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Albert Nagy, John Carroll University
Gary Peters, University of Arkansas
Pennie Bagley, Texas Tech University
“Psychological Bonds and Their Impact on Behavioral Loyalty in Auditor-Client Relationships,” by S. Kuenzel and E. Krolikowska, Managerial Auditing Journal (Volume 23, Issue 4, 2008): 328-344.
This paper examines the psychological bond from client executives towards audit firms. Of question is whether these bonds create loyalties with the auditor in the form of auditor continuance, purchasing of non-audit services, and positive word-of-mouth. Using structural equation modeling and information from questionnaires, the authors document a positive association between psychological bonds and the auditor-client relationships. The authors discuss the importance of having a better understanding about these bonds for client management and audit team assignment purposes.
“The Influence of the Auditor’s Report on Investors’ Evaluations after the Sarbanes-Oxley Act,” by S. W. Shelton and O. R. Whittington, Managerial Auditing Journal (Volume 23, Issue 2, 2008): 142-160.
Using a laboratory experiment, this paper investigates whether auditor opinions about internal control effectiveness influences investment analysts’ assessments about company risk and stock purchase recommendations. The authors investigated three conditions a) auditor’s unqualified opinion on management control assessments and internal control effectiveness, b) auditor’s unqualified report on management control assessments, but an adverse opinion on internal control effectiveness, and c) auditor’s adverse opinions on both management control assessment and internal controls effectiveness. The authors find that auditor’s opinions about internal control effectiveness provide information about investment risk. However, the author’s found no evidence that the auditors’ opinion regarding management’s assessment of internal controls impacted evaluations of investment risks.
“An Examination of Contextual Factors and Individual Characteristics Affecting Technology Implementation Decisions in Auditing,” by M. B. Curtis and E. A. Payne, International Journal of Accounting Information Systems (Volume 9, Issue 2, 2008): 104-121.
The authors investigate why computer-assisted audit techniques (CAATs) are often underutilized in public accounting, despite having the potential to increase efficiency and effectiveness of audit engagements. The authors assert that misalignment between the firm’s and employee’s goals lead to the underutilization of technology. Using technology acceptance and budgeting theories, the author’s find that the risk averseness of individual auditors increases the negative impact of budget pressure on implementation of CAATs. However, the authors find that the presence of longer-term budgets and supervisor support mitigates underutilization of CAATs.
“Audit Quality, Auditor Compensation and Initial Public Offering Underpricing”, by X. Chang, A.F. Gygax, E. Oon, and H.F. Zhang, Accounting & Finance (Volume 48, Issue 3, 2008): 391-416.
This paper examines the impact of audit quality on auditor compensation and initial public offering (IPO) underpricing. Using a sample of Australian firms going public, the authors find that Big 4 audit firms earn higher fees and are positively associated with IPO underpricing. The positive relation is more pronounced for small issues, IPOs underwritten by non-prestigious underwriters, and those that are not backed by venture capitalists.
“Does Auditor Reputation Matter? The Case of KPMG Germany and ComROAD AG”, by J. Weber, M. Willenborg, and J. Zhang, Journal of Accounting Research, (Volume 46, Issue 4, 2008): 941-972.
This paper examines the stock and audit market effects associated with a widely publicized accounting scandal involving a public company (ComROAD AG) and a large, reputable audit firm (KPMG) in a country (Germany) that has long provided auditors with substantial protection from shareholder legal liability. The authors note that given the absence of a strong insurance rationale for audit quality, Germany permits a relatively clean test of whether auditor reputation matters. The results indicate that KPMG’s clients sustained negative abnormal returns at events pertaining to ComROAD, and that a higher number of clients dropped KPMG in the year of the ComROAD scandal. The results provide support for the reputation rationale for audit quality.
“Culture and Auditor Choice: A Test of the Secrecy Hypothesis”, by O. Hope, T. Kang, W. Thomas, and Y.K. Yoo, Journal of Accounting and Public Policy, (Volume 27, Issue 5, 2008): 357-373.
This paper examines whether firms’ auditor choice relates to national culture. The authors construct a novel measure of secretiveness based on cultural factors. Using a sample from 37 countries, the authors find that firms in “more secretive” countries are less likely to hire a Big 4 auditor. These results suggest that managements’ auditor choice behavior relates to the national culture of secrecy/transparency.
“An Examination of Auditor Choice using Evidence from Andersen’s Demise”, by K. Bewley, J. Chung, and S. McCracken, International Journal of Auditing, (Volume 12, Issue 2, 2008): 89-110.
This paper uses the Enron/Andersen scandal to examine the role of signaling in auditor choice. The authors examine whether differences exist between the Andersen clients that switched auditors soon after Enron declared bankruptcy versus those that stayed with Andersen until their auditor’s license to practice was cancelled. The paper provides evidence that early Andersen switchers were more likely to initiate restatements of their financial statements than the late Andersen switchers. In contrast, the late Andersen switchers had more restatements imposed on them than the early switchers, suggesting their financial statements were of lower quality.
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