Auditors’ Use of In‐House Specialists

Zimmerman, Aleksandra B.; Barr‐Pulliam, Dereck; LEE, JOON‐SUK; Minutti‐Meza, Miguel

doi:10.1111/1475-679x.12485

J of Accounting Research

2023

DOI: 10.1111/1475-679x.12485

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Auditors’ Use of In‐House Specialists

Aleksandra B. Zimmerman

Dereck Barr‐Pulliam

JOON‐SUK LEE³

et al.

Abstract: Using Public Company Accounting Oversight Board (PCAOB) inspection data from 2006 to 2018, we examine the use of auditor-employed specialists in audit engagements. First, we find that the use of specialists is increasingly prevalent and related to clients' size and complex accounting estimates. Second, the use of specialists is positively associated with the incidence of audit process deficiencies (identified by PCAOB inspections) but is not associated with output-based audit-quality proxies (restatements or a… Show more

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Cited by 10 publications

References 70 publications

(173 reference statements)

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Exposure to superstar firms and financial distress

Cheng,

Vyas,

Wittenberg-Moerman

et al. 2024

Rev Account Stud

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A few highly successful firms (“superstar firms”) have captured large market shares and earned massive profits in recent decades. We examine whether superstar firms are associated with a greater likelihood of financial distress for firms exposed to them in product markets. Building on recent research, we identify superstars as firms with the highest markups in the industry and whose industry markup share increases over time. We then measure, with product similarity scores, a firm’s overall product market exposure to superstars. We document that firms with greater exposure are more likely to file for bankruptcy. We examine why superstar exposure is associated with bankruptcy and show that firms with the greater superstar exposure exhibit weaker financial performance and greater riskiness. Furthermore, we show that the association between superstar exposure and the likelihood of bankruptcy strengthens when superstars have greater market power.

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Exposure to superstar firms and financial distress

Cheng,

Vyas,

Wittenberg-Moerman

et al. 2024

Rev Account Stud

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Strategic responses of the clients of multinational audit firms to corporate governance audit regulation

Abdul-Baki,

Diab,

Yusuf

2024

JAL

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PurposeWe investigate how existing investment in strong external corporate governance mechanism—use of Big 4 audit firms—affect compliance with corporate governance audit (CGA) regulation in Nigeria and Kenya. While both countries are characterized by weak enforcement, they differ in their corporate governance audit regulatory strategies.Design/methodology/approachThe study adopts neo-institutional theory as a theoretical framework and uses logit and probit models and generalized estimating equations as empirical models to test the hypotheses developed.FindingsThe study finds that persuasive coercive isomorphism provides reputational benefits to clients of multinational audit firms in Kenya and encourages them to conduct and report their CGA. In Nigeria, clients of multinational audit firms are less likely to conduct CGA as there is no persuasive coercive isomorphism in place. We also find many internal corporate governance variables to positively influence CGA.Practical implicationsThe success of any regulation is dependent on the level of compliance by regulated entities. As clients of multinational audit firms usually have the motivation and resources to employ such high quality audit firms, it is expected that if they are well motivated, they will commit similar level of resources to conducting CGA. In Nigeria, the Financial Reporting Council should develop some persuasive measures to encourage clients of multinational audit firms to conduct CGA. In both Nigeria and Kenya, enforcement of internal corporate governance frameworks should be strengthened.Originality/valueThis is the first study to explore how regulatory strategies affect strategic responses of regulated entities to CGA regulation, introducing a new dimension to the ESG literature.

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Audit Partners’ Role in Material Misstatement Resolution: Survey and Interview Evidence

MAKSYMOV,

PEECHER,

SUTHERLAND

et al. 2023

J of Accounting Research

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Auditors are expected to identify and resolve material misstatements (MMs) in management's financial statements. However, beyond the audit opinion, the audit process is opaque. To address this, we independently survey 462 audit partners and interview 24 audit partners, CFOs, and audit committee members on how partners assess and address MM risk, resolve MMs, and the consequences of MMs. Partners identify MMs in approximately 9% (15%) of public (private) engagements and use qualitative factors to waive some MMs. Loan covenant and going‐concern issues increase MM risk more than earnings benchmark issues. Partners point to a variety of both auditor and client factors as threats to audit effectiveness. Partners often rely on rapport with management and involve the national office and audit committee in resolving MMs. Partner incentives around restatements are context‐specific. Our results provide new insights into the auditor's role in financial reporting that are relevant to academics, practitioners, and regulators.This article is protected by copyright. All rights reserved

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Auditors’ Use of In‐House Specialists

Cited by 10 publications

References 70 publications

Exposure to superstar firms and financial distress

Exposure to superstar firms and financial distress

Strategic responses of the clients of multinational audit firms to corporate governance audit regulation

Audit Partners’ Role in Material Misstatement Resolution: Survey and Interview Evidence

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