Audit fees, perceived audit risk, and the financial crisis of 2008

Chen, Hanmei; Hua, Shaowen; Liu, Zenghui; Zhang, Mei

doi:10.1108/ara-01-2017-0007

Cited by 48 publications

(56 citation statements)

References 26 publications

(53 reference statements)

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“…The changing economic conditions are challenging for audit companies and their clients as these changes will affect the company’s liquidity, risk and performance, which will ultimately affect audit fees (Chen et al , 2019). More specifically, there is a higher risk that the company may violate the conditions stipulated in the debt contract, and some companies, therefore, may go bankrupt.…”

Section: Covid-19 and Audit Feesmentioning

confidence: 99%

“…More specifically, there is a higher risk that the company may violate the conditions stipulated in the debt contract, and some companies, therefore, may go bankrupt. Higher risk levels and growing concerns of creditors will force auditors to adopt broader audit procedures and invest more in audit work when evaluating firms’ going concern assumptions (Ghosh and Pawlewicz, 2009; Noh et al , 2017; Zhang and Huang, 2013; Chen et al , 2019). During this pandemic, the growing demand for assurance and the increased risk of auditor litigation would increase the auditor’s effort and working hours (Karim and Zijl, 2013; Yuen et al , 2013).…”

Section: Covid-19 and Audit Feesmentioning

confidence: 99%

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Auditing in times of social distancing: the effect of COVID-19 on auditing quality

Albitar

Gerged

Kikhia³

et al. 2020

IJAIM

168

146

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Purpose This paper aims to discuss the theoretical impact of COVID-19 social distancing outbreak on audit quality. Design/methodology/approach This paper uses a desk study method to explore the possible impact of COVID-19 crisis on five key considerations for audit quality during the pandemic. These include audit fees, going concern assessment, auditor human capital, audit procedures and audit personnel salaries. Findings As many believe that the COVID-19 outbreak is as yet not a financial crisis, the authors, on the contrary, believe that the effects of the COVID-19 pandemic would be the toughest challenge for auditors and their clients since the 2007–2008 global financial crisis. Specifically, the authors believe that the COVID-19 social distancing can largely affect audit fees, going concern assessment, audit human capital, audit procedures, audit personnel salaries and audit effort, which ultimately can pose a severe impact on audit quality. Practical implications Due to the implementations of work-from-home strategy, audit firms are highly recommended to invest more in digital programs, including artificial intelligence, blockchain, network security and data function development. This can help them to be more adaptable to working from home experience, which is ultimately expected to enhance the effectiveness and the flexibility of communication between auditors and their clients. Also, the authors recommend stock markets and other governmental bodies to provide temporary relaxations in compliance requirements to corporations. This procedure is expected to help firms that apply work-from-home strategy to report better earnings figures, which is appeared to be positively associated with audit quality. Originality/value To date, to the best of the authors’ knowledge, there is no academic study that explores the potential impact of the COVID-19 outbreak on audit quality. This paper, therefore, fills an important research gap in the auditing literature. In addition, this paper can be used as a base to construct a research instrument (e.g. questionnaire or interviews) to provide empirical evidence on the potential impact of COVID-19 on audit quality.

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Section: Covid-19 and Audit Feesmentioning

confidence: 99%

Section: Covid-19 and Audit Feesmentioning

confidence: 99%

Auditing in times of social distancing: the effect of COVID-19 on auditing quality

Albitar

Gerged

Kikhia³

et al. 2020

IJAIM

168

146

View full text Add to dashboard Cite

show abstract

“…On the other hand, audit clients were coping with financial difficulties, and were likely to ask auditors to cut their fees. In most settings, audit fees increased – in Australia (Xu et al , 2013); China (Zhang and Huang, 2013); Sweden (Alexeyeva and Svanström, 2015) and the USA (Chen et al , 2019), for example. On the other hand, there were some settings where fees where lower such as Slovenia (Groff et al , 2017) and some US banks (Krishnan and Zhang, 2014).…”

Section: What To Expect In Auditing Crisismentioning

confidence: 99%

Auditing in the time of COVID – the impact of COVID-19 on auditing in New Zealand and subsequent reforms

Hay

Shires²,

Dyk

2021

PAR

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Purpose This special issue paper aims to describe the early effects of COVID-19 on auditing in New Zealand, and the subsequent reforms that the authors expect will follow. Design/methodology/approach The authors use published sources to discuss the impact of COVID-19 on auditing, and potential reforms. Findings COVID-19 was at first expected to have a substantial impact on audit outcomes such as audit opinions. The effects that eventuated have been much less substantial so far. Nevertheless, the authors expect reforms to auditing to take place, especially including non-audit services, reports on inspections of auditors and more reporting on going concern issues by directors, followed by increased responsibility for auditors. In future, there may be further changes including reform to the liability of auditors, reporting on internal control, more responsibility for fraud and changes to corporate governance. Research limitations/implications Limitations include the ongoing nature of the COVID-19 crisis. Further effects may yet eventuate. Practical implications Financial report users and auditors should anticipate changes. Originality/value This paper provides early evidence of the impact of COVID-19 on New Zealand auditing and predicts changes to the regulation of auditing.

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“…The researchers suggested that during the GFC, the risk associated with the probability of issuing an incorrect audit opinion is high due to the higher legal risks and reputation loss especially because of the increased regulatory pressure experienced during the credit crisis period. According to Chen et al (2019), prior studies on the audit risk model were carefully reviewed by scholars who confirmed there is a significant association between the primary factors of this model: inherent, control and detection risk. Based on Cahan and Sun (2015), Cahan and Zhang (2006) and Elder et al (2009), auditors' perceptions about audit risk are closely associated with changes in both inherent risk and control risk and thus ultimately, affect their performance in reducing detection risk (Kikhia, 2015).…”

Section: The Global Financial Crisis and Audit Fees: Theoretical Supportmentioning

confidence: 99%

“…Studies that use non-US markets' data tend to make comparisons between the crisis period and pre-crisis period providing evidence for audit risk premium during the financial crisis. A study conducted by Chen et al (2019) using a sample of 5636 firms operating in US markets for the years 2006-2011, examined the effect of the GFC on audit fees and the association between audit fees and the financial restatements. Furthermore, the study examined the extent to which the association between audit fees and restatements grew during the financial crisis.…”

Section: The Global Financial Crisis and Audit Fees: Theoretical Supportmentioning

confidence: 99%

Fair Value Accounting and Implications for the Auditing Profession: Historical Overview

Alharasis

Prokofieva²,

Alqatamin

et al. 2020

AFR

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This paper explores the link between the introduction of fair value measurements (FVM) and the development of the Global Financial Crisis (GFC) in 2008-9. The paper aims to provide an historical analysis of the development of the Enron scandal with a focus on fair value accounting (FVA) and provides a narrative literature review of the subsequent economic downturn, its effect on the auditing profession and audit fees arrangements, implications for FVA, and response of global institutions and standard setters. It provides a theoretical explanation of the underlying antecedents using existing accounting theories. For each reviewed stream of research, the paper establishes the theoretical underpinning and discusses its application supported by the context. The content analysis using NVivo software was employed to analyse existing research and available published information. Based on the comprehensive literature review, the study arrives at two main findings. First, the paper concludes with the controversial use of FVM and establishes a direct connection between Enron’s collapse, the GFC, and improper FVM practices. Secondly, the study identifies the current pricing strategy for audit as an industry response to the abuse of external audit arrangements regarding FVA. Supported by the literature review findings, the paper contributes to the audit research by providing deep insights into the connection between FVA practices, the GFC and development of the audit profession. The paper addresses the lack of foundational research in FVA and establishes a solid background for further studies on FVA and audit profession development in general.

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Audit fees, perceived audit risk, and the financial crisis of 2008

Cited by 48 publications

References 26 publications

Auditing in times of social distancing: the effect of COVID-19 on auditing quality

Auditing in times of social distancing: the effect of COVID-19 on auditing quality

Auditing in the time of COVID – the impact of COVID-19 on auditing in New Zealand and subsequent reforms

Fair Value Accounting and Implications for the Auditing Profession: Historical Overview

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