How do auditors perceive CEO's risk-taking incentives?

Fargher, Neil; Jiang, Alicia; Yu, Yangxin

doi:10.1111/acfi.12044

Cited by 42 publications

(29 citation statements)

References 57 publications

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“…Corporate governance is included as a control variable for cost of debt given that it potentially improves compliance with reporting standards and generates financial statements that provide a more accurate reflection of a company's performance (Davidson et al ., ; Kent et al ., ; Fargher et al ., ). To control for the association between corporate governance quality and the cost of debt, we use a scoring system related to Corporate Governance Principles and Recommendations (Australian Security Exchange Corporate Governance Council, ).…”

Section: Methodsmentioning

confidence: 97%

The importance of cash flow disclosure and cost of capital

Kent

2018

Accounting & Finance

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We examine whether the choice of cash flow disclosure under International Accounting Standard 7 has an influence on the cost of capital incurred by Australian listed companies. Results indicate that indirect method companies incur a significantly higher ex-ante cost of equity than direct method companies using a combined equity model approach. We also demonstrate that using an optimal weighted combination of equity models reduces model variance and bias compared to using a single equity model. Our findings support mandating the direct method and have the potential to induce companies to report the direct method to increase company value.

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Section: Methodsmentioning

confidence: 97%

The importance of cash flow disclosure and cost of capital

Kent

2018

Accounting & Finance

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“…We include LEV, measured by the total debt divided by total assets (Subramaniam et al, 2009;Oliveira et al, 2011;Kent and Zunker, 2013;Tao and Hutchinson, 2013). We include BIG4 to control for audit quality, as Big 4 audit firms are associated with higher audit quality (Fargher et al, 2014;Miglani et al, 2015). Following Matsumoto (2002), we include LOSS because loss firms are less likely to be involved in fraudulent financial reporting.…”

Section: Empirical Modelsmentioning

confidence: 99%

“…We also include F_AGE, measured by the number of years a firm has been listed (Huang et al, 2012;Abdel-khalik, 2014). We include BIG4 to control for audit quality, as Big 4 audit firms are associated with higher audit quality (Fargher et al, 2014;Miglani et al, 2015).…”

Section: Empirical Modelsmentioning

confidence: 99%

Chief financial officer demographic characteristics and fraudulent financial reporting in China

Sun

Kent

et al. 2017

Accounting & Finance

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We investigate whether management's cognitions, values and perceptions are associated with fraud for 18 863 firm-years for Chinese listed firms from 2000 to 2014. Demographic characteristics of the chief financial officer (CFO) are used as proxies for management's cognitions, values and perceptions. We find that fraudulent financial reporting is higher when CFOs are younger, male, and have lower education backgrounds. An analysis of inflated earnings, fictitious assets, material omissions and other material misstatements provide similar results, with the exception that CFOs with higher education levels are associated with more inflated earnings.

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“…Using the U.S. Audit Analytics database for the period 2000-2010, Fargher et al (2014) [17] found evidence that executive equity incentives as proxies for managerial risk-taking incentives have a significant impact on audit fees, as well as the issuance of going-concern audit opinions. With the U.S.…”

Section: Relationship Between Executive Stock Options and Audit Feesmentioning

confidence: 99%

Moderating Effects of Agency Problems and Monitoring Systems on the Relationship between Executive Stock Option and Audit Fees: Evidence from Korea

et al. 2018

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Since executive stock options may give rent-seeking incentives to CEOs, CEOs with stock options are likely to misallocate corporate resources to seek personal gains, which in turn may lead to a decrease in firm value. High-quality audit services can reduce the negative impacts of executive stock options on firm value and help firms to ensure sustainable growth. However, while most of the existing accounting literature related to executive stock options (ESO) is mainly focused on earnings management, there are relatively few studies that investigate the relation between ESO and audit fees. At the same time, while previous studies on ESO have been conducted in advanced countries, few studies have identified the relationship between ESO and audit fees in emerging markets. Therefore, it is necessary to examine the effect of ESO under circumstances different from those of developed countries. To fill this gap, we investigated the association between executive stock options and audit fees and examine the moderating effects of agency problems and monitoring systems on the relationship. Using 462 observations from 110 nonfinancial Korean listed companies, for the period of 2000 to 2005, we found that executive stock options are positively related to audit fees. In addition, we found that the effects of executive stock options on audit fees are even higher in firms with high agency problems, effective internal monitoring systems, and major accounting firms. This study can help regulatory agencies to validate audit fee regulations, such as the International Standard on Auditing, that consider ESO a significant risk factor. In addition, these results can help external auditors to set up the specific guidelines for pricing audit fees. Furthermore, the results of this study will contribute to the construction of more desirable corporate governance structure in Korean companies, which in turn would not only enhance firm value but also strengthen the sustainability of companies belonging to the emerging markets.

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How do auditors perceive CEO's risk-taking incentives?

Cited by 42 publications

References 57 publications

The importance of cash flow disclosure and cost of capital

The importance of cash flow disclosure and cost of capital

Chief financial officer demographic characteristics and fraudulent financial reporting in China

Moderating Effects of Agency Problems and Monitoring Systems on the Relationship between Executive Stock Option and Audit Fees: Evidence from Korea

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