The Association between Auditor Industry Specialization and Firms' Disclosure of Internal Control Weaknesses

Rose–Green, Ena; Huang, Hua‐Wei; Lee, Chih-Chen

doi:10.1111/j.1099-1123.2011.00430.x

Cited by 19 publications

(9 citation statements)

References 32 publications

(83 reference statements)

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“…Moreover, their industry-specific reputation might also be higher. Confirming these general arguments, prior studies show that industry specialization leads to higher audit quality (e.g., Krishnan, 2005;Reichelt and Wang, 2010;Rose-Green et al, 2011;Bae et al, 2019), which is also priced in by the capital market (e.g., Balsam et al, 2003;Knechel et al, 2007). With respect to different industry specialization measures, Audousset-Coulier et al (2016) show that particularly market leadership based on audit fees is positively associated with fee premiums, which might represent higher audit quality and reputation, and negatively associated with discretionary accruals, which might indicate higher earnings quality and thus audit quality.…”

Section: Prior Literature and Hypothesesmentioning

confidence: 54%

“…Moreover, their industry‐specific reputation might also be higher. Confirming these general arguments, prior studies show that industry specialization leads to higher audit quality (e.g., Krishnan, ; Reichelt and Wang, ; Rose‐Green et al ., ; Bae et al ., ), which is also priced in by the capital market (e.g., Balsam et al ., ; Knechel et al ., ). With respect to different industry specialization measures, Audousset‐Coulier et al .…”

Section: Prior Literature and Hypothesesmentioning

confidence: 99%

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The Impact of Audit Quality Indicators on the Timeliness of Goodwill Impairments: Evidence from the German Setting

Albersmann

Quick

2020

Abacus

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This study investigates whether goodwill impairments are perceived as timely and whether specific auditor characteristics affect the perceived timeliness. It therefore contributes to central questions in accounting research: is managerial discretion over accounting numbers (accounting choice) good or bad for stakeholders and does audit quality have an impact on this relationship? It is motivated by the IASB's post‐implementation review on business combinations and the Goodwill and Impairment project based on it, the ongoing debate on the decision usefulness of impairment testing, and the question whether auditors have an impact on firms’ reporting of impairment losses. Based on a sample of German listed firms for the period 2006 to 2013, the results indicate that goodwill impairments are not recognized in a timely manner and delayed by at least one to two years. Moreover, the findings suggest that the recognition of impairment losses is influenced by auditor characteristics. In particular, firms seem to report goodwill impairments in a more timely fashion when they are audited by a Big 4 auditor, whereas the timeliness seems to decrease with a higher non‐audit fee ratio and a longer auditor tenure. Moreover, additional analyses indicate that higher audit fees lead to more timely impairments.

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Section: Prior Literature and Hypothesesmentioning

confidence: 54%

Section: Prior Literature and Hypothesesmentioning

confidence: 99%

The Impact of Audit Quality Indicators on the Timeliness of Goodwill Impairments: Evidence from the German Setting

Albersmann

Quick

2020

Abacus

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“…Firms audited by industry‐specialist auditors are also more likely to report internal control weakness (Rose‐Green et al. ). Hegazy et al.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Impact of Partner Change on Audit Quality: An Analysis of Partner and Firm Specialisation Effects

Arthur

Endrawes

2017

Australian Accounting Review

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This study investigates the impact of audit partner rotation on audit quality and whether industry specialisation moderates such a relationship. The results of this study show that audit partner rotation can enhance audit quality but only when both the incoming audit partner and the audit firm are industry specialists. The results of the study provide valuable insights into the effectiveness of audit partner rotation and auditor industry specialisation practices, and their impact on audit quality. The results have implications for the profession as well as regulators regarding audit partner and audit firm industry specialisation. This is the first study to examine the moderating effect of industry specialisation on the auditor rotation-audit quality relationship at the partner level. The introduction of industry specialisation as a moderating factor provides additional insights into the auditor rotation-audit quality relationship at the partner level.

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“…Big 4 audit quality may have an impact on the association between management characteristics and an MW, because Big 4 auditors may choose clients with better internal control mechanisms, and have more industry specialists to monitor and improve the quality of clients' internal control quality (Rose‐Green, Huang, & Lee, ). In addition, the prior literature suggests that when the senior management devotes attention to the development of enterprise risk management, Big 4 auditors may act as a facilitator to extend the implementation of this (Mark, Clune, & Hermanson, ).…”

mentioning

confidence: 99%

CEO Characteristics and Internal Control Quality

Lin¹,

Wang

Chiou

et al. 2013

Corporate Governance

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Manuscript Type Empirical Research Question/Issue This study investigates the influence of CEO characteristics on internal control quality in the U.S. Research Findings/Insights Using a sample of 4,374 ExecuComp non‐financial firms, we find that CEO entrenchment and age are significantly associated with a material internal control weakness disclosure (MW) under Sarbanes‐Oxley Section 404 (SOX 404). Our results demonstrate that entrenchment and age may affect CEOs' behavior in response to the SOX 404 internal control requirements. Theoretical/Academic Implications This study provides empirical support for the influence of CEO characteristics on material internal control weakness. As a result, the effects of internal control mechanisms are likely to be decreased in firms with entrenched and younger CEOs, consistent with entrenchment theory. Practitioner/Policy Implications This study offers insights to regulators and lawmakers interested in the effects of CEO characteristics on internal control weakness. Importantly, it points out that CEO entrenchment and age are likely to affect the strength of internal control mechanisms.

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The Association between Auditor Industry Specialization and Firms' Disclosure of Internal Control Weaknesses

Cited by 19 publications

References 32 publications

The Impact of Audit Quality Indicators on the Timeliness of Goodwill Impairments: Evidence from the German Setting

The Impact of Audit Quality Indicators on the Timeliness of Goodwill Impairments: Evidence from the German Setting

Impact of Partner Change on Audit Quality: An Analysis of Partner and Firm Specialisation Effects

CEO Characteristics and Internal Control Quality

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