Auditors' legal liability, collusion with management, and investors' loss*

Moore, Giora; Scott, William R.

doi:10.1111/j.1911-3846.1989.tb00737.x

Cited by 27 publications

(10 citation statements)

References 7 publications

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“…Similarly, Dopuch and Simunic (1982) argue that audit quality is a function of the number and extent of audit procedures performed by the auditor and that large firms have mwe resources with which to conduct tests. More recently, Moore and Scott (1989) demonstrate analytically that audit firm size and the extent of audit work umtertaken are positively related.…”

Section: Previous Researchmentioning

confidence: 99%

A Note on the Association between Audit Firm Size and Audit Quality*

Davidson

Neu

1993

Contemporary Accting Res

166

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Abstract. This study proposes that comparison of management earnings forecasts with audited, reported earnings provides an approach to the measurement of audit quality. Assuming that managers have incentives to minimize the difference between forecasted and reported income, higher-quality audit firms will tend to be associated with larger forecast errors. Therefore if, as previous literature suggests, larger auditing firms provide higher-quality audits than do smaller auditing firms, larger auditing firms will tend to be associated with larger forecast errors, all else being equal. Data from the Toronto Stock Exchange are used to examine this p'Oposition. After controlling for client characteristics such as risk, the results indicate that larger auditing firms tend to be associated with larger forecast errors consistent with the proposition that, other things being equal, larger auditing firms provide higher-quality audits than do small auditing firms.R^sumi. Les auteurs proposent une technique de mesure de la qualite de la verification qui consiste a comparer les provisions de la direction relatives aux b^n^fices et les benefices declares qui ont ^16 verifies. Si Ton suppose que les gestionnaires ont interSt a minimiser l'^cart entre les benefices {B'VUS et les bOn^fices d^clar^s, les verificateurs de haut calibre auront tendance ^ Stre associ^s a des erreurs previsionnelles plus importantes. Par consequent, si, comme l'ont suggOre les etudes antOrieures, les cabinets d'experts-comptables importants offrent des services de verification de meilleure quality que les cabinets d'experts-comptables de taille plus modeste, les cabinets d'experts-comptables importants auront tendance a Stre associ^s aux erreurs previsionnelles plus grandes, toutes choses etant egaies. Les auteurs utilisent les donnees de la Bourse de Toronto pour verifier cette affirmation. Une fois contrdlees Ies caracteristiques du client telles que le risque, les resultats indiquent que les cabinets d'experts-comptables de grande taille tendent a Itre associ^s aux erreurs previsionnelles plus importantes, ce qui confirme l'hypothese vouiant que, toutes choses etant egaies, fes cabinets d'experts-comptables de grande taille offrent des services de verification de meilleure qualite que les cabinets d'experLs-comptables de taiile plus petite.

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Section: Previous Researchmentioning

confidence: 99%

A Note on the Association between Audit Firm Size and Audit Quality*

Davidson

Neu

1993

Contemporary Accting Res

166

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“…Most cases involving manager-auditor collusion stem from a conflict of interest (Moore and Scott, 1989;Baiman, Evans and Nagarajan, 1991). Rather than safeguarding the interests of stakeholders, auditors occasionally make compromises and fail to fulfill their obligation to remain objective in their assessment and honest in their reporting (Cullinan, 2004;Miller and Bahnson, 2004).…”

Section: Introductionmentioning

confidence: 99%

Auditors' moral philosophies and ethical beliefs

Kung

Huang

2013

Management Decision

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Purpose-The objective of this paper is to investigate the influence of moral philosophy on the ethical beliefs of auditors. We argue that individual's moral philosophy is the key factors in how one views ethical issues and largely determines the ethical choices they make. We also seek to discover the influence of personal values on the reasoning processes associated with ethics and explore whether the personal value preferences of auditors, as a manifestation of their moral philosophy, influence their ethical beliefs and (presumably) their subsequent actions. Design/methodology/approach-We designed a survey instrument to assess the value preferences, moral philosophies, and reactions of practicing auditors to judgment dilemmas. We then employed structural equation modeling to examine the sensitivity of auditors to the competence and integrity of clients with the aim of gaining insight into the ethical beliefs of auditors in general. Findings-Our results show that value preferences alone fail as predictors of ethical beliefs. Instead, personal values have an indirect influence on ethical beliefs via moral philosophy. Moreover, auditors strongly motivated by values based on self-enhancement were negatively associated with idealism in ethics and positively associated with relativism. Therefore, it can be concluded that idealist auditors were more likely to condemn the actions of clients that violated moral norms, while relativist auditors were more permissive. Originality/value-Our results identify the role of moral philosophy as a mediator for the personal values and ethical beliefs of auditors, shedding light on how personal values can influence ethical sensitivity.

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“…Independence is particularly relevant to larger auditors, such as members of Big 4 which want to protect their reputation and avoid costly litigation (Francis and Krishnan, 1999;Francis and Yu, 2009). Prior studies have substituted audit firm size as a common surrogate for audit quality (e.g., DeAngelo, 1981;Moore and Scott, 1989;Becker et al, 1998;Lennox, 1999Lennox, , 2005Kane and Velury, 2004;Lee et al, 2004;Mansi et al, 2004;Lin and Liu, 2009b;Lennox and Pittman, 2010) because large auditors possess a higher degree of independence and expertise. The Big 4 audit firms is used as the proxy for audit quality (AQ) in this paper.…”

Section: Dependent Variablementioning

confidence: 99%

The impact of internal governance mechanisms on audit quality: a study of large listed companies in China

Shan

2014

IJAAPE

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Purpose-This paper examines whether audit quality of Chinese listed companies is affected by internal governance mechanisms (IGMs). Design/methodology/approach-The sample contains a panel data set of 117 companies with 540 firm-year observations during 2001-2005. The logistic regression model is used to investigate the three sets of hypotheses regarded IGMs. Findings-The results show that foreign ownership and the number of professional supervisors are positively related to audit quality, but the size of supervisory board shows a negative correlation. Other IGMs including state ownership, the size of board of directors, the number of independent directors, the frequency of board meetings, and the frequency of supervisory board meetings are found to have no impact on audit quality. Practical implications-This paper offers insights to policy-makers and regulators interested in enhancing corporate governance in China. It also provides recommendations to prescribe the legal responsibilities and obligations for two-tier boards in the Chinese context, allowing them to undertake their duties diligently. Originality/value-The contribution of this paper is twofold. First, prior literature incompletely uncovers the impact of concentrated ownership and two-tier board system on 2 audit quality. This paper provides a comprehensive evaluation of independent and interdependent effects of IGMs of Chinese characters and investigates how these IGMs jointly affect audit quality in China. Second, this paper considers the improvement of legal environment as one of external governance mechanisms (EGMs) proposed by Denis and McConnell (2003) and examine the relationship between company"s IGMs and it"s the decision for audit quality choice.

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Auditors' legal liability, collusion with management, and investors' loss*

Cited by 27 publications

References 7 publications

A Note on the Association between Audit Firm Size and Audit Quality*

A Note on the Association between Audit Firm Size and Audit Quality*

Auditors' moral philosophies and ethical beliefs

The impact of internal governance mechanisms on audit quality: a study of large listed companies in China

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