Does Auditors' Reputation Discourage Related Party Transactions? The French Case

Bennouri, Moez; Nekhili, Mehdi; Touron, Philippe

doi:10.2139/ssrn.1823464

Cited by 4 publications

(16 citation statements)

References 0 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…In the French joint audit setting, the choice of two Big 4 auditors is associated with smaller abnormal income-increasing accruals (Francis et al, 2009) and with a decrease in the number of related party transactions (Bennouri et al, 2012). Regarding the former finding, it appears that companies with higher agency costs are more likely to be audited by higher-quality audit pairs (Francis et al, 2009).…”

Section: Consequences Of Joint Auditor Pair Choice On Audit Qualitymentioning

confidence: 91%

“…Therefore, the selection of joint auditor pairs by client companies necessitates the use of sophisticated statistical models in research in order to take into account the propensity of companies to select zero, one or two Big 4 audit firms as joint auditors according to their specific needs. In order to control for the propensity to choose diverse configurations of auditor pairs, and in an attempt to rule out this selection bias, several researchers have developed and applied two-stage models (Heckman, 1979) that are adapted to the specific joint auditor selection (Audousset-Coulier, 2012;Bennouri, 2012). In addition, high-quality auditors may well select low-risk clients in order to mitigate the overall risk within their client portfolio, which, in turn, introduces a risk of reverse causality that can influence the results in empirical models.…”

Section: Self-selection Biasmentioning

confidence: 99%

See 1 more Smart Citation

Joint Audit: Issues and Challenges for Researchers and Policy-Makers

Ratzinger‐Sakel

Audousset-Coulier

Kettunen

et al. 2013

Accounting in Europe

View full text Add to dashboard Cite

The publication of the European Commission Green Paper, "Audit Policy: Lessons from the Crisis" in October 2010, has stirred up a lively debate on the role of joint audits. This literature review identifies and evaluates, for the benefit of future research and regulators, existing evidence about joint audits. We find limited empirical support to suggest that joint audits lead to increased audit quality, but some empirical support to suggest that joint audits lead to additional costs. Overall, this paper indicates that joint audit should be seen as a mechanism that is embedded in a broader institutional context, and not be considered in isolation from other factors that might impact the audit market. The results indicate that various country-level characteristics are simultaneously at play. While joint audits can potentially enhance the audit market competition by allowing smaller audit firms to maintain larger market shares, the related impact on audit quality has not yet been clearly demonstrated and thus provides a promising avenue for future research.3

show abstract

Section: Consequences Of Joint Auditor Pair Choice On Audit Qualitymentioning

confidence: 91%

Section: Self-selection Biasmentioning

confidence: 99%

Joint Audit: Issues and Challenges for Researchers and Policy-Makers

Ratzinger‐Sakel

Audousset-Coulier

Kettunen

et al. 2013

Accounting in Europe

View full text Add to dashboard Cite

show abstract

“…Gao and Kling (2008) found evidence from a sample of Chinese firms that companies that have audit reports with unqualified opinions are associated with less tunneling. In France, Bennouri et al (2011) showed that the reputation of the external auditor (Big 4 vs Non-Big 4) is significantly related to the number of RPTs reported to outside shareholders. They revealed that firms audited by a Big 4 audit firm report fewer RPTs.…”

Section: Can External Auditing Reduce the Negative Effects Of Related-party Transactions?mentioning

confidence: 99%

“…RPTs are disclosed in financial statement footnotes and researchers working on North American and European cases will have manually identified, extracted and systematically collated these data. For example, studies conducted using data from the USA, France and Greece have been based on small to moderate samples, between 84 and 331 firms (Ryngaert and Thomas, 2012; Gordon and Henry, 2005; Bennouri et al , 2011; El-Helaly, 2016). On the other hand, studies such as those by Berkman et al (2009), Jiang et al (2010) and Peng et al (2011), which used Chinese samples, have reported results based on samples of 875; 1,377; and 787 unique firms, respectively.…”

Section: Research Design Issuesmentioning

confidence: 99%

“…It might be considered surprising that RPTs have not received the same level of attention from researchers in the USA, given concerns over the presence of suspicious RPTs in recent high-profile accounting fraud scandals such as Enron, Adelphia, WorldCom and Tyco (Gordon et al , 2007), nor in Europe, despite scandals including Rundenwerke, Parmalat and Bremer Vulkan (Bennouri et al , 2011). Nevertheless, the unveiling of accounting scandals related to RPTs in European countries and the US shows that this area of research is important and relevant around the world, not just in Asian countries, which have thus far been the principal focus of research into RPTs.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Related-party transactions: a review of the regulation, governance and auditing literature

El-Helaly

2018

MAJ

View full text Add to dashboard Cite

Purpose Several studies, especially in Asian economies, have investigated the antecedents, implications and consequences of related-party transactions (RPTs). This paper aims to review this literature to collate, gauge and critically discuss understandings of the relationship between RPTs and risk, with a particular focus on audit risk. Design/methodology/approach The paper discusses RPTs and how they have been associated with corporate scandals and the expropriation of shareholders’ wealth. RPTs are defined as per accounting standards and the main types of RPTs are described based on the extant literature. Two key research design issues are discussed: measures used to operationalize RPTs and observable variations in sample size across RPT studies. Evidence is presented on the negative effects of RPTs and the role of regulation, corporate governance and auditing in reducing risks. Findings Prior studies have associated RPTs with the expropriation of shareholders’ wealth, declining firm valuations, lower-quality financial reporting, increased risk of material misstatements and decreases in long-term firm performance. Further, the evidence suggests that regulation, corporate governance and auditing can mitigate the negative effects of RPTs. Practical implications This paper provides insights for regulators on the effects of enforcement, corporate governance and external audits on reducing the negative effects of RPTs, and highlights the increased risk of material misstatements in financial statements when RPTs are conducted. Moreover, it reveals how RPTs affect risk assessments for auditors. Originality/value This paper represents the first comprehensive review of the empirical RPT literature. It provides a starting point for future investigations of RPTs, not least because it reveals important limitations with the extant body of research in this domain. It also offers salient insights and implications for practitioners and policy makers.

show abstract

The impact of disclosure level and client incentive on auditors’ judgments of related party transactions

Yang

Ruan

Tang

2020

IJAIM

View full text Add to dashboard Cite

Purpose The purpose of this study is to present the results of an experiment that examines the effects of client management’s increased disclosure of related party transactions (RPTs) on auditors’ judgments of financial reports that contain RPTs. Design/methodology/approach This study used a 2 × 2 between-subjects experiment to investigate auditors’ judgments in response to questionable RPTs in a Chinese context. Findings The results show that the auditor participants assessed a lower likelihood that the client’s financial statements were intentionally misstated and that they were less likely to request additional evidence when the client management chose to disclose more, as opposed to less, detailed RPT information in their disclosure. Moreover, there was a significant interaction between disclosure level and client incentive to manipulate earnings on the likelihood of the auditor requesting additional evidence. Practical implications This study should be of interest to regulatory agencies that have expressed concerns over auditing practices related to RPTs. Originality/value The findings from this study help to provide a more in-depth understanding of disclosure literature by investigating voluntary RPT disclosure and the moderation role of clients’ incentives to manipulate earnings.

show abstract

Does Auditors' Reputation Discourage Related Party Transactions? The French Case

Cited by 4 publications

References 0 publications

Joint Audit: Issues and Challenges for Researchers and Policy-Makers

Joint Audit: Issues and Challenges for Researchers and Policy-Makers

Related-party transactions: a review of the regulation, governance and auditing literature

The impact of disclosure level and client incentive on auditors’ judgments of related party transactions

Contact Info

Product

Resources

About