This study investigates the association between Public Company Accounting Oversight Board (PCAOB) inspection‐related criticisms of an accounting firm's system of quality control and earnings quality of non‐cross‐listed clients in non‐US jurisdictions. We also assess whether this association is different in subsamples where a local independent inspection regime is present compared with jurisdictions without such a regime. We use a difference‐in‐difference design to assess changes in accruals quality in pre‐ and post‐inspection periods. Our sample includes 2006–2011 data on first‐time, international PCAOB inspections of Big 4 accounting firms in 19 countries. Our findings indicate that earnings quality improvement of non‐cross‐listed clients after international PCAOB inspections is higher for inspections with (versus without) PCAOB‐detected deficiencies of the system of quality control. We also find that this improvement occurs in countries with independent oversight of the audit profession.

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This study examines the effects of individual ethical orientation, independence threat (a contextual factor), and moral intensity on auditors’ ethical decision‐making process using Jones's issue‐contingent model of ethical decision‐making in Malaysia. A quasi‐experimental design was employed to test the proposed hypotheses formulated for this study. Using WarpPLS, results support the positive direct effects of the independence threats, ethical orientation, and moral intensity of auditors on their ethical decision‐making process. Results also suggest that moral intensity mediates the relationships between the auditors’ ethical orientation as well as auditor self‐interest threat on the auditors’ ethical decision‐making. Auditors with strong ethical orientation relativism, as compared to idealism, demonstrate undesirable ethical decision‐making processes. Furthermore, low moral intensity underscores the effectiveness of auditors’ decision‐making due to low ethical sensitivity and hence leads to inappropriate ethical decision‐making processes and behavior. This study puts forward an auditing perspective through which to understand the ethical dilemmas and the importance of auditors’ moral intensity and ethical orientation in decision‐making skills.

This study investigates the association between family ownership and the relative level of nonaudit service (NAS) fees paid to the incumbent auditors by public companies. Using data from S&P 1500 firms during the post‐SOX period 2002–2010, the study shows that the NAS fee ratio (the NAS fees relative to the total of audit and NAS fees) is higher for family firms than non‐family firms. The results suggest that family owners' close monitoring of their firms reduces the information asymmetry and agency problems between shareholders and managers, and as a result family firms tend to purchase more NAS from their auditors to appreciate the potential benefits of the auditors' knowledge spillovers. Additional analysis demonstrates that the positive association between family ownership and the NAS fee ratio is particularly pronounced for family firms without dual‐class shares and for those with non‐family‐member CEOs.

Audit report lag (ARL) is the length of time from a company's fiscal year‐end to the audit report date, and is often viewed as the most important financial reporting timeliness determinant. Given that timeliness is an area of interest to investors, managers, regulators, auditors and academics, an understanding of ARL determinants is extremely important. As financial markets become more globally oriented, an international understanding of ARL determinants becomes even more important. This paper summarizes the extant literature on ARL and its determinants with an emphasis on international literature. Our review categorizes prior research based on company‐specific and audit‐related factors, and explores the associations that have been identified with respect to ARL. Finally, we identify possible areas of interest not currently present in the literature and speculate on several opportunities for future research.

This study examines whether the difference in the cost of equity capital between clients of large and small auditors (‘the cost of equity capital disparity’) varies with auditor tenure. We find that the cost of equity capital disparity increases over auditor tenure, suggesting a decline in the perceived audit quality of small auditors relative to large auditors as tenure lengthens. The results suggest that this occurs because there is a deterioration in perceived audit quality over tenure for small auditors combined with no change in perceived audit quality over tenure for large auditors. Furthermore, we find that the cost of equity capital disparity does not increase over auditor tenure for industry specialist auditors, implying that auditor specialization may act as a substitute for auditor size in reducing investor concerns about audit quality declining over tenure for small auditors.

The need for continuous monitoring (CM) is increasing. Collapses of multinational organizations have imposed strict regulatory and legislative requirements on organizations. This study develops an automated system and uses a large sample of accounts payable transaction data to simulate an implementation of continuous monitoring. The value of the system lies in its ability to translate business rules into configurable controls that evaluate transactions against expected results. The study demonstrates an application of continuous monitoring and the use of contextual meta‐data to perform rich audit analyses. Several anomalies reported by the CM system were not detected by the organization's internal auditors when they conducted their examination of the same data using conventional procedures. Such a system may potentially bring greater insights and transparency for continuous monitoring, assurance and organizational performance.

This study tests the association between time pressure, training activities and dysfunctional auditor behaviour insmall audit firms. Based on survey responses from 235 certified auditors working in ...

This study examines what the impact is of frequently proposed information needs on reducing the audit expectations gap (AEG), including information about the audited company, information about the audit process and changes to the auditors' report. We base our findings on a survey of 302 participants from the Netherlands, consisting of 61 bankers, 118 preparers and 123 auditors. We consider the AEG in essence to be a classic agency problem. We find that stakeholders fall back in basic strategies to maximize their own value: bankers require additional information, management is reluctant to let the auditor provide sensitive information and auditors try to minimize their risks. Further, we observe that only information about the audit process with respect to continuity and the reporting of errors in the financial statements may reduce the bankers' AEG. Finally, we observe that format changes to the auditors' report do not reduce the bankers' AEG.

The primary objective of this study is to investigate internal and external auditor perceptions regarding their responsibilities related to preventing, detecting, and reporting fraud. Moreover, the study explores the procedures that internal and external auditors follow to detect fraud during an audit. This study features a survey of 53 auditors in the United Arab Emirates. The results indicate that internal auditors are primarily responsible for identifying incidents of fraud. The results also demonstrate that the procedures followed by external auditors are slightly more rigorous than those followed by internal auditors. The principal contribution is that internal auditors are primarily responsible for identifying fraud and are consequently more concerned about reporting incidents related to fraud. The results provide empirical support for the notion that external auditors should increase the degree to which they seek to detect and report incidents of fraud as well.