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Does experience matter? An examination of individual Auditor's experience on executive implicit corruption

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The increasing occurrence of accounting restatements has drawn considerable attention from regulators, audit firms, and corporate boards concerning audit and financial statement quality. Research suggests that auditor industry specialization is associated with improved error detection and greater financial statement quality. We examine the impact of auditor industry specialization on a sample of restatement and nonrestatement firms and find that auditor industry specialization is negatively associated with the likelihood of accounting restatement. In addition, focusing on the subset of restatement firms, we find that auditor industry specialization reduces the likelihood of issuing restatements affecting core operating accounts, suggesting that industry specialization adds value in auditing a particularly critical area of the firms continuing operations. Finally, we find changing from a nonspecialist to a specialist auditor increases the likelihood of restatement, and changing from a specialist to a nonspecialist reduces the likelihood of restatement. Our findings are consistent with industry specialization enhancing auditors' role in improving the quality of the financial reporting process, particularly related to the core operations of their clients.
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Utilizing a dataset on the client portfolios of the Big 4 audit partners in Sweden, this study examines auditor specialization and pricing at the individual partner level. Consistent with the view that there are returns on investing in specialization, the analysis of audit fees indicates that both audit partner industry specialization, and specialization in large public companies, are recognized and valued by financial statement users and/or by corporate insiders, resulting in higher fees within these engagements. The highest fees are earned by engagement partners who are both industry and public firm specialists. Collectively, the findings of this study indicate that part of an auditor’s deep expertise is not transferable across audit partners within an audit firm but is instead inseparably tied to the individual audit partner’s private human capital.
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We examine the relation between firm-level transparency, stock market liquidity, and valuation across a variety of international settings. We document lower transaction costs and greater liquidity (as measured by lower bid-ask spreads and fewer zero-return days) for firms with greater transparency (as measured by less evidence of earnings management, better accounting standards, higher quality auditors, more analyst following and more accurate analyst forecasts). The relation between transparency and liquidity is more pronounced in periods of high volatility, when investor protection, disclosure requirements, and media penetration are poor, and when ownership is more concentrated, suggesting that firm-level transparency matters more when overall investor uncertainty is greater. Increased liquidity is associated with lower implied cost of capital and with higher valuation as measured by Tobin’s Q. Finally, a mediation analysis suggests that liquidity is a significant channel through which transparency affects firm valuation and equity cost of capital.
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This paper examines whether the likelihood of accounting restatements is associated with the Big 4 industry auditor specialists, measured at both the partner–level and audit firm-level leadership. We focus on a sample of listed firms in Taiwan where audit reports must be audited and signed by the two signing auditors as well as by an audit firm. Extending previous studies (e.g., Francis, Reichelt, and Wang 2005, 2006), we classify industry specialists into three groups: (1) auditors that are industry specialists at both the individual partner-level (i.e. the lead signing auditors) and the firm-level; (2) auditors that are industry specialists at the individual partner-level, but not at the firm-level; and (3) auditors that are industry specialists at the firm-level, but not at the individual partner-level. The results reveal that clients of signing auditor specialists, either alone or in conjunction with firm-level specialists, are less likely to make accounting restatements relative to those of other auditors. We find no evidence that firm-level auditor specialists alone are associated with a smaller likelihood of accounting restatements. However, a firm-level industry expert does matter in the presence of the lead auditor being an expert. The results suggest that differential likelihood of accounting restatements due to the Big 4 industry expertise is primarily attributable to the signing partner specialists rather than to auditor specialists at the firm level. We also find that differential restatement likelihood due to signing auditors’ expertise is driven by the lead auditor’s expertise, rather than by the concurring auditor’s expertise.
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Corporate corruption, in contrast to public sector corruption, has recently attracted increasing attention – mostly due to corporate scandals occurring internationally over the last decade. As the financial and social impact of corporate corruption can be immense, the corporate world needs to address this issue. The recent global financial crisis has further revealed the shortcomings of existing regulation. This article advances the legal debate about corporate corruption by approaching it from a corporate governance and company law perspective. Focusing on a New Zealand context, it is ultimately demonstrated that the corporate structure itself as well as the existence of poor corporate governance practices may contribute to the susceptibility of corporations to corrupt behaviour. Evaluating legal countermeasures, we arrive at the conclusion that initial steps have yielded a positive effect. However, these efforts need to be continued and advanced in order to significantly curtail opportunities for corrupt activities in corporations.
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The Sarbanes-Oxley Act significantly expanded the responsibilities of auditors, management, and corporate governance actors such as the audit committee and the board. This interviewbased research extends an earlier study conducted in 19992000 by examining auditors experiences in working with corporate governance actors in the post-Sarbanes-Oxley era. Thirty audit managers and partners from three of the Big 4 firms participated in the study. In line with regulatory reforms and a monitoring perspective, auditors indicate that the corporate governance environment has significantly improved in recent years with audit committees that are substantially more active and diligent and possessing greater expertise and power to fulfill their responsibilities. In turn, auditors report relying to a greater extent on corporate governance information in planning and performing the engagement. However, results also suggest that at least some changes in governance may have been more form than substance. For example, of some concern, many auditors indicate that management is still seen as a key driver in determining auditor appointments and terminations. Further, management continues to be seen as a major actor in the corporate governance mosaic. Our results indicate that in many instances audit committees play a passive role in helping to resolve contentious financial reporting issues with management, with respondents indicating that the auditor and management often try to resolve issues before they come to the attention of the audit committee. Further, the requirements for CEO and CFO certification are reported by auditors to have a positive effect on the integrity of financial reporting. Our results are largely congruent, except that auditors indicate management has a major influence over the hiring and termination decisions of the external auditors.