Involvement of Component Auditors in Multinational Group Audits

Involvement of Component Auditors in Multinational Group Audits
Author: Elizabeth Carson
Publisher:
Total Pages: 55
Release: 2019
Genre:
ISBN:

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We study the determinants of involvement of component auditors (either network and/or unaffiliated) in multinational (MNE) group audits and associated audit outcomes. We identify the involvement of component auditors, using unique Australian disclosures of group audit fees paid to the principal and component auditors. We first document that MNE complexity, degree of MNE internationalization, and auditor characteristics determine the extent and type of component auditor involvement. Next, we find that increased involvement of component auditors is associated with lower audit quality and higher audit fees. We then investigate the impact of the revision of the international auditing standard related to group audits, which expanded the principal auditor's responsibilities, and show that, while this reduced the involvement of unaffiliated (but not network) auditors, quality problems remain.

Involvement of Component Auditors in Multinational Group Audits

Involvement of Component Auditors in Multinational Group Audits
Author: Elizabeth Carson
Publisher:
Total Pages: 0
Release: 2023
Genre:
ISBN:

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We study what determines the involvement of component auditors in multinational enterprise (MNE) group audits and the association with audit quality and audit fees. Using unique Australian disclosures of group audit fees paid to the principal and component auditors, we first document that MNE complexity, MNE internationalization, and auditor characteristics are associated with component auditor involvement, and extent and type of component auditor involvement. Next, we find that involvement of component auditors benefits audit quality as long as the principal auditor conducts a substantial amount of work. Once the involvement of component auditors exceeds a certain level, audit quality decreases. We also document that audit fees are higher in the presence of a component auditor and increase with the extent of involvement, irrespective of component auditor type. Our results contribute to the emerging literature on group audits and provide empirical evidence on regulatory concerns about group audit quality.

Auditor Multinational Expertise and Audit Quality

Auditor Multinational Expertise and Audit Quality
Author: Joshua L. Gunn
Publisher:
Total Pages: 46
Release: 2017
Genre:
ISBN:

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Over the past several decades, the scope of public companies' operations has become increasingly global. This has led to concern over the ability of audit firms to conduct high-quality audits across geographically dispersed foreign operations. We contribute to the growing body of research in this area by investigating the association between audit quality and local audit offices' expertise in conducting multinational audit engagements. We use two complementary measures to proxy for an audit office's multinational expertise: (i) local multinational market leadership, and (ii) country-specific experience. Using a sample of multinational client firms headquartered in the United States, we consistently find that audit quality is stronger when the auditor possesses expertise conducting global group audits, possesses particular expertise in the country where a client has a significant subsidiary, or possesses both types of expertise on an engagement. Several sample partitions reinforce our main results. The results are robust to propensity score matching as well as a placebo test using clients of the audit office that generate no foreign sales. Our evidence suggests that the challenge of conducting multinational audits is more easily met by auditors with expertise on these types of engagements.

The Behavior of Assurance Professionals

The Behavior of Assurance Professionals
Author: Olof P. G. Bik
Publisher: Eburon Uitgeverij B.V.
Total Pages: 228
Release: 2010
Genre: Auditor-client relationships
ISBN: 9059724607

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The complexity of human behavior challenges our explanatory powers. Yet, in this day and age we desperately try to manage and control the behavior of our corporate citizens through rules, codes, systems and procedures alike. This study is an illustration that true human behavior cannot simply be controlled by (more of) such rules. Instead, it is driven by many psychological, cultural, contextual, and environmental factors. The focus of this study is the influence of cross-national cultural differences in the context of the professional behavior of auditors, based on the central question: Is auditors' professional behavior affected by crossnational cultural differences, and, if so, how? Being based on grounded theory, in part validated within an international accounting organization, this study is the first to provide a more profound, in-depth, and contextualized analysis and understanding of the effect of cross-national cultural differences on the behavior of professionals in general, and that of auditors in particular.

COMPONENT AUDITORS AND LENDERS' PERCEPTION OF AUDIT QUALITY.

COMPONENT AUDITORS AND LENDERS' PERCEPTION OF AUDIT QUALITY.
Author: Gopal V. Krishnan
Publisher:
Total Pages:
Release: 2020
Genre:
ISBN:

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While non-U.S. auditors audit a significant proportion of U.S.-based clients, until recently, lenders were largely unaware of the involvement of component auditors since the U.S.-based lead auditor was not required to disclose information about participating auditors. Using the disclosure under Form AP mandated by the PCAOB, we find that the increase in cost of debt ranges from 15 basis points to 22 basis points when component auditors are used relative to engagements that do not involve component auditors. We also find that cost of debt is greater when the component auditor has GAAP-related audit deficiencies and fewer CPAs, face PCAOB disciplinary orders or more frequent inspection, and when the lead auditor and the component auditors are not from the same Big 4 audit networks. These findings are consistent with the notion that lenders associate lower audit quality and higher information risk with certain attributes of component auditors. Further, the component auditor's superior local knowledge mitigates cost of debt for firms with high foreign operations. We also conduct an event study and find an adverse bond market reaction around the first-time disclosure of Form AP.

Group Audits and Investment Efficiency

Group Audits and Investment Efficiency
Author: Li-Jen Chen
Publisher:
Total Pages: 0
Release: 2023
Genre: Accounting
ISBN:

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This study examines whether group audits can impact the investment efficiency of multinational companies (MNCs). I argue that group audits have a negative impact on investment efficiency because they can cause an opaque information environment and impair auditors' monitoring efficacy for the MNCs. Since inefficient investment takes forms of underinvestment and overinvestment, I hypothesize and find a conditional positive association between group audits and underinvestment (overinvestment) for MNCs in settings prone to underinvest (overinvest). That is, among MNCs that are likely to underinvest (overinvest), MNCs with group audits underinvest (overinvest) more. Furthermore, to reduce the concern that using group audits is a function of MNCs' characteristics, propensity score matching (PSM) and entropy balancing procedures are employed to pre-treat the sample. The results were held by using the treated samples. Several cross-sectional and additional robustness analyses are conducted and confirm that the results are not random. This study extends the emerging literature on the effect of group audits on audit outcomes and investors' responses by providing evidence that group audits can also impact business outcomes.

Outsourced External Audit Work and Audit Quality

Outsourced External Audit Work and Audit Quality
Author: Carol Callaway Dee
Publisher:
Total Pages:
Release: 2018
Genre:
ISBN:

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We examine whether audit quality is reduced when part of the audit is conducted by auditors other than the audit firm signing the audit report (“other” or “participating” auditors) which typically occurs in a multinational group audit. Prior literature suggests group audits could face difficulties in coordinating work across multiple countries and legal jurisdictions. PCAOB concerns over audit quality when participating auditors are involved led to a requirement that audit firms disclose their use of participating auditors on Form AP. Consistent with concerns of the PCAOB, we find audit quality is lower when participating auditors are involved in the engagement compared to those without participating auditors. In analyses on a sample limited to engagements with participating auditors, we find having more than one participating auditor leads to lower audit quality relative to having only one participating auditor. We find no evidence to suggest that the percentage of the audit conducted by participating auditors influences audit quality. Other than the legal origin of the participating auditor, we find no evidence to suggest participating auditor characteristics (i.e. affiliated with the lead Big 4 auditor; not registered with the PCAOB; inexperienced with SEC clients of their own; or domiciled in a country that does not allow PCAOB inspections) influence audit quality. Lastly, we find higher audit fees for engagements that use more than one participating auditor, suggesting group audits entail a higher risk premium and increased costs to coordination.

The Benefits and Costs of Group Affiliation

The Benefits and Costs of Group Affiliation
Author: Stijn Claessens
Publisher:
Total Pages: 36
Release: 2002
Genre: Capital market
ISBN:

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This paper investigates the benefits and associated agency costs of using internal capital markets through affiliating with groups using data of two thousand firms from nine East Asian economies between 1994-96. We find that mature and slow-growing firms with ownership structures more likely to create agency problems gain more from group affiliation, while young and high-growth firms more likely lose. Agency problems are important explanatory factors of firm value in economies outside Japan, but less so in Japan. Consistent with the literature, financially-constrained firms benefit from group affiliation. Our results are robust to different time periods and estimation techniques.

Audit and Assurance Essentials

Audit and Assurance Essentials
Author: Katharine Bagshaw
Publisher: John Wiley & Sons
Total Pages: 519
Release: 2013-02-28
Genre: Business & Economics
ISBN: 1118454162

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An accessible beginner’s guide to the fundamentals of audit and assurance Audit and assurance is a basic and vital aspect of the financial world and a key element of all professional accountancy programs. Whereas professional training on the topic frequently immerses students in too much detail while glossing the basics, this book begins with the fundamentals and expands to cover the details in a more measured way. With practical examples and end-of-chapter examples, External Audit and Assurance Essentials breaks down a difficult and challenging field of professional accounting.

Audit Risk Alert

Audit Risk Alert
Author: AICPA
Publisher: John Wiley & Sons
Total Pages: 96
Release: 2017-05-15
Genre: Business & Economics
ISBN: 1937352447

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This Audit Risk Alert is intended to help auditors understand and implement the requirements of the new AU-C section 600, Statement on Auditing Standards -Special Considerations - Audits of Group Financial Statements (Including the Work of Component Auditors) It was developed to present issues that auditors may face in their current audits; focusing on emerging practice issues and current auditing developments. The new AU-C section 600 is much more broad than previous guidance and introduces a number of new terms, concepts, and requirements related to group audits that will significantly affect current practice. To assist auditors in implementing the provisions of AU-C section 600, this alert includes a variety of useful resources including: Technical Questions & Answer sections An analysis of applicability A breakdown of new terminology An exploration of how practice will be affected Special considerations for state and local governments Implementation case studies This alert has been updated for the issuance of SAS No. 127, Omnibus Statement on Auditing Standards.