of external IAF provider interact with each other, resulting in a significant reduction in real earnings management. We also find significant differences in the IAF quality between big4 and second‐tier audit firms in which the latter are associated with lower real earnings management and the former with higher real earnings management. Finally, we observe low real earnings management for important clients and/or those with influential CEOs if the external IAF provider has firm‐specific expertise.

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Section: Additional Analysismentioning

confidence: 99%

Outsourced internal audit function and real earnings management: The role of industry and firm expertise of external providers

2021

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“…Kedua, penelitian ini hanya membandingkan KAP kelompok 4 besar dengan kelompok di luar 4 besar. Perkembangan riset bidang auditing menunjukkan bahwa terdapat kebangkitan KAP kelompok menengah dalam meningkatkan pangsa pasar (Kurniawati, Van Cauwenberge & Vander Bauwhede, 2019;Leung, Liu & Wong, 2019). Temuan ini secara implisit menyarankan bahwa hubungan antara ukuran KAP dan manajemen laba sebaiknya mempertimbangkan dekomposisi ukuran KAP menjadi kelompok 4 besar, menengah, dan kecil.…”

Section: Keterbatasan Dan Saranunclassified

Kualitas Audit dan Manajemen Laba Berbasis Operasional

Prabowo

Hananto

Budiwati³

et al. 2020

JAB

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This paper investigates the effect of audit quality on real earnings management. Audit quality refers to the size of the audit office. Conceptual framework borrows from agency theory positing that earnings management reflects managerial opportunistic behavior to influence the contractual outcome imposed by stakeholders. The size of the auditors' office represents available resources within the firm that eventually enables the auditor to maintain independence and to invests in auditing techno logy that results in higher technical competence. The hypothesis predicts that auditor size negatively affects real earnings management. The sample consists of firms engaging in manufacturing operations listed in Bursa Efek Indonesia, which meet specific requirements. In contrast with a hypothesis, the analysis reveals that auditor size is positively related to real earnings management. the results hold after controlling for self-selection bias. The paper conjectures that deep-pocket insurance might dominate audit quality in that relationship. Several caveats are in place that require due care in interpreting the results.

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“…The traditional classification of big audit firms versus non-big audit firms is not valid to describe the audit market in Egypt precisely. Also, previous research suggests that other audit firm categories may provide higher audit quality (El-Dyasty and Elamer, 2020;Kurniawati et al, 2019). For instance, El-Dyasty and Elamer (2020) suggest that Egyptian audit firms affiliated with foreign audit firms such as Tier 2 and tier 3 auditors are delivering higher audit quality.…”

Section: Introductionmentioning

confidence: 99%

The effect of ownership structure and board characteristics on auditor choice: evidence from Egypt

El-Dyasty

Elamer

2021

Int J Discl Gov

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In this study, we explore the influence of board characteristics and ownership structure on auditor choice decisions in less strictly legal environments, like Egypt. Using a large sample of 899 firmyear observations for the period of 2011 to 2019, we employed logistic and probit regressions. We find that larger boards, institutional ownership, and foreign ownership have a significant and positive association with appointing Big 4 auditors. In contrast, our findings indicate that CEO duality and family ownership are negatively related to Big 4 choice. Our results also show that powerful CEOs (duality) and independent directors are more likely to hire second-tier auditors instead of Big 4, whereas larger board and foreign owners are less likely to hire third-tier auditors.Our results remain robust even after taking audit committee characteristics and endogeneities issues into consideration. Taken together, our research, therefore, provides consistent evidence that different governance and institutional variables can effectively generate economic forces that can support diverging decisions regarding the auditor choice patterns to attenuate agency problems. Our results have important implications for regulators, policymakers, and auditors to understand the drivers of auditor choice and audit market structure.

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Affiliation of Indonesian audit firms with Big4 and second‐tier audit firms and the cost of debt

Cited by 6 publications

References 72 publications

Outsourced internal audit function and real earnings management: The role of industry and firm expertise of external providers

Outsourced internal audit function and real earnings management: The role of industry and firm expertise of external providers

Kualitas Audit dan Manajemen Laba Berbasis Operasional

The effect of ownership structure and board characteristics on auditor choice: evidence from Egypt

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