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Section Home Page Summaries and Abstracts (where available):
Planning Assurance Services
Our purpose is to investigate the strategies an auditor will use to
assess risk when planning for the provision of a type of assurance
service. The assurance service that we model is the delivery of
information from the auditor to an investor. Our primary objective is to
explore the extent to which risk assessment strategies that are employed
in the provision of traditional auditing services carry over to the
assurance service that we model. We find that unlike audit services where
conservatism can be the cure for the "auditor's curse," or a
protection against legal liability, in assurance services that are
user-driven there is a lesser role for conservatism as a universal
property of the information system. We also find that auditors who supply
assurance services (of the variety we model) will not compromise their
reputation as high-quality auditors because assurance services will be
provided at a high level of quality for economic reasons, even without
regulator restrictions. Return to Table of Contents
Evidence of Non-Big 6 Market Specialization
and Pricing Power in a Niche Assurance Service Market
Elliott and Pallais (1997) indicate the importance of finding an
appropriate market niche when entering the assurance services market. They
discuss the notion that the pricing of these assurance services can be
based on the value of the services to the market, and provide an example
of such pricing in a regulatory compliance setting. Auditing requirements
in the pension plan audit market extend beyond those required by GAAS to
include assurance regarding compliance with relevant regulations.
Additionally, the Big 6 CPA firms have a fairly small market share (about
10 percent) in this market (Cullinan 1997). The pension plan environment
therefore provides an opportunity to examine whether smaller CPA firms can
establish a "brand name" in a niche assurance service market to
distinguish their expertise, and thereby receive higher fees. This study
examines the effects of industry expertise on audit fees in the
multi-employer pension plan context. Results indicate that non-Big 6 firms
with industry expertise (as measured by market share) receive fee premiums
over nonspecialist firms. Big 6 firms with larger market shares do not
receive fee premiums in this market. These results suggest that non-Big 6
firms may be able to obtain, and benefit from, market positions in certain
niche assurance service markets.
Key Words: Assurance services, Audit fees, Auditor expertise,
Industry specialization, Regulatory compliance, Pension auditing.
Data Availability: The data used in this study are publicly
available under the Freedom of Information Act from the U.S. Pension and
Welfare Benefits Administration. Return to Table of
Contents
Discussion - Evidence of Non-Big 6 Market
Specialization and Pricing Power in a Niche Assurance Service Market
Cullinan's (1998) argument proposes that specialization can provide
competitive advantages to smaller firms. This assumption raises
interesting questions, the most important of which is-under what
circumstances or conditions could a smaller firm with fewer resources
obtain a higher fee than a larger firm with greater resources? A logical
extension of this argument indicates significant potential changes in the
public accounting profession. One change to be considered would be the
industry's value-pricing model which may be at odds with the established
value-pricing model of most other markets. Should the public accounting
industry rectify its value-pricing model to conform to established models
in other industries? Those firms that make the required adjustments first
will be rewarded with very significant profit and expansion opportunities.
The key is to be one of the first. Return to Table of
Contents
A Methodology for Developing Measurement
Criteria for Assurance Services: An Application in Information Systems
Assurance
In an analysis of the impact future assurance services will have on
research and practice, Elliott and Pallais (1997a) specifically address
seven areas of critical research need. This study is designed to address
two of these areas: (1) methodologies for the development of measurement
criteria for new services and (2) identification of factors impacting
information systems reliability. A two-stage methodology is proposed for
use in the future development of measurement criteria, and this
methodology is in turn applied to the specific area of information systems
assurance.
The empirical study engages six focus groups (three groups of
information systems users and three groups of information technology (IT)
specialists) in sessions specifically designed to identify the critical
factors impacting the quality of the information requirements definition
stage of systems development. The critical factors identified by these
focus groups were subsequently integrated into a questionnaire instrument
that was completed by 66 users and 66 IT specialists. The results provide
evidence that the methodology for measurement development is robust in
terms of (1) the generation of similar sets of critical factors among
multiple groups and (2) the acceptance of the critical factors by broader
groups of nonfocus group participants. In addition, the results of the
application to information systems assurance provide a final set of 29
critical factors and substantiate theories positing a difference in
perceptions of users and IT specialists as to the relative importance of
these factors to information systems quality.
Key Words: Assurance services, Information systems assurance,
Quality measurement, Performance measurement, Systems reliability, Systems
quality.
Data Availability: Contact the authors. Return to
Table of Contents
Timely Industry Information as an Assurance
Service-Evidence on the Information Content of the Book-to-Bill Ratio
Assurance services include independent professional services that improve
the quality of information. One such service is the collection of
confidential information from participating firms on behalf of an industry
association and the release of summarized information to investors. An
example of this type of service is the collection of industry-wide
information for the Semiconductor Industry Association. The primary output
from this process is the monthly release of a ratio of new orders received
to chips shipped, known as the book-to-bill ratio.
We evaluate the association between book-to-bill disclosures and common stock prices. Statements in the financial press suggest that the book-to-bill index is an important indicator of future demand in the semiconductor industry. Because changes in the book-to-bill ratio signal impending changes in sales, the index may be relevant information for firm valuation.
Our results suggest that investors in semiconductor firms utilize
the book-to-bill ratio in revising their expectations of future cash
flows. Specifically, we find (1) that eight of the 36 monthly book-to-bill
announcements occurring during 1994 through 1996 produced share price
reactions significant at the 10 percent level, and (2) that the price
response across the subset of "good news" disclosures is
positively related to the change in the book-to-bill ratio.
Key Words: Assurance services, Compilation, Industry statistics.
Data Availability: All data were obtained from publicly available
sources. Return to Table of Contents
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April 13, 1999
