We define higher audit quality as greater assurance of high financial reporting quality. Researchers use many proxies for audit quality, with little guidance on choosing among them. We provide a framework for systematically evaluating their unique strengths and weaknesses. Because it is inextricably intertwined with financial reporting quality, audit quality also depends on firms’ innate characteristics and financial reporting systems. Our review of the models commonly used to disentangle these constructs suggests the need for better conceptual guidance. Finally, we urge more research on the role of auditor and client competency in driving audit quality.

A Review of Archival Auditing Research

https://www.dejongeaccountants.nl/wp-content/uploads/2014/09/1-s2.0-S0165410114000536-main.pdf

A review of archival auditing research

Abstract : A study is reported of the variations in organizational commitment and job satisfaction, as related to subsequent turnover in a sample of recently-employed psychiatric technician trainees. A longitudinal study was made across a 10 1/2 month period, with attitude measures collected at four points in time. For this sample, job satisfaction measures appeared better able to differentiate future stayers from leavers in the earliest phase of the study. With the passage of time, organizational commitment measures proved to be a better predictor of turnover, and job satisfaction failed to predict turnover. The findings are discussed in the light of other related studies, and possible explanations are examined. (Modified author abstract)

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Organizational Commitment, Job Satisfaction and Turnover Among Psychiatric Technicians. Technical Report No. 16.

Earnings management is of great concern to corporate stakeholders. While numerous studies have investigated the effects of various corporate governance and audit quality variables on earnings management, empirical evidence is rather inconsistent. This meta-analysis identifies 12 significant relationships by integrating results from 48 prior studies. For corporate governance, the independence of the board of directors and its expertise have a negative relationship with earnings management. Similar negative relationships exist between earnings management and the audit committee's independence, its size, expertise, and the number of meetings. The audit committee's share ownership has a positive effect on earnings management. For audit quality, auditor tenure, auditor size, and specialization have a negative relationship with earnings management. Auditor independence, as measured by fee ratio and total fee, is also a deterrent to earnings management.

Audit quality, corporate governance, and earnings management: A meta-analysis.

The workplace environment impacts employee morale, productivity and engagement - both positively and negatively The work place environment in a majority of industry is unsafe and unhealthy These includes poorly designed workstations, unsuitable furniture, lack of ventilation, inappropriate lighting, excessive noise, insufficient safety measures in fire emergencies and lack of personal protective equipment People working in such environment are prone to occupational disease and it impacts on employee’s performance Thus productivity is decreased due to the workplace environment It is the quality of the employee’s workplace environment that most impacts on their level of motivation and subsequent performance How well they engage with the organization, especially with their immediate environment, influences to a great extent their error rate, level of innovation and collaboration with other employees, absenteeism and ultimately, how long they stay in the job Creating a work environment in which employees are productive is essential to increased profits for your organization, corporation or small business The relationship between work, the workplace and the tools of work, workplace becomes an integral part of work itself The management that dictate how, exactly, to maximize employee productivity center around two major areas of focus: personal motivation and the infrastructure of the work environment

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Workplace environment and its impact on organisational performance in public sector organisations

Effective February 05, 2001, publicly traded companies are required to disclose audit and nonaudit fees paid to their external auditors. These fee data have been used to test whether auditor independence is impaired when the external auditor provides nonaudit services to a client, usually by examining whether certain earnings characteristics are related to nonaudit fees in ways that suggest impairment. This paper follows in that tradition by testing whether the earnings response coefficient (ERC), a proxy for earnings quality, is associated with engagement profitability. Residual fees derived from a two‐stage regression model that prices audit and nonaudit services simultaneously are used to proxy for engagement profitability. If the market perceives abnormally profitable engagements as a threat to auditor independence, then we would expect the ERC to be lower for firms with positive fee residuals. The paper examines the residual fee‐ERC relation for annual earnings announcements immediately before and af...

Audit and Nonaudit Fees and the Market's Reaction to Earnings Announcements

SUMMARY: Using structured interviews and surveys of practicing audit partners, this study examines their perceptions with regard to mandatory partner rotation and cooling-off periods, and how recently enacted, more stringent rules, may negatively impact auditors' quality of life to the detriment of audit quality. Results suggest rotation, in general, increases partners' workloads and the likelihood of relocation. Additionally, results suggest that in response to accelerated rotation (and an extended cooling-off period), partners would rather learn a new industry than relocate. Importantly, partners perceive audit quality suffers from retraining, but not from relocating. Thus these results suggest an indirect, negative impact, and unintended consequence, of accelerated rotation/extended cooling-off periods on audit quality. Data Availability: The survey instrument is available upon request. Individual audit partner responses are confidential.

An Examination of Partner Perceptions of Partner Rotation: Direct and Indirect Consequences to Audit Quality

After several high-profile data security breaches (e.g., Target Corporation, Michaels Stores, Inc., The Home Depot), corporate boards are prioritizing the oversight of Information Technol...

The Relationship between Board-Level Technology Committees and Reported Security Breaches

The behavior of auditors in the context of their employment by public accounting firms has received significant attention in the accounting literature. The current article extends this literature by providing a framework that identifies what auditing professionals contribute and receive as a result of their work efforts, as well as related influences. Using agency theory modified with fundamental ideas from the sociology of professions literature, we develop a model of the auditor‐public accounting firm employment relationship. This framework is grounded in a timely, contextually rich description of the public accounting work environment, and the pressures and incentives faced by auditors. Propositions for future research are suggested that arise from understanding the auditor‐firm relationship.

A Theoretical Framework of the Relationship between Public Accounting Firms and Their Auditors

SUMMARY: In 2013, the Public Company Accounting Oversight Board (PCAOB) proposed an amendment to Auditing Standard No. 12 (PCAOB 2010) that would require auditors to consider executive compensation in audit planning because of potential fraud risk associated with equity incentives. We use the association between audit fees and CEO and CFO equity incentives to infer whether auditors increase audit scope and perceive greater risk as equity incentives increase. Equity incentives are defined as the sensitivity of the value of executives' equity portfolios to changes in share price (delta incentive) and to changes in return volatility (vega incentive). We find a positive association between audit fees and vega, but not delta. However, when we interact vega with proxies for residual auditor business risk, we find that the fee premiums for risk decrease as vega increases. Our results suggest that auditors do consider executive compensation in audit planning.

Julia L. Higgs

Papers

Audit and Nonaudit Fees and the Market's Reaction to Earnings Announcements

An Examination of Partner Perceptions of Partner Rotation: Direct and Indirect Consequences to Audit Quality

The Relationship between Board-Level Technology Committees and Reported Security Breaches

A Theoretical Framework of the Relationship between Public Accounting Firms and Their Auditors

The impact of CEO and CFO equity incentives on audit scope and perceived risks as revealed through audit fees