Public Company Audits and City-Specific Labor Characteristics

Beck, Matthew J.; Francis, Jere R.; Gunn, Joshua L.

doi:10.2139/ssrn.2838458

Cited by 15 publications

(17 citation statements)

References 40 publications

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“…25. While Dee et al (2015) do not find this to be a significant characteristic in their subset of firms that disclose component auditor use, recent studies find local education levels and professional certifications of relevant individuals to be informative characteristics (e.g., Beck et al 2018;Hoitash et al 2016;Ge et al 2011;Prawitt et al 2009). Nagy et al (2020) find that the number of CPAs in U.S. audit firm offices is positively associated with audit quality, measured by the likelihood of restatements and discretionary accruals.…”

Section: Research Design Sample Selectionmentioning

confidence: 99%

The Use and Characteristics of Foreign Component Auditors in U.S. Multinational Audits: Insights from Form AP Disclosures*

Burke

Hoitash

2020

Contemporary Accting Res

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This paper investigates the common, yet previously opaque, practice of using foreign audit firms (component auditors) to conduct portions of audit work for U.S. public companies. U.S. regulators have expressed concern for the transparency and quality of audits using component auditors. Employing data disclosed in the newly mandated PCAOB Form AP, we find that component auditor use is largely structural, determined by the size and complexity of clients' multinational operations. We do not find that the mere use of component auditors is detrimental to audit outcomes, but rather the amount of work conducted by component auditors is associated with lower audit quality (i.e., higher likelihood of misstatement), higher likelihood of nontimely reporting, and higher audit fees, which collectively suggest that component auditor engagements are associated with adverse outcomes. Furthermore, we find that only the work performed by less competent component auditors and those facing geographic and cultural/language barriers, including significant geographic and cultural distance, weak rule of law, and low English language proficiency, is associated with adverse audit outcomes. Overall, these findings provide initial archival evidence that the use of certain component auditors on U.S. multinational audits is associated with audit coordination issues, which suggests that PCAOB Form AP disclosures provide relevant information.

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Section: Research Design Sample Selectionmentioning

confidence: 99%

The Use and Characteristics of Foreign Component Auditors in U.S. Multinational Audits: Insights from Form AP Disclosures*

Burke

Hoitash

2020

Contemporary Accting Res

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“…Due to the CPA requirements and the Big 6 firms' recruiting style, audit employees, especially at the lower ranks are relatively homogeneous in terms of age and education and a certain level of education must be attained before an auditor can expect to get a job offer from the Big 6 firms. A pool of highly educated people in the area might mean a lot of competition for the same job (Beck et al, 2018), so the employee may be happier with their salary given that they were able to secure the position despite the high level of competition. If the human capital level in the area is low, the individual might feel that the employer has a few other options and, therefore, the salary should be higher.…”

Section: Maj 356mentioning

confidence: 99%

Salary perception and career prospects in audit firms

Hammami

Moldovan

Peltier

2020

MAJ

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Purpose This paper aims to examine the role that auditor’s salary perception has on audit quality and delay. The findings contribute to a greater understanding of the audit employee-level factors that influence audit work outcomes. Design/methodology/approach The authors use Big 6 employee reviews, salary data and audit and financial data from 2007 to 2017 to measure how to audit employees’ pay satisfaction affects audit quality (small profits and going concern opinions) and audit delay. The authors use a regression approach to analyze this relationship. In subsequent tests, the authors split the sample on high career opportunities to investigate how this moderates the relationship between salary perception and audit quality. Findings The authors document a discrepancy between pay perception and reality. It is explained, though not completely, by salary level, comparisons to peers and superiors, firm-wide attitudes, cost of living and human capital in the area, work–life balance and perceived career prospects. Surprisingly, the unexplained pay dissatisfaction relates positively to audit quality and audit efficiency (audit delay), after controlling for salary level. Further tests show that an audit employee’s expectation of career opportunities moderates this result. Originality/value This is the first paper that empirically tests the relationship between pay satisfaction and job performance in the context of audit employees in public accounting. The authors contribute to an emerging literature that investigates audit employee-level characteristics and attitudes in relation to audit quality.

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“…Chung, Cho, Lee, and Son () found that firms with a strong labor union tend to choose high‐quality auditors. Beck, Francis, and Gunn () argued that human capital is associated with the supply of audit and found that US firms headquartered in cities with high average educational levels are more likely to choose a non‐Big 4 auditor. The migration of wealthy elites is increasingly publicized in China.…”

Section: Determinants Of Auditor Choicementioning

confidence: 99%

Determinants of auditor choice: Review of the empirical literature

Habib

Bhuiyan

et al. 2019

Int J Auditing

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We synthesize the empirical archival literature on the determinants of auditor choice in an international setting, critique the findings, and offer suggestions for future research. We categorize the determinants into (i) firm‐level ownership variables, (ii) nonownership corporate governance determinants, (iii) economic determinants driven by the risk of information asymmetry, and (iv) country‐level institutional determinants, including legal protection of investors, political connections, and national culture. Our comprehensive review not only enriches the academic literature, but also provides material of considerable interest to investors, practitioners (auditors), and regulators.

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Public Company Audits and City-Specific Labor Characteristics

Cited by 15 publications

References 40 publications

The Use and Characteristics of Foreign Component Auditors in U.S. Multinational Audits: Insights from Form AP Disclosures*

The Use and Characteristics of Foreign Component Auditors in U.S. Multinational Audits: Insights from Form AP Disclosures*

Salary perception and career prospects in audit firms

Determinants of auditor choice: Review of the empirical literature

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