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    Audit report lag and key audit matters in Australia
    (Palgrave Macmillan, 2024-06-27) Rahaman MM; Bhuiyan MBU
    We aim to investigate the impact of mandatory key audit matters (KAMs) disclosure on audit report lag (ARL). Additionally, we examine the potential moderating effect of firm size on the association between KAMs and ARL. We conduct Ordinary Least Square regression analyses using a sample of 602 firm-year observations from 2018 to 2020. Our findings indicate that the disclosure of KAMs is associated with a reduction in firm ARL. Furthermore, we find that the association between KAMs and ARL is particularly pronounced in large firms, suggesting that the impact of KAMs disclosure on ARL is more significant in this context. Additionally, our research reveals that the negative association between KAMs disclosure and ARL becomes more prominent when the education level of the audit committee chair is higher. Our findings underscore the importance of transparent reporting through KAMs disclosure and the role of knowledgeable and educated individuals in audit committees in facilitating a more efficient and timely audit process. Also, our finding indicates that the beneficial effect of KAMs may be more noticeable to larger firms.
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    Local creative culture and audit fees
    (Elsevier Ltd on behalf of British Accounting Association, 2023-03-13) Costa MD; Habib A
    This paper examines the association between local creative culture and audit fees. Using a large, unbalanced panel data of listed US firms between 2004 and 2018, we find evidence that firms headquartered in US counties with high creative culture tend to pay higher audit fees than firms headquartered in counties with low creative culture. We also find that such firms tend to have longer audit report lag and are subject to more shareholder litigation. Cross-sectional tests show that real earnings management, managerial risk-taking propensity, and external corporate governance environment moderate the positive association between creative culture and audit fees. The positive association between local creative culture and audit fees remains robust to controlling for endogeneity concerns. Our study contributes to the emerging literature on local creative culture by providing evidence that local creative culture encourages managers and employees to undertake risky initiatives, thereby increasing audit risks.
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    Audit committee independence and expertise, institutional ownership, and executive compensation as determinants of audit fees in the post-SOX era : a thesis presented in partial fulfilment of the requirements for the degree of Doctorate of Philosophy in Accounting at Massey University, Albany Campus, New Zealand
    (Massey University, 2011) Ananthanarayanan, Umapathy
    The objective of this dissertation is to examine the influence of firm-specific factors: audit committee independence and expertise, institutional ownership, and executive compensation, on audit fees in two different institutional settings in the post-Sarbanes Oxley Act (SOX) era. Prior studies on audit fee determinants examine the influence of these factors separately, from either the demand perspective or the supply perspective. These studies find inconsistent results. This dissertation examines the influence of all of these factors together considering both the demand and supply side perspectives. The enhanced requirements for audit under SOX increase the audit risk of auditors. SOX imposes requirements for more thorough audit processes, and the oversight of auditors. These requirements make auditors more susceptible to legal penalties. However, SOX also emphasizes better corporate governance arrangements for firms. The quality of a corporate governance arrangement can serve as a signal for the auditors concerning the audit risk associated with a firm. The better the corporate governance a firm enjoys the lower would be the level of audit risk. This lessens the need for more thorough audits and, thereby, reduces the audit fee for the audited company. This study uses the market perspective of price setting and regards audit fees as a price for audit services. While price could be regarded simply as an outcome of the quality of product demanded and supplied, there are many other factors that can influence price. Following the audit fee literature, this dissertation includes many determinants of audit fee including the firm-specific factors mentioned above. The study also looks at the influence of institutional settings on the price setting arrangements. In this regard, this study examines two different institutional settings, one a more regulated and highly litigious setting, and the other a less regulated and moderately litigious setting, to understand whether the variations in institutional settings influence the relation between the firm-specific variables and audit fees. The two institutional settings are those of the US and New iv Zealand audit markets, where the US market is more regulated and litigious than the New Zealand market. The study examines 4,490 US firm-years and 445 New Zealand firm-years from the years 2004 to 2008. The overall results suggest that the prevalence of independent audit committees and expertise has increased over the years in both countries. Therefore, no significant effect is found for the association between audit fees, and audit committee independence and audit committee expertise, except for the negative association for audit committee expertise in 2004. The result for institutional ownership is negative and significant for the US, whereas in New Zealand it is not significant. The likely reason for this difference is that financial institutions hold high levels of shares in US companies, whereas, in New Zealand the shareholdings of financial institutions is relatively small. Further analysis seems to suggest that, in New Zealand, corporate ownership in firms plays a stronger role in the audit fee setting process than institutional ownership. For executive compensation, the two countries observe different incentive arrangements. The US firms have large incentive-based salaries and stock option schemes, whereas the New Zealand firms mainly have base salaries. For all of these methods of compensation, the results show that when compensation is high, audit fee is also high suggesting that auditors perceive higher audit risk when executive compensations under these schemes are high. Further analyses of the above results reveal that the audit markets in both countries have supply-side market segmentation. Both countries seem to have three tiers of firms arising from the level of industry specialisation and the amount of audit fees charged. The level of audit fees varies between the tiers, and between the two countries for each tier. These variations suggest that the market for audit services has idiosyncrasies, and these idiosyncrasies vary across countries. The data of the two countries are re-examined using a pooled data test. The sample of this test comprises firms of similar size from each country. The results show that because of their stronger regulatory oversight environment, on a scale v relative to total assets, US firms have lower audit fees than New Zealand firms when audit committee expertise and basic executive compensation are higher. Taken as a whole, the findings of this dissertation provide strong support for the supply-side hypotheses of audit fee determination. The findings suggest that with better corporate governance arrangements in the post-SOX era, auditors perceive lower audit risk, which in turn, lowers audit fees. There is, however, some indication that strong regulations may have diminished the audit risk signalling capacity of audit committee independence and expertise.
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    Evidence on the costs of changes in financial reporting frameworks in the public sector
    (Taylor and Francis Group, 1/09/2019) Botica Redmayne N; Laswad F; Ehalaiye D
    This paper examines the impact of changes in reporting frameworks on New Zealand public sector audit costs in terms of both audit fees and effort. Audit costs increased with the adoption of both International Financial Reporting Standards (IFRS) and International Public Sector Accounting Standards (IPSAS) reporting frameworks. The costs of auditing across various financial reporting frameworks in the public sector is shown to be significantly influenced by auditors’ specialization.
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    Political connections, political uncertainty and audit fees: Evidence from Pakistan
    (Emerald, 2/12/2021) Ahmad F; Bradbury M; Habib A
    Purpose: This paper aims to examine the association between political connections, political uncertainty and audit fees. The authors use various measures of political connections and uncertainty: political connections (civil and military), political events (elections) and a general measure of political stability (i.e. a world bank index). Design/methodology/approach: The authors measure the association between political connections, political uncertainty and audit fees. Audit fees reflect auditors’ perceptions of risk. The authors examine auditors’ business risk, clients’ audit and business risk after controlling for the variables used in prior audit fee research. Findings: Results indicate that civil-connected firms pay significantly higher audit fees than non-connected firms owing to the instability of civil-political connections. Military-connected firms pay significantly lower audit fees than non-connected firms owing to the stable form of government. Furthermore, considering high leverage as a measure of clients’ high audit risk and high return-on-assets (ROA) as a measure of clients’ lower business risk, the authors interact leverage and ROA with civil and military connections. The results reveal that these risks moderate the relationship between political connection and audit fees. Election risk is independent of risk associated with political connections. General political stability reinforces the theme that a stable government results in lower risks. Originality/value: The authors combine cross-sectional measures of political uncertainty (civil or military connections) with time-dependent measures (general measures of political instability and elections).