Engaging Auditors: Field Investigation of a Courtship

Fiolleau, Krista; Hoang, Kris; Jamal, Karim; Sunder, Shyam

doi:10.2139/ssrn.1505497

Cited by 6 publications

(11 citation statements)

References 27 publications

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“…() and Fiolleau et al. () document that management is still clearly influential. In the specific case investigated in Fiolleau et al., it is suggested that non‐executive directors are reliant on management to collect information used for auditor choice.…”

Section: Resultsmentioning

confidence: 99%

“…Fiolleau et al. () document that a company searched rather extensively for information before engaging a new auditor, and that this information search included obtaining referrals from other clients. However, no prior study has examined whether experiences are shared beyond the direct interlocks between boards.…”

Section: Board Interlocks Auditor Choice and Audit Feesmentioning

confidence: 99%

“…In the absence of direct experience with incoming auditors among directors on the focal board, directors may draw on others in their board network to obtain information. Fiolleau et al (2010) document that a company searched rather extensively for information before engaging a new auditor, and that this information search included obtaining referrals from other clients. However, no prior study has examined whether experiences are shared beyond the direct interlocks between boards.…”

Section: Hypothesesmentioning

confidence: 99%

“…Whether individual audit partners are, in fact, selected by the client and not attached to the engagement by audit firm management is tested as the hypotheses address differentiation at both the audit firm and audit partner levels. In North America, despite recent efforts to strengthen the audit committee's role in auditor choice, empirical research finds that executive management has considerable influence in the choice of auditor (Cohen, Krishnamoorthy, & Wright, 2010;Fiolleau et al, 2010), although recent research suggests that management influence, compared to that of the audit committee, has been decreasing (Cohen et al, 2010;Dhaliwal, Lamoreaux, Lennox, & Mauler, 2012). Arguably, executive management may also have an impact on this choice in Denmark, but several factors suggest that the Danish supervisory board and auditors have a strong relationship both legally and in practice: (1) The financial statements are the responsibility of both the supervisory board and the management board, unlike in the US, where they are the responsibility of executive management (Bush, 2005).…”

Section: Supervisory Boards and The Role Of Auditorsmentioning

confidence: 99%

“…This study makes several contributions to the existing literature and to current regulatory developments. First, we respond to general calls for research on the effects of networks as informal governance mechanisms (e.g., Larcker, Richardson, Seary, & Tuna, ; Stafsudd, ) and the efficacy of non‐management involvement in auditor choice (Fiolleau, Hoang, Jamal, & Sunder, ). This is important as the changing regulatory environment is expected to increase the influence of non‐executive directors and expand the role of interlocking directors (Shropshire, ).…”

Section: Introductionmentioning

confidence: 98%

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The Impact of Board Interlocks on Auditor Choice and Audit Fees

Johansen¹,

Pettersson²

2013

Corporate Governance

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Manuscript Type Empirical Research Question/Issue This paper uses unique Danish data to examine whether non‐executive directors draw on both direct and indirect ties in the network of interlocking directorates to impact auditor choice, and whether this impact has consequences for audit fees. Research Findings/Insight The paper finds clear evidence that non‐executive directors draw on their networks to impact auditor choice, and evidence that clients pay an audit fee premium when non‐executive directors are connected to audit firms outside the focal company. The relationship between non‐executive directors and auditors is well established in Denmark and exhibits features that currently emerge in international debates and regulations. Therefore, the national context offers an interesting setting for empirical evidence of whether international aspirations are likely to be realized. Theoretical/Academic Implications Audit‐related corporate governance research has predominantly adopted the agency theory paradigm and has only drawn on alternative theoretical perspectives to a limited extent. We draw on the literature about board interlocks and social network theory in order to develop a study that aims to increase our understanding of the non‐executive director–auditor relationship and the role that board networks have in governing auditor choice decisions. The study identifies interlocks as an infrastructure for differentiation in the audit market and determines that such differentiation is associated with an audit fee premium for audit firms. The findings indicate that personal experiences with auditors are shared among non‐executive directors and that audit attributes other than low cost audit, auditor size, and industry specialism, are important in the audit market. Practitioner/Policy Implications Our findings support continued efforts to strengthen the relationship between non‐executive directors and auditors. Our findings also indicate that board interlocks may constitute a mechanism that mitigates the audit market failure that arises because of a lack of auditor differentiation.

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Section: Resultsmentioning

confidence: 99%

Section: Board Interlocks Auditor Choice and Audit Feesmentioning

confidence: 99%

Section: Hypothesesmentioning

confidence: 99%

Section: Supervisory Boards and The Role Of Auditorsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 98%

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The Impact of Board Interlocks on Auditor Choice and Audit Fees

Johansen¹,

Pettersson²

2013

Corporate Governance

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IQ and Audit Quality: Do Smarter Auditors Deliver Better Audits?

Kallunki

Niemi

et al. 2019

Contemporary Accting Res

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This study examines the role of an individual auditor's cognitive ability in delivering high‐quality audits. Our results from analyzing archival data from Sweden show that audit partners' IQ scores obtained from psychological tests are positively associated with going‐concern audit reporting accuracy and audit fee premiums. We also find some, albeit weak, evidence that audit partners' IQ scores are negatively associated with the income‐increasing abnormal accruals of the client. These results suggest that, although audit services are standardized through various control mechanisms and audits are conducted by teams rather than by individual auditors, the cognitive ability of audit partners responsible for an audit remains important in delivering high‐quality audit services.

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