Financial Reporting Opacity, Audit Quality and Crash Risk: Evidence from Japan

The purpose of this study is to test both the alignment theory and entertainment theory on family firms listed on the Pakistan Stock Exchange. To achieve these goals, we collected secondary data from 164 non-financial family firms in various sectors during 2014-18. These family firms are classified into two categories: family control firms and family owned firms. We take the audit fee and the audit quality as dependent variables while family control firms, family-owned firms, and family CEOs as independent variables. In addition, the study uses leverage, profit and export as control variables. To test the effect of the explanatory variables on the output variables, we use two econometric models, Ordinary Least Square and the Probit regression model. In addition, Huber Sandwich test is used to check the nonnormality and heteroscedasticity of panel data. Contrary to the alignment effect, the study supports the entrenchment effect and advocates that family-controlled firms as well as family-owned firms are not conscientious regarding the selection of external auditors during their contracts with audit firms. They are less likely to pay high audit fees for good quality audit in Pakistan. Furthermore, the study shows a statistically significant and positive relationship between audit quality and audit fees.

“…The management of these companies would like to accept low quality audit (AQ) in return for low audit fee (AF). Our results are consistent with Chae, Nakano and Fujitani (2020).…”

Section: Discussionsupporting

confidence: 92%

Entrenchment Effect and Audit Quality in Family Business of Pakistan

Tahir¹,

Akram²,

Perveen³

et al. 2020

“…Firstly, the Corporate governance control variables, namely, board of directors' effectiveness (BDE) and audit committee effectiveness (ACE); secondly, the firm characteristics control variables, namely, firm size (SIZE), firm performance (ROA), leverage (LEV), and firm age (AGE). Prior studies have uncovered that those variables are associated with audit report lag (Knechel & Sharma, 2012;Dao & Pham, 2014;Hassan, 2016;Meckfessel & Sellers, 2017;Samaha & Khlif, 2017, Habib & Muhammadi, 2018Farag, 2017;Wan Hussin, Bamahros, & Shukeri,2018;Abdillah, Mardijuwono, & Habiburrochman, 2019;Mathuva, Tauringana, & Owino, 2019;Aljaaidi, Omer, & Bagulaidah, 2019;Baatwah, Salleh, & Stewart, 2019;Chae, Nakano, & Fujitani, 2020;Ha, & Nguyen, 2020;.…”

Section: Final Sample 198mentioning

confidence: 99%

Risk Management Functions and Audit Report Lag among Listed Saudi Manufacturing Companies

Omer¹,

Aljaaidi²,

Almoataz³

2020

This paper examines whether the combination of risk management and audit committee functions are associated with audit report lag. Audit report lag is considered an important aspect of the financial reporting. The financial reports are the main source of information for shareholders through which they make their decisions and it assists in reducing the information asymmetry. As the internal control mechanisms substitute the external ones, the internal board committees formed by the board of directors can reduce the audit work and, consequently, reduces the audit report lag. A key committee is the risk management committee. This paper examines whether the combination of risk management and audit committee functions are associated with audit report lag. We posit that a combination of such functions in one committee refereed as audit committee affects the audit report delay. Data were obtained from 198 manufacturing companies listed on the Saudi Stock Exchange (Tadawul) for the years 2016-2018. A pooled OLS regression analysis shows that a combination of risk management and audit committee functions in a stand-alone committee named "audit committee" is associated with longer audit report lag. The outcomes suggest companies should prioritize the establishment of standalone risk management committee with activities separated from those of audit committees.

“…Stewardship theory additionally documents that management is hired to act in the best interest of the company's owners. Chae, Nakano, and Fujitani (2020) stated that the effect of audit quality is verified. Auditors can mitigate risks by playing a role as corporate governance device mechanism to reduce agency costs.…”

Section: Introductionmentioning

confidence: 99%

Determinants of Voluntary Audit of Small and Medium Sized Enterprises: Evidence from Vietnam

Ha¹,

Nguyen²

2020

The paper investigates the factors that affect the demand for a voluntary audit of small and medium-sized enterprises (SMEs) in Vietnam. A structured questionnaire survey of 284 SMEs was employed, preceded by in-depth interviews with auditors and SMEs' managers. The research used logistic regression estimator to address econometric issues and to improve the accuracy of the regression coefficients. The results show that the degree of director's view on voluntary audit, related stakeholder, degree of recommendation, and firm size have a statistically significant positive effect on audit decisions of SMEs while degree of audit fee has a statistically significant negative effect, and degree of subjective norm does not affect. This indicated that SMEs are more likely to have an external audit if they have some typical features: it is becoming larger in terms of size, and the directors consider that the audit has a relative benefit outweighing its cost. The research results suggested that Vietnam Government should make a statutory audit of SMEs' financial statements rather than make it an option for SMEs. The auditing firms were also recommended to actively take their audit services to SMEs rather than waiting for the SMEs' managers to contact them for their services.