Author: Publisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
Impact of Ifrs Adoption on Audit Fees and the Industry Specialist Fee Premium
Author: Do Industry Specialist Auditors Enhance Financial Reporting Quality?
Author: Jose G. Vega (III)Publisher:
ISBN: 9781303921261
Category : Accounting
Languages : en
Pages : 124
Book Description
This study investigates whether industry specialist auditors add quality to their clients' audited financial statements under the principles-based International Financial Reporting Standards (IFRS) when compared to non-specialists. It is likely that auditor experience and knowledge plays a more important role in evaluating the overall quality when principles-based IFRS standards are in effect. This study examines the effect of adopting a principles-based standard on the accounting quality of both industry specialist and non-specialist clients and whether joint EU and country industry specialist auditors add additional value relative to auditors that are deemed either EU or country industry specialists only. I also examine if the gap between local gap and IFRS affects accounting quality. The results suggest that the mandatory adoption of IFRS positively affected accounting quality among firms in the European Union countries. This positive effect is equal to between 7 to 9 percent of pre-tax earnings of non-specialist clients. The results show that Country industry specialist clients still provides high accounting quality relative to non-specialists clients in post-adoption period. The gap difference in accounting quality between the country industry specials and non-specialist is decreased from the pre-and post-adoption period. However, the EU industry specialist clients experience a positive effect with the adoption of IFRS. The results suggest that countries with different level of GAAP difference experience different effect on accounting quality with the mandatory adoption of IFRS. While countries with small gap differences benefit from the adoption of IFRS, the EU industry specialist model suggests that countries with large GAAP difference experience the greatest benefit. The results further find that different classification of industry specialist provides different levels of accounting quality. Country only industry specialist clients provide the highest level of accounting quality. EU and country and EU only clients experience positive effects with the mandatory adoption of IFRS and provide similar accounting quality as non-specialist clients. The results of this study are highly relevant, not only in light of the recent waves of IFRS adoption, but also in light of the recent audit reforms in Europe, which include rules that address mandatory audit rotation, dual audits, and market concentration.
How Much Does IFRS Cost? IFRS Adoption and Audit Fees
Author: Emmanuel T. De GeorgePublisher:
ISBN:
Category :
Languages : en
Pages : 50
Book Description
This study provides evidence of a directly observable and significant cost of International Financial Reporting Standards (IFRS) adoption, by examining the fees incurred by firms for the statutory audit of their financial statements at the time of transition. Using a comprehensive dataset of all publicly traded Australian companies, we quantify an economy-wide increase in the mean level of audit costs of 23 percent in the year of IFRS transition. We estimate an abnormal IFRS-related increase in audit costs in excess of 8 percent, beyond the normal yearly fee increases in the pre-IFRS period. Further analysis provides evidence that small firms incur disproportionately higher IFRS-related audit fees. We then survey auditors to construct a firm-specific measure of IFRS audit complexity. Empirical findings suggest that firms with greater exposure to audit complexity exhibit greater increases in compliance costs for the transition to IFRS. Given the renewed debate about whether the Securities and Exchange Commission (SEC) should mandate IFRS for U.S. firms, our results are of timely importance.
Industry Specialist Auditors and Audit Fees in Family Firms
Author: Fei KangPublisher:
ISBN: 9781267419200
Category :
Languages : en
Pages : 87
Book Description
I examine whether and how family firms' unique ownership structure and agency problems affect their choice of industry-specialist auditors and the level of audit fees. Following prior literature, I define family firms as those in which members of the founding family continue to hold positions in top management, sit on the board, or are blockholders. Compared to non-family firms, family firms are subject to less severe Type I agency problems due to family owners' long-term horizon and close monitoring of managers, but face more severe Type II agency conflicts due to the concentrated ownership and excess of control rights over cash flow rights held by family owners. Using data from the S & P 1500 firms, I find that family firms are more likely to appoint industry-specialist auditors and incur lower audit fees than non-family firms. The results suggest that family firms have strong incentives to hire industry specialists to signal the quality of their financial reporting due to the Type II agency problems, and that they have lower assessed audit risk and less demand for external audit services due to the mitigated Type I agency problems. My additional analysis shows that, compared to family firms without dual-class shares, family firms with dual-class shares have higher demand for industry-specialist auditors to signal firms' disclosure quality. Furthermore, my results indicate that, when family members serve as CEOs, firms have a stronger tendency to hire industry specialists and to pay lower audit fees. In addition, although family firms have a higher likelihood of hiring industry-specialist auditors than non-family firms, I find no evidence that family firms purchase more non-audit services from their incumbent auditors.
The Association Between Client-Specific Investment Opportunities and Audit Fees of Industry Specialists
Author: Steven F. CahanPublisher:
ISBN:
Category :
Languages : en
Pages : 35
Book Description
Audit clients' investment opportunity sets (IOS) include firm-specific opportunities that are unique to the client, as well as opportunities generalizable to the client's industry and opportunities even more generically available to all firms. Prior research does not examine the variation in audit fees related to firm-specific IOS nor how firm-specific IOS affects the premiums charged by industry specialist auditors. We find that firm-specific IOS plays a distinct role in the pricing of audit services, leading to higher fees as the auditor demands compensation for the investment in firm-specific knowledge necessary to conduct the audit or for increased audit risk. Further, we find that the ability of an industry specialist auditor to charge fee premiums is reduced in the case of clients that are highly differentiated based on firm-specific IOS. We contribute to the literature by showing that industry specialist premiums are not constant for firms in the same industry; rather, they reflect a trade-off between firm- and industry-specific knowledge.
The introduction of IFRS. Consequences for investment decisions
Author: Simon FalckePublisher: GRIN Verlag
ISBN: 3346203107
Category : Business & Economics
Languages : en
Pages : 36
Book Description
Seminar paper from the year 2019 in the subject Business economics - Investment and Finance, grade: 1,0, Otto Beisheim School of Management Vallendar, language: English, abstract: Starting in 2005, the portion of foreign shareholders in the Dax has risen from 45% to 58% in the last decade. In the same year, the regulation of the European Union from 2002 came into effect which required all listed firms in the European Union to report their consolidated accounts in accordance with the International Financial Reporting Standard (IFRS) from 2005 on instead of each countries’ generally accepted accounting standards (GAAP). This is just one example where the volume of investments increased concurrently with the adoption of IFRS. Therefore, the question arises if the mandatory adoption of IFRS in the EU in 2005 or in other cases significantly affected and continues to affect investment decisions among adopters or third parties. In order to better account for differences between different types of investors and investees, we differentiate between retail investors, institutional investors and corporate finance activities. Moreover, we focus on the consequence of IFRS adoption on equity investment decisions as most research appears to focus on the equity instead of the credit market. Additionally, Lourenco & Branco point out that most research which finds no significant effects of IFRS adoption on investment decisions appears to focus on voluntary adoption before 2005. Thus, this paper mainly focuses on mandatory IFRS adoption. In this context, research suggests that mandatory IFRS adopters experience significant capital markets benefits as well as enhanced foreign institutional ownership and enhanced M&A activity. Ultimately, we observe four overarching drivers behind the aforementioned observations that impact investment decisions across different types of investors and investees.
Managerial Overconfidence and Audit Fees
Author: Scott DuellmanPublisher:
ISBN:
Category :
Languages : en
Pages : 49
Book Description
We investigate the association between managerial overconfidence and audit fees, as well as the effect of a strong audit committee on this relation. Overconfident managers tend to overestimate their ability and the future payouts of projects but underestimate the likelihood and impact of adverse events. Auditors may therefore charge a fee premium to compensate for the additional audit effort due to the increased audit risk. Conversely, overconfident managers may demand less audit services due to either hubris in their companies' financial reporting or a desire to reduce auditor scrutiny over aggressive accounting. A strong audit committee can alleviate the audit risks associated with managerial overconfidence or prevent overconfident managers from reducing audit services thus mitigating the relation between audit fees and managerial overconfidence. We find robust evidence of a negative relation between managerial overconfidence and audit fees for companies lacking a strong audit committee. However, in the presence of a strong audit committee the negative relation is mitigated. In additional analysis, we also find that companies with overconfident managers have a lower likelihood of using a city-industry specialist auditor.
Industry-Specialist Audit Fee Premium and Financial Statement Complexity
Author: Dichu BaoPublisher:
ISBN:
Category :
Languages : en
Pages : 46
Book Description
In this paper, we examine whether the industry-specialist audit fee premium and scale discounts are attributable to financial statement complexity. Financial statement complexity is measured using a combination of the number of Arabic numerals, the number of words, and the readability of 10-K financial statement footnotes. We find that specialist auditors charge a premium for clients with higher financial statement complexity and, correspondingly, offer scale economy discounts to these clients as well. Interestingly, even though non-specialist auditors charge a higher fee for clients with higher financial statement complexity, they do not offer scale economy discounts to these clients. We also show that a client's financial statement complexity is distinct from its operational complexity. Collectively, our results suggest that the industry-specialist auditors' premium is attributable to auditors' investment in resources to handle client complexity, and not monopoly rent or compensation for audit risk.
The Routledge Companion to Accounting, Reporting and Regulation
Author: Carien van MourikPublisher: Routledge
ISBN: 113624350X
Category : Business & Economics
Languages : en
Pages : 568
Book Description
Financial accounting, reporting and regulation is a vast subject area of huge global importance, with interest rising significantly in the light of the ongoing global financial crisis. The authors begin with a broad overview of the subject of accounting, setting the stage for a discussion on the theoretical and practical issues and debates regarding financial reporting, which are expanded on in the second part of the book. This includes how to define the reporting entity, recognition and measurement of the elements of financial statements, fair values in financial reporting and the costs and benefits of disclosure. The third part assesses the interest, need and theories behind the accounting, reporting and regulation industry, while parts four and five look at the institutional, social and economic aspects; with issues such as accounting for environmental management and, accounting regulation and financial reporting in Islamic countries, both issues of ever increasing importance. This authoritative Companion presents a broad overview of the state of these disciplines today, and will provide a comprehensive reference source for students and academics involved in accounting, regulation and reporting.
Author: Timothy A. Pearson