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Internal audit
About: Internal audit is a research topic. Over the lifetime, 8947 publications have been published within this topic receiving 175726 citations.
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TL;DR: In this paper, the authors argue that audit quality is not independent of audit firm size, even when auditors initially possess identical technological capabilities, and when incumbent auditors earn client-specific quasi-rents, auditors with a greater number of clients have more to lose by failing to report a discovered breach in a particular client's records.
4,969 citations
TL;DR: In this paper, the authors provide evidence from a test of the hypothesis that price competition prevails throughout the market for the audits of publicly held companies, irrespective of the share of a market segment which is serviced by the Big Eight firms.
Abstract: The question of the existence of competition among auditors has been the subject of considerable discussion in recent years. More specifically, the "Big Eight" firms as a group have been accused of monopolizing the market for audits {Staff Study of the Subcommittee on Reports, Accounting and Management of the Senate Committee on Government Operations [1977]). However, evidence on the issue is scanty and typically anecdotal (e.g., Bernstein [1978]). The evidence of the Staff Study itself is limited to concentration statistics, with the allegations relying on what has come to be called the "concentration doctrine" (Demsetz [1973]). According to this doctrine, supplier concentration is a reliable indicator of supplier behavior and performance. In this paper, I provide evidence from a test of the hypothesis that price competition prevails throughout the market for the audits of publicly held companies, irrespective of the share of a market segment which is serviced by the Big Eight firms. The evidence is based on an examination of a sample cross-section of audit fees.
2,490 citations
TL;DR: In this paper, the role of the board of directors, the audit committee, and the executive committee in preventing earnings management was examined, and they concluded that board and audit committee activity and their members' financial sophistication may be important factors in constraining the propensity of managers to engage in earnings management.
2,335 citations
TL;DR: In this article, the authors define higher audit quality as greater assurance of high financial reporting quality, and they provide a framework for systematically evaluating their unique strengths and weaknesses, including the role of auditor and client competency in driving audit quality.
Abstract: 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.
1,553 citations
TL;DR: In this article, the impact of certain audit committee characteristics identified by the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees (BRC) on the likelihood of financial restatement was examined.
Abstract: This study addresses the impact of certain audit committee characteristics identified by the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees (BRC) on the likelihood of financial restatement. We examine 88 restatements of annual results (without allegations of fraud) in the period 1991–1999, together with a matched pairs control group of firms of similar size, exchange listing, industry and auditor type. We find that the independence and activity level (our proxy for audit committee diligence) of the audit committee exhibit a significant and negative association with the occurrence of restatement. We also document a significant negative association between an audit committee that includes at least one member with financial expertise and restatement. To test the robustness of the results we also consider a sample of 44 fraud and no‐fraud firms and arrive at largely similar findings. Our results underscore the importance of the BRC's recommendations as a means of strengthen...
1,485 citations