A Review of Archival Auditing Research

DeFond, Mark L.; Zhang, Jieying

doi:10.2139/ssrn.2411228

Cited by 512 publications

(992 citation statements)

References 341 publications

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“…While we find that clients' total assets and audit fees earned are highly correlated, this nevertheless is a caveat that needs to be noted. Also, the inferences made from our results are only as good as the empirical model drawn from the existing literature, which is specified without strong theoretical guidance, and may not fully control for firms' innate characteristics and financial reporting systems (DeFond & Zhang, 2014). Second, the archival databases we use (e.g., Compustat Global and Worldscope) are international databases and are therefore more likely to cover larger firms.…”

Section: Discussion and Concluding Remarksmentioning

confidence: 61%

“…First, both the conceptual constructs (e.g., auditor independence) and the empirical proxies (e.g., the likelihood of issuing modified opinions or client importance) are indirect measures. Although we argue that the association between the probability of modified opinions and client importance is a better measure from which to infer auditor independence, we acknowledge that our study does not provide direct evidence on the issue, and results based on a single measure, such as the likelihood of issuing modified opinions, do not paint a complete picture of audit quality (DeFond & Zhang, 2014). In addition, auditors may issue modified opinions to clients in various circumstances, and the practice of issuing modified opinions could also vary across countries.…”

Section: Discussion and Concluding Remarksmentioning

confidence: 67%

“…Another important reason to examine audit opinions is that they are the most directly observable output of the audit process, and are directly under the auditor's influence and control. While audit quality is a multifaceted construct that cannot be inferred from a single measure, the failure to report a modified audit opinion when one is warranted is considered an egregious audit failure and evidence of poor audit quality (DeFond & Zhang, 2014). In contrast, the decision to issue a modified opinion suggests that the auditor is able to withstand the client's attempts to avoid the associated negative consequences, and is thus indicative of auditor independence.…”

Section: Background and Hypotheses Developmentmentioning

confidence: 99%

“…On the contrary, any opinion that deviates from the unqualified opinion (referred to as a modified audit opinion hereafter) sends a strong negative signal to outsiders, and is usually associated with significant economic implications, because it reflects the auditor's reservations about the quality of financial reporting. Past studies have revealed that modified audit opinions are associated with unfavorable outcomes for the client firms (see DeFond & Zhang, 2014, for an excellent review). Examples of such unfavorable outcomes include lower perceived credibility of earnings (Choi & Jeter, 1992), higher risk of business failure (Geiger, Raghundandan, & Rama, 1998), and negative stock price reactions (Blay & Geiger, 2001).…”

Section: Introductionmentioning

confidence: 99%

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Monitor objectivity with important clients: Evidence from auditor opinions around the world

2015

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We examine whether monitors are likely to compromise their monitoring objectivity in the face of economically important clients in international business settings. In the context of external auditing and assurance services, we measure monitor objectivity by whether auditors are more (or less) likely to issue to their important clients modified audit opinions, that is, audit opinions provided to outside investors about the firm that demotes explicit areas of concern. Using a large cross-country sample, we document that auditors are more likely to issue modified opinions to their economically important clients relative to other clients. Furthermore, we find that this association is stronger (1) for Big N auditors, (2) for multinational audit clients, and (3) in countries with stronger legal regimes. These results suggest that monitors prioritize the protection of their reputation over lucrative economic relationships, and such information certification function is more pronounced for international auditors, multinational client firms, and in strong legal regimes.

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Section: Discussion and Concluding Remarksmentioning

confidence: 61%

Section: Discussion and Concluding Remarksmentioning

confidence: 67%

Section: Background and Hypotheses Developmentmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Monitor objectivity with important clients: Evidence from auditor opinions around the world

2015

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“…There have been calls for researchers to push audit quality analysis from the audit firm or office level down to the individual auditor level (DeFond and Francis, 2005;DeFond and Zhang, 2014;Francis, 2011). It is increasingly important to understand how individual auditor characteristics determine audit quality, given that in recent years many countries have either proposed (e.g., the U.S.) or required (e.g., countries in the European Union) the disclosure of the engagement auditor's identity.…”

Section: Introductionmentioning

confidence: 99%

Do school ties between auditors and client executives influence audit outcomes?

Guan

et al. 2016

Journal of Accounting and Economics

314

148

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Willingness to invest and the assurance of corporate social responsibility reports

Pratoomsuwan

Chiaravutthi

2022

Corp Soc Responsibility Env

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Recent research has found that the effect of corporate social responsibility (CSR) information on investment decisions will be eliminated when it is explicitly assessed, especially when CSR is not related to core business activities (immaterial CSR issues). We thus extend prior research by investigating whether (1) CSR assurance increases investors' willingness to invest when CSR performance is material or immaterial to core business activities and (2) CSR assurance moderates the effect of explicit assessment and CSR information on investment judgment. A 2 × 2 × 2 between‐subjects experiment was conducted using 213 professional investors. Overall, our results suggest that investors' willingness to invest is greater when positive CSR is verified by third‐party assurance in both material and immaterial CSR conditions. In addition, CSR assurance has a significant effect on investment judgment when immaterial CSR performance is explicitly assessed. As the affect‐as‐information heuristic (i.e., heuristic processing) is likely to be removed when CSR performance is explicitly assessed, the results of this study indicate that the affect heuristic is only eliminated when immaterial CSR is not assured, suggesting that CSR assurance moderates the effect of explicit assessment on investment judgment. Consistent with systematic‐heuristic theory, our results thus confirm that the systematic processing of CSR information does not necessarily attenuate affect heuristic processing; rather, these two processing modes can co‐occur. Our results concerning the impact of CSR assurance on positive CSR information inform firms that third‐party assurance affects investment judgment, especially for parties who consider purchasing these services, for example, managers or audit committee members. As CSR assurance is not mandatory, the audit profession could also be interested in our findings, as they might encourage firms to assure their nonfinancial information to enhance disclosure credibility. The inconclusive results on how CSR assurance affects investment judgment warrant further investigation of this issue in other reporting environments in different countries. Nevertheless, our findings contribute to the CSR literature by identifying novel aspects of the value of CSR assurance in different contexts, that is, the moderating role of CSR assurance and the explicit assessment of CSR information during investment decisions.

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A Review of Archival Auditing Research

Cited by 512 publications

References 341 publications

Monitor objectivity with important clients: Evidence from auditor opinions around the world

Monitor objectivity with important clients: Evidence from auditor opinions around the world

Do school ties between auditors and client executives influence audit outcomes?

Willingness to invest and the assurance of corporate social responsibility reports

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