Does size matter? The influence of large clients on office-level auditor reporting decisions

Reynolds, J. Kenneth; Francis, Jere R.

doi:10.1016/s0165-4101(01)00010-6

Cited by 1,039 publications

(871 citation statements)

References 27 publications

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“…Firm leverage, cash flow from operations, and the presence of a Big 4 auditor have been found to be negatively related to abnormal accruals (Warfield et al 1995;Dechow et al 1996;Becker et al 1998;Francis et al 1999;Bartov et al 2000;Frankel et al 2002). Finally, Reynolds and Francis (2000) note that the Modified Jones Model may overestimate accruals for poorly performing firms. Thus we include DISTRESS, a measure of the firm's financial condition, in the model to control for these concerns.…”

Section: Modelmentioning

confidence: 88%

Audit Committee Financial Expertise, Competing Corporate Governance Mechanisms, and Earnings Management

et al. 2006

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A prime objective of the Sarbanes-Oxley Act and recent changes to stock exchange listing standards is to improve the quality of financial reporting. We examine the associations between audit committee financial expertise and alternate corporate governance mechanisms and earnings management. We find that both accounting and certain types of non-accounting financial expertise reduce earnings management for firms with weak alternate corporate governance mechanisms, but that independent audit committee members with financial expertise are most effective in mitigating earnings management. Importantly we find that alternate corporate governance mechanisms are an effective substitute for audit committee financial expertise in constraining earnings management. Finally, we find either no association or a positive association between financial expertise and real earnings management. Our results suggest that alternate governance approaches are equally effective in improving the quality of financial reporting, and that firms should have the flexibility to design the particular set of governance mechanisms that best fit their unique situations.

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Section: Modelmentioning

confidence: 88%

Audit Committee Financial Expertise, Competing Corporate Governance Mechanisms, and Earnings Management

et al. 2006

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“…In this setting, the audit firm's desire to retain a client that represents a significant economic asset for the firm, leads to reduced auditor independence (Reynolds & Francis 2001).…”

Section: Audit Quality and The Effect Of Soxmentioning

confidence: 99%

“…Because actual audit fee data has limited availability for the pre-SOX period, we use the client company-year's total sales (natural log) to proxy for audit revenue (Reynolds and Francis 2001).…”

Section: Data and Sample Selectionmentioning

confidence: 99%

“…Prior studies indicate that actual audit fees paid to (or, in the case of our proxy, the total client sales audited by) an auditor is a reliable measure for auditor reliance, or economic dependence, on a client or particular industry (Simunic 1984;Reynolds & Francis 2001;Chung & Kallapur 2003 We then screen sample company-years for required financial statement data in the prior, current and subsequent years. Earnings is equal to income before extraordinary items (COMPUSTAT item 18), scaled by average total assets (item 6).…”

Section: Data and Sample Selectionmentioning

confidence: 99%

“…We then partition the entire sample of audit-client companies into high-and low-auditorindependence groups based on a measure of audit-firm independence used in prior literature (e.g., Reynolds and Francis 2001). We compare accrual persistence across this partition.…”

Section: Introductionmentioning

confidence: 99%

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Audit quality and accrual persistence: evidence from the pre‐ and post‐Sarbanes‐Oxley periods

Chambers

Payne

2011

Managerial Auditing Journal

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Purpose -The purpose of this paper is two-fold: first, to examine whether the quality of accruals, as measured by accrual persistence, improved in the post-SOX period, and second, to examine the degree to which SOX-related improvement in accrual persistence varies across companies depending on the degree of their auditor's independence. Design/methodology/approach -The paper compares accrual persistence in the pre-and post-SOX periods to test the first question. Then, partitioning on relative client importance as a measure of auditor independence, the paper compares the SOX-based improvement for clients of low and high independence audit firms. Findings -The study first demonstrates that accrual persistence increased significantly in the post-SOX period. The study also finds evidence that in the post-SOX period, the subsample of companies audited by Big-N auditors with lower-independence experienced the greatest improvement in accrual persistence. Originality/value -This is the first paper to evaluate SOX-related improvements in the quality of earnings as measured by accrual persistence. Prior studies test abnormal accruals and other earnings management metrics, however, persistence is a more general test of financial statement quality. This study also is the first to compare SOX-related improvements for clients of firms with differing levels of independence.

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Reputation in Financial Intermediation: Evidence from Venture Capital

Nahata

2010

Venture Capital

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Does size matter? The influence of large clients on office-level auditor reporting decisions

Cited by 1,039 publications

References 27 publications

Audit Committee Financial Expertise, Competing Corporate Governance Mechanisms, and Earnings Management

Audit Committee Financial Expertise, Competing Corporate Governance Mechanisms, and Earnings Management

Audit quality and accrual persistence: evidence from the pre‐ and post‐Sarbanes‐Oxley periods

Reputation in Financial Intermediation: Evidence from Venture Capital

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