Long-term audit engagements and opinion shopping: Spanish evidence

Ruiz‐Barbadillo, Emiliano; Aguilar, Nieves Gómez; López, Estíbaliz Biedma

doi:10.1016/j.accfor.2005.03.007

Cited by 25 publications

(16 citation statements)

References 26 publications

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“…Proponents of mandatory rotation argue that imposing mandatory limits on auditor tenure improves audit quality by reducing clients' influence over auditors or auditor complacency (e.g., Turner 2002;Brody and Moscove 1998;SEC 1994;AICPA 1978;U.S. Opponents of mandatory rotation argue that substandard audits occur more frequently for newer clients because auditors have less information about these firms (Stanley and DeZoort 2007;Carcello and Nagy 2004;Johnson et al 2002;Walker et al 2001;AICPA 1992); or the newly appointed auditors, concerned with recovering startup costs, are more easily influenced by the client during early years of an audit engagement (Ruiz- Barbadillo et al 2006;Geiger and Raghunandan 2002). Opponents of mandatory rotation argue that substandard audits occur more frequently for newer clients because auditors have less information about these firms (Stanley and DeZoort 2007;Carcello and Nagy 2004;Johnson et al 2002;Walker et al 2001;AICPA 1992); or the newly appointed auditors, concerned with recovering startup costs, are more easily influenced by the client during early years of an audit engagement (Ruiz- Barbadillo et al 2006;Geiger and Raghunandan 2002).…”

Section: Audit Firm Rotationmentioning

confidence: 99%

Audit Firm Rotation, Auditor Specialization, and Audit Quality in the Municipal Audit Context

Elder

Lowensohn

Reck

2015

Journal of Government &Amp; Nonprofit Accounting

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The topic of audit firm rotation has been debated internationally for several decades. To inform the debate, we study the effects of audit firm rotation policies on audit quality in a government audit market. Using audit firm rotation data and audit quality measures from the Florida government audit market, a setting where procurement policies vary, we find that rotation policies are indirectly associated with higher audit quality. In particular, mediation analysis suggests that the consequences of policies that encourage Florida municipalities to consider rotation impact audit quality by encouraging the use of auditors that specialize in governmental audits, rather than auditor independence, which is frequently argued to support mandatory rotation.

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Section: Audit Firm Rotationmentioning

confidence: 99%

Audit Firm Rotation, Auditor Specialization, and Audit Quality in the Municipal Audit Context

Elder

Lowensohn

Reck

2015

Journal of Government &Amp; Nonprofit Accounting

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“…If the firm receives a clean report, then the probability that the incumbent auditor will be retained is high, while the opposite occurs in the case of qualified audit opinions (Krishnan, 1994; Krishnan & Stepens, 1995; Lennox, 2000). Hence, there are economic incentives for auditors to issue an unqualified opinion in order to retain large clients (Stice, 1991; Lys & Watts, 1994; Ruiz‐Barbadillo et al ., 2005) as prior empirical evidence documents a positive relationship between size and audit fees both in the industrial (e.g. Chan et al ., 1993; Brinn et al ., 1994; Che‐Ahmad & Houghton, 1996; Pasiouras et al ., 2005b) and financial (Fields et al ., 2004) sectors.…”

Section: Methodsmentioning

confidence: 99%

External Auditors’ Decisions in EU Credit Institutions: A Multicriteria Approach

2006

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In this paper we develop classification models that could assist auditors in their decision to issue a qualified or unqualified opinion during the auditing of EU credit institutions. The models are developed with the Utilites Additives Discriminantes (UTADIS) multicriteria technique and incorporate financial and non‐financial variables. Discriminant analysis is also employed for comparison purposes. The dataset consists of 80 qualified financial statements and 2,631 unqualified ones, from 446 credit institutions operating in eight EU countries over the period 1995–2002. The models are developed and tested using a ten‐fold cross‐validation approach. The results show that the developed auditing models can discriminate between financial statements that should receive qualified opinions from the ones that should receive unqualified opinions. The overall accuracy is 73.55% in the validation sample for a general model and increases up to 88.49% in the case of a model developed specifically for commercial banks.

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“…The risk of losing confidence from investors encourages the management to try to acquire and maintain an unqualified opinion 21 . Problems arise when a company does not have high quality financial statements to support the unqualified opinion 1 .This means management must find other efforts to obtain/maintain the desired opinion.…”

Section: The Effect Of Abnormal Audit Fee On the Probability Of Determentioning

confidence: 99%

“…Based on previous research, it is assumed that only companies who need to retain the auditor's opinion without a reliable financial statement base will conduct opinion shopping 1,[20][21][22] . Opinion shopping occurs during negotiations, whereby the auditor encourages management to approve the accounting practices conducted by the management with the threat of dismissal 22 .…”

Section: The Effect Of Abnormal Audit Fee On the Probability Of Determentioning

confidence: 99%

Impact of Abnormal Audit Fee on Audit Opinion

Sangkrista¹,

Fitriany²

2018

Proceedings of the 6th International Accounting Conference (IAC 2017)

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The objectives of this research are to investigate whether abnormal audit fees affect the probability of audit opinion deteriorating, and whether abnormal audit fees influence the probability of receiving unqualified auditing opinions. Abnormal audit fees comprise the difference between the actual audit fee paid to the auditor and the expected, normal fee that should have been charged for the audit engagement effort. An ordered logit regression technique was used. The study shows that an increase in abnormal auditing fees increases the probability of a better audit opinion given by the auditor. As a result, a degree of opinion shopping does occur in Indonesia. Furthermore, this study also finds that increases in abnormal audit fees also increase the probability of companies obtaining unqualified audit opinions. This shows that abnormal audit fees influence the audit opinion via opinion shopping, increasing auditors' dependence on their clients and decreasing the independence of the auditor. This research provides advice for regulators to encourage mandatory disclosure on auditing fees. Based on available data, it is evident that companies engage in the practice of opinion shopping, in order to maintain or gain a better opinion. Audit fees that are not disclosed allow companies to take these actions more freely, without being controlled by stakeholders. Opinion shopping practices are harmful for capital market conditions because they erode the trust of stakeholders around assurance services.

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Long-term audit engagements and opinion shopping: Spanish evidence

Cited by 25 publications

References 26 publications

Audit Firm Rotation, Auditor Specialization, and Audit Quality in the Municipal Audit Context

Audit Firm Rotation, Auditor Specialization, and Audit Quality in the Municipal Audit Context

External Auditors’ Decisions in EU Credit Institutions: A Multicriteria Approach

Impact of Abnormal Audit Fee on Audit Opinion

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