Earnings Manipulation Risk, Corporate Governance Risk, and Auditors' Planning and Pricing Decisions

Bedard, Jean C.; Johnstone, Karla M.

doi:10.2308/accr.2004.79.2.277

Cited by 570 publications

(418 citation statements)

References 53 publications

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“…4 Prior research is generally consistent with auditors responding to risks, although it is somewhat mixed. For example, using a small sample and private data, Bedard and Johnstone (2004) report that auditors plan increased effort and billing rates for clients with earnings manipulation risk (measured using engagement partner assessments of existing clients).…”

Section: Audit Risk Influences Audit Feesmentioning

confidence: 99%

Audit Fees and Book-Tax Differences

Hanlon¹,

Krishnan²,

Mills³

2012

Journal of the American Taxation Association

108

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We investigate whether book-tax differences are associated with higher audit fees, a proxy for auditor risk assessments and auditor effort. Our evidence suggests that there is a significantly positive relation. Further, this association is larger for firms that appear to have managed earnings (i.e., have high accruals) relative to those that are tax avoiders (i.e., have low cash effective tax rates). Our evidence is consistent with large book-tax differences representing an observable proxy for earnings management that is associated with auditor decisions. Our study contributes to capital market research that examines audit fees, as well as other research that examines the usefulness of book-tax differences for market participants.

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Section: Audit Risk Influences Audit Feesmentioning

confidence: 99%

Audit Fees and Book-Tax Differences

Hanlon¹,

Krishnan²,

Mills³

2012

Journal of the American Taxation Association

108

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“…Board independence is an important element to ensure the board's ability to effectively monitor management (Bedard and Johnstone, 2004). Independent directors are effective monitors as they are neither financially tied to the firm nor psychologically tied to management (Boo and Sharma, 2008).…”

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confidence: 99%

Continuous disclosure compliance: does corporate governance matter?

Chapple

Truong

2014

Accounting & Finance

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Our study investigates the quality of firms' continuous disclosure compliance during mandatory continuous disclosure reform, and whether the compliance quality is impacted by corporate governance, using the New Zealand market as the setting. We use a novel coding of different categories of disclosures (nonroutine, non-procedural and internal), which represents the extent of proprietary insider information inherent in disclosures, to evaluate firms' compliance quality. Our findings provide evidence that firms' compliance quality improved after the reform, and this improvement is inconsistently impacted by corporate governance. Our findings provide important implications for regulators in their quest for a superior disclosure regime.

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“…Furthermore, previous literature attempts to identify the practical key determinants of the audit risk, like the client' business risk [48,49], the clients' internal corporate governance features [50,51], the litigation risk [52], book-tax differences [53] and the client financial condition [52]. Within this framework, some scholars identified proxies for each component of the audit risk; as for inherent risk, it seems to be associated to the nature of client's business, size, complexity, leverage and to significant accruals such as receivables and inventory [54][55][56].…”

Section: Audit Riskmentioning

confidence: 99%

Does Intellectual Capital Disclosure Matter for Audit Risk? Evidence from the UK and Italy

Demartini

Trucco

2016

Sustainability

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Disclosure theory argues that better information quality reduces audit risk, by decreasing information asymmetry in the market and consequently, information risk for firms. Extant literature on voluntary disclosure analyzes the relationships between Corporate Social Responsibility (CSR) and audit risk, finding that auditors charge lower fees and issue less going concern opinions to firms with good CSR performance. In this study, we test the relationship between intellectual capital disclosure (ICD) and audit risk and we assess the effect of ICD and audit risk on audit fees. To do so, we use data from the ESG Asset4 database (Thomson Reuters Datastream) on 166 UK and 27 Italian listed firms that issue stand-alone social and intellectual capital statements. The audit risk is measured from both a qualitative and a quantitative perspective. Panel data analysis on 2004-2011 years has been used to test our research hypotheses. Empirical findings from a sample of UK and Italian listed companies show that auditors estimate a lower qualitative risk, albeit a higher quantitative one, for those companies reporting higher ICD scores, compared to those ones with lower disclosure scores on the intellectual capital. Furthermore, we find that reputation risk contributes to the relationship between ICD and audit risk.

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Earnings Manipulation Risk, Corporate Governance Risk, and Auditors' Planning and Pricing Decisions

Cited by 570 publications

References 53 publications

Audit Fees and Book-Tax Differences

Audit Fees and Book-Tax Differences

Continuous disclosure compliance: does corporate governance matter?

Does Intellectual Capital Disclosure Matter for Audit Risk? Evidence from the UK and Italy

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