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Anne Thompson - One of the best experts on this subject based on the ideXlab platform.

  • does auditor explanatory language in unqualified audit reports indicate increased financial misstatement risk
    The Accounting Review, 2014
    Co-Authors: Keith Czerney, Jaime J Schmidt, Anne Thompson
    Abstract:

    ABSTRACT:  According to auditing standards, explanatory language added at the auditor's discretion to unqualified audit reports should not indicate increased financial misstatement risk. However, an auditor is unlikely to add language that would strain the auditor-Client Relationship absent concerns about the Client's financial statements. Using a sample of 30,825 financial statements issued with unqualified audit opinions during 2000–2009, we find that financial statements with audit reports containing explanatory language are significantly more likely to be subsequently restated than financial statements without such language. We find that this positive association is driven by language that references the division of responsibility for performance of the audit, adoption of new accounting principles, and previous restatements. In addition, we find that (1) “emphasis of matter” language that discusses mergers, related-party transactions, and management's use of estimates predicts restatements related to ...

  • does auditor explanatory language in unqualified audit reports indicate increased financial misstatement risk
    2014
    Co-Authors: Keith Czerney, Jaime J Schmidt, Anne Thompson
    Abstract:

    According to auditing standards, explanatory language added at the auditor’s discretion to unqualified audit reports should not indicate increased financial misstatement risk. However, an auditor is unlikely to add language that would strain the auditor-Client Relationship absent concerns about the Client’s financial statements. Using a sample of 30,825 financial statements issued with unqualified audit opinions during 2000-2009, we find that financial statements with audit reports containing explanatory language are significantly more likely to be subsequently restated than financial statements without such language. We find that this positive association is driven by language that references the division of responsibility for performance of the audit, adoption of new accounting principles, and previous restatements. In addition, we find that (1) “emphasis of a matter” language that discusses mergers, related party transactions, and management’s use of estimates predicts restatements related to these matters and that (2) the financial statement accounts noted in the explanatory language typically correspond to the accounts subsequently restated. In sum, our results suggest that present-day audit reports communicate some information about financial reporting quality.

Xiaohua Fang - One of the best experts on this subject based on the ideXlab platform.

  • crash risk and the auditor Client Relationship
    Contemporary Accounting Research, 2017
    Co-Authors: Jeffrey L Callen, Xiaohua Fang
    Abstract:

    This study examines whether the term of the auditor-Client Relationship (i.e., auditor tenure) is associated with future stock price crash risk measured both ex ante and ex post. Using a large sample of U.S. public firms with Big 4 auditors, we find robust evidence that auditor tenure is negatively related to one-year-ahead stock price crash risk. The evidence is consistent with monitoring-by-learning where development of Client-specific knowledge over the term of the auditor-Client Relationship enhances auditors’ ability to detect and deter bad news hoarding activities by Clients, thereby reducing future crash risk. This result holds even after controlling for endogeneity of the tenure/crash risk relation. We further provide evidence indicating that option market investors do not fully incorporate the information contained in the term of auditor-Client Relationship in predicting future stock price crash risk. Our empirical results have important policy implications for regulators concerned with ensuring auditor independence. This article is protected by copyright. All rights reserved.

  • crash risk and the auditor Client Relationship
    Social Science Research Network, 2016
    Co-Authors: Jeffrey L Callen, Xiaohua Fang
    Abstract:

    This study examines whether the term of the auditor-Client Relationship (i.e., auditor tenure) is associated with future stock price crash risk measured both ex ante and ex post. Using a large sample of U.S. public firms with Big Four auditors, we find robust evidence that auditor tenure is negatively related to one-year-ahead stock price crash risk. The evidence is consistent with monitoring-by-learning where development of Client-specific knowledge over the term of the auditor-Client Relationship enhances auditors’ ability to detect and deter bad news hoarding activities by Clients, thereby reducing future crash risk. This result holds even after controlling for endogeneity of the tenure/crash risk relation. We further provide evidence indicating that option market investors do not fully incorporate the information contained in the term of auditor-Client Relationship in predicting future stock price crash risk. Our empirical results have important policy implications for regulators concerned with ensuring auditor independence.

Keith Czerney - One of the best experts on this subject based on the ideXlab platform.

  • does auditor explanatory language in unqualified audit reports indicate increased financial misstatement risk
    The Accounting Review, 2014
    Co-Authors: Keith Czerney, Jaime J Schmidt, Anne Thompson
    Abstract:

    ABSTRACT:  According to auditing standards, explanatory language added at the auditor's discretion to unqualified audit reports should not indicate increased financial misstatement risk. However, an auditor is unlikely to add language that would strain the auditor-Client Relationship absent concerns about the Client's financial statements. Using a sample of 30,825 financial statements issued with unqualified audit opinions during 2000–2009, we find that financial statements with audit reports containing explanatory language are significantly more likely to be subsequently restated than financial statements without such language. We find that this positive association is driven by language that references the division of responsibility for performance of the audit, adoption of new accounting principles, and previous restatements. In addition, we find that (1) “emphasis of matter” language that discusses mergers, related-party transactions, and management's use of estimates predicts restatements related to ...

  • does auditor explanatory language in unqualified audit reports indicate increased financial misstatement risk
    2014
    Co-Authors: Keith Czerney, Jaime J Schmidt, Anne Thompson
    Abstract:

    According to auditing standards, explanatory language added at the auditor’s discretion to unqualified audit reports should not indicate increased financial misstatement risk. However, an auditor is unlikely to add language that would strain the auditor-Client Relationship absent concerns about the Client’s financial statements. Using a sample of 30,825 financial statements issued with unqualified audit opinions during 2000-2009, we find that financial statements with audit reports containing explanatory language are significantly more likely to be subsequently restated than financial statements without such language. We find that this positive association is driven by language that references the division of responsibility for performance of the audit, adoption of new accounting principles, and previous restatements. In addition, we find that (1) “emphasis of a matter” language that discusses mergers, related party transactions, and management’s use of estimates predicts restatements related to these matters and that (2) the financial statement accounts noted in the explanatory language typically correspond to the accounts subsequently restated. In sum, our results suggest that present-day audit reports communicate some information about financial reporting quality.

R Fincham - One of the best experts on this subject based on the ideXlab platform.

  • The consultant-Client Relationship: Critical perspectives on the management of organizational chance
    Journal of Management Studies, 1999
    Co-Authors: R Fincham
    Abstract:

    The management consultancy industry is attracting more and more attention. The critical literature in particular has questioned how a non-codified body of knowledge like 'consultancy' could become so apparently influential. The answering emphasis has been on the symbolic nature of consultant strategies and consultancy as a powerful system of persuasion. However, an emerging structural perspective has developed a rather different view, focusing on the limits of the industry discourse, and the constraints of a consultancy role defined largely by external forces. While it is useful to contrast the two perspectives - strategic and structural - they can also be viewed as complementary, and indeed a number of writers have been well aware both of the importance of consultant strategies and the context of consultancy work. In particular, they have explored the interaction between consultant and Client, and called attention to factors like the countervailing power of Client organizations and the uncertainty of the management task. The paper aims to contribute to this debate and draws on case studies of consultants' role in the management of organizational change - one of Clients with considerable market power, and another of interdependency between consultant and Client. The point stressed is that the consultancy process contains no 'necessary' structures (which may be implied by pairings such as the dependent Client and indispensable consultant, or alternatively the resistant Client and vulnerable consultant). Instead the consultant-Client Relationship is best regarded as part of an overarching managerial structure and a contingent exchange that assumes a variety of forms.

Arnold Wright - One of the best experts on this subject based on the ideXlab platform.

  • the effect of past Client Relationship and strength of the audit committee on auditor negotiations
    Auditing-a Journal of Practice & Theory, 2011
    Co-Authors: Helen L Brownliburd, Arnold Wright
    Abstract:

    SUMMARY: Auditors and Clients are often required to resolve difficult, complex accounting issues in which they have different views. However, we know little about the effect of contextual factors o...

  • the effect of past Client Relationship and strength of the audit committee on auditor negotiations
    Social Science Research Network, 2011
    Co-Authors: Helen L Brownliburd, Arnold Wright
    Abstract:

    Auditors and Clients are often required to resolve difficult, complex accounting issues in which they have different views. Despite its importance we have little knowledge of the effect of contextual factors on auditors’ negotiation behaviors. This experimental study involving 63 experienced audit managers and partners examines the impact of the strength of the audit committee (strong or weak) and past Relationship with the Client (contending or compromising) on auditors’ judgments in the pre-negotiation planning phase in resolving a difficult, subjective inventory writedown issue. These two important contextual factors are posited to affect auditors’ perceived bargaining power and expectations of difficulties with respect to the impending negotiation. Specifically, we hypothesize an interaction where the most contending position (negotiation strategy) is adopted when the audit committee is strong (enhanced auditor bargaining power) and the past Relationship is contending (a difficult negotiation). The findings support these expectations. In additional analyses, we obtain parallel results in the negotiation phase. In all, the findings confirm the importance of strength of the audit committee and past Client Relationship on auditors’ negotiation planning judgments and the concurrent consideration of these two pervasive contextual factors in the audit environment.