Does the transformation of accounting firms’ organizational form improve audit quality? Evidence from China

Wang, Chunfei; Dou, Huan

doi:10.1016/j.cjar.2014.08.005

Cited by 21 publications

(12 citation statements)

References 18 publications

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“…Having said that, litigation risk is still a major concern affecting CPA firm's practice in China in the post‐regulation period. For example, Wang and Dou () find that the transformation of Chinese CPA firms from the form of limited liability company (i.e., lower litigation risk exposure) to the form of special partnership (i.e., higher litigation risk exposure) significantly lowers the clients’ discretionary accruals (in absolute term and in signed positive form). Interpreting their results suggests that CPA firms taking the new special partnership form view litigation risk as a major concern and thus improve their audit quality in response to the increased legal exposure (as compared with that of limited liability company form).…”

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confidence: 99%

The impact of litigation risk on the association between audit quality and auditor size: Evidence from China

Wong

Firth²,

Lo³

2018

Financ Manag Account

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We examine whether audit quality varies across different sizes of CPA firms under high or low auditor‐specific litigation risk exposure. We measure audit quality by the issuance of modified audit opinions and the audit fees charged to clients, and we use the organizational form of CPA firms as the proxy for auditors’ litigation risk exposure, where a partnership (limited liability) CPA firm represents a high (low) litigation risk exposure. Built on Choi, Kim, Liu, and Simunic's (2008) theoretical framework, we hypothesize that the litigation risk exposure of CPA firm moderates the association between auditor size and audit quality. Our results show that when the auditor's liability is capped (i.e., registered as a limited liability form of CPA firm), larger size CPA firms are associated with higher audit quality when compared to smaller size CPA firms. However, this positive association between auditor size and audit quality disappears for audit firms that are subject to high litigation risk exposures (i.e., registered as a partnership form of CPA firm). Our research provides new insights on the impact of auditor‐specific litigation risks on the relation between audit quality and auditor size. In particular, we show that only when auditor‐specific litigation risk is limited, do large CPA firms appear to perform higher quality audits than small CPA firms.

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confidence: 99%

The impact of litigation risk on the association between audit quality and auditor size: Evidence from China

Wong

Firth²,

Lo³

2018

Financ Manag Account

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“…This study uses audit size from audit subject side, because the proxy of audit size is the total number of employees. Wang & Huan (2015) found that there was no significant effect of audit subject size on transformation and audit quality. Transformation is generally included to increase the size of audit firms.…”

Section: Audit Sizementioning

confidence: 90%

“…Transformation is generally included to increase the size of audit firms. According to the study of Wang & Huan (2015), transformation increases audit risk, but there is a positive relationship between transformation and audit opinions although it only lasts for one year. The study by Comprix & Huang (2015) found the lack of small audit firm's performance to keep audit object from violation.…”

Section: Audit Sizementioning

confidence: 99%

“…The company is free to choose any audit firms and pays fee to it. A Common proxy for audit quality in private institutions is the discretionary accruals that detect inefficient expenses of an audited financial report (Cahan & Sun, 2015;Carey & Simnett, 2006;Wang & Huan, 2015). Most of the studies define audit quality by comparing the difference between actual audit activities and the auditing standards (Ball et al, 2015;Rahmina & Agus, 2014;DeAngelo, 1981).…”

Section: Introductionmentioning

confidence: 99%

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The Effect of Audit Follow-Up and Sizes on the Audit Quality

Mahpiansyah

2017

JTAKEN

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ABSTRAKPenelitian ini mengukur pengaruh ukuran audit dan tindak lanjut hasil audit terhadap kualitas audit di Indonesia. Pemerintah Indonesia memiliki dua institusi audit: eksternal dan internal audit. Tindak lanjut audit adalah perkembangan pelaksanaan rekomendasi audit dari audit eksternal untuk memperbaiki laporan keuangan auditee. Penelitian ini menganalisa data 33 provinsi dari tahun 2009 sampai dengan tahun 2013 dari Ikhtisar Laporan Hasil Pemeriksaan Badan Pemeriksa Keuangan (ILHP BPK) dan Daerah Dalam Angka Badan Pusat Statistik (DDA BPS) menggunakan OLS dan TSLS. Penelitian ini menemukan bahwa jumlah tindak lanjut hasil pemeriksaan dan ukuran audit berpengaruh signifikan terhadap temuan audit walaupun ukuran audit yang didasarkan pada jumlah internal auditor, jumlah unit subyek audit dan jumlah pegawai provinsi hanya berpengaruh signifikan terhadap jumlah temuan audit. Hal ini menunjukkan bahwa jumlah tindak lanjut audit secara keseluruhan mempengaruhi temuan audit tanpa terganggu dengan nominal tindak lanjut audit. Belum ada penelitian sebelumnya yang mengukur pengaruh dari tindak lanjut audit terhadap kualitas audit. Penelitian ini menambahkan pertanyaan penting mengenai hubungan antara ukuran audit dan efektivitas tindak lanjut audit pada kualitas audit di institusi pemerintah khususnya pemerintah daerah.Kata kunci:Audit internal, audit eksternal, kualitas audit, tindak lanjut audit, ukuran audit.ABSTRACTThis study examined the effect of audit size and the audit follow up on the audit quality in Indonesia. Indonesian government has two audit institutions: external and internal audit. The audit follow up is the progress of implementing audit recommendation from the external audit to correct the audit subject’s financial report. This study analyzed data of 33 provinces from 2009 to 2013 from Badan Pemeriksa Keuangan’s Audit Report Summary (ILHP BPK) and Local in Figures from Badan Pusat Statistik (DDA BPS) using Ordinary Least Square and Two Stage Least Square. This study found that the number of audit follow up and audit size are statistically significant to influence the audit findings although the internal audit sizes based on the auditor’s number, the number of subject unit and the number of provincial employees are statistically significant only to the number of audit findings. It implies that the number of audit follow up affects the audit findings as a whole without being disturbed by the nominal amount of audit follow up. There are no previous studies which measure the effect of audit follow up on audit quality. This study added the important question on the relationship between audit sizes and the effectiveness of audit follow up on audit quality in government institutions especially in local governments.Keywords:Internal audit, eksternal audit, audit quality, audit follow up, audit size

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“…Khasharmeh and Desoky, 2018); the audit firm category, respectively Big 4 or non-Big 4(Abid et al, 2018); the manner of auditors" rotation and switch to another category of audit firm(Febrianto et al, 2017); the manner of auditors" rotation (voluntary or mandatory), the membership of the audit firm to Big 4 and the auditor tenure(Choi et al, 2017). Other factors were also identified, such as: time to complete the engagement, the auditors" gender, position within the firm and experience, number of clients, size of the local office and audit firm(Broberg et al, 2017); the category of firms in the case of joint audit(Lobo et al, 2017); the audit team members" response to stress (Yan and Xie, 2016); the level of knowledge of the auditing standards and the degree of auditors' loading(Brown et al, 2016); the quality control of the audit supervision(Löhlein, 2016); the disciplinary sanctions imposed by the professional organizations (De Fuentes et al, 2015); the auditor tenure (Gonzalez-Diaz et al, 2015); the change of the organization form of the audit firm(Wang and Dou, 2015); the client firm's governance(Beisland et al, 2015); the membership in an association of small audit firms(Bills and Cunningham, 2015); the auditor tenure and fees for non-audit services(Bell et al, 2015) and the previous audit failure (Francis and Michas, 2013).…”

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Audit Quality and Several of Its Determinants

Chersan¹

2019

AUDITF

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The objective of this article is to identify the relationship between the quality of services provided by the financial auditors and its determinants, among which the initial and continuing training of auditors occupies an important place as long as their authorization depends on achieving an adequate level of education and professional training. It has been taken into account the fact that the purpose of public interest entities has become global, and the ethical and professional challenges to which auditors are exposed are becoming more and more difficult to manage.

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Does the transformation of accounting firms’ organizational form improve audit quality? Evidence from China

Cited by 21 publications

References 18 publications

The impact of litigation risk on the association between audit quality and auditor size: Evidence from China

The impact of litigation risk on the association between audit quality and auditor size: Evidence from China

The Effect of Audit Follow-Up and Sizes on the Audit Quality

Audit Quality and Several of Its Determinants

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