Finally, CPAs frequently switch between Big 4 and non-Big 4 firms, and knowledge transfers can dilute the potential for one type of audit firm to become superior.
However, the Mutchler et al. Consistent with prior research, we delete companies in the banking, other financial, real estate, and regulated industries. Our analyses Audit firm size and going concern reporting going-concern reporting errors unmodified opinions rendered to subsequently bankrupt clients over an 9 year period.
The auditor report immediately preceding bankruptcy is the dependent variable in our model and the audit firm size is the variable of interest in this study. Prior research on reporting errors has also produced inconsistent results regarding a Big 4 reporting effect.
Bankruptcy lag LAG is the delay, in number of days, from the date of the audit report to bankruptcy filling date. We measure client size SIZE using log of total assets in million rials from balance sheet, and the financial stress PROB using the coefficients given in Pourheydari and Koopaeehaji Table 1 provides descriptive data about the sample.
Third, the inability of nonBig 4 firms to obtain affordable insurance coverage may actually increase the audit effort of non-Big firms relative to Big 4 firms because smaller audit firms cannot obtain a similar level of backing from insurance companies.
If the auditor fails to adequately incorporate relevant information in making this judgment, then error is more likely to occur. Finally, we use operating cash flow CFOoperating cash flow divided by current liabilities CFCLand operating cash flow divided by total liabilities CFTL as the operating cash flow data to predict financial distress.
Our findings indicate no association between the size of audit firm and going-concern reporting accuracy. The underlying intuition for using valuation proxies as a measure of audit quality is due to the fact that if market participants perceive that the Big 4 clients have more credible earnings than those of the non-Big 4 clients then, ceteris paribus, the Big 4 clients should receive a break in their cost-of-equity capital.
Accordingly, our hypothesis is: Recent work has hypothesized that going- concern reporting accuracy can also measure audit quality. Prior works have examined the association between auditor size and audit quality, using various proxies for audit quality.
More essays like this: Furthermore, Prior research suggests that big audit firms are of higher quality than are smaller firms. We also show that in more recent ERAs, regional audit firms have been more likely than BigN and national audit firms to issue a going concern report to their financially stressed pubic clients.
The 54 companies in our sample came from 18 different industries, and no industry had more than eight observations.
There is an association between the proportion of client bankruptcies with a prior goingconcern modified opinion and the size of the audit firms. Dopuch and Simunic propose that larger accounting firms provide higher quality services because they have greater reputations to protect.
Hence, it is not obvious from theory or intuition that Big 4 firms should be superior to non-Big 4 firms Lawrence et al, The list of public company bankruptcies for the years and the relevant financial statement data was obtained from Compact Disclosure — SEO and the Rahavard Novin 3 database.
First, Big 4 and non-Big 4 firms are held to the same regulatory and professional standards, and thus both types of audit firms must adhere to a reasonable level of quality. The control factors used in multivariate logistic regression, based on the prior research Dopuch et al. As the main observable outcome of an audit is the standardized audit report, researchers have used various proxies in an attempt to assess audit quality and, in turn, determine whether a differential in audit quality exists.
We use a multivariate logistic regression to control for variables associated with auditor reporting. Specifically, we examine if the audit report on the financial statements immediately preceding bankruptcy has been modified for going- concern uncertainties.
Volume 37, Issue 5JulyPages The changing relationship between audit firm size and going concern reporting Author links open overlay panel Steven E. As seen in panel B, ten of the 28 correlations among the independent variables are statistically significant, and the highest magnitude of the correlations is.
However, our evidence suggests that more recently, to lessen their litigation risks, regional audit firms, relative to BigN and national audit firms, acted more conservatively by issuing more going concern reports to their financially stressed public clients.
Overall, our evidence suggests that more recently, larger audit firms, relative to regional audit firms, acted more proactively to lessen their litigation risks through increasing centralization of client selection and acceptance processes.
All data are publicly available from the sources indicated. In all of the various proxies above, differences between Big 4 and nonBig 4 auditors largely reflect client characteristics and, morespecifically, client size Lawrence et al, However, there are also arguments as to why Big 4 and non-Big 4 firms could provide comparable audit quality.
Second, as non-Big 4 auditors have superior knowledge of local markets and better relation with their clients, these factors may enable non-Big 4 firms to better detect irregularities.SYNOPSIS: Prior research suggests that the Big 4 audit firms are of higher quality than are non-Big 4 firms.
However, existing tests for. Audit Firm Size and Going‐Concern Reporting Accuracy. Marshall A. Geiger, Professor, Dasaratha V. Rama, Professor. University of Richmond. Florida International University. Prior research suggests that the Big 4 audit firms are of higher quality than are non‐Big 4 firms.
However, existing tests for an association between audit firm size and. killarney10mile.com INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS JANUARY VOL 3, NO 9 Audit Firm. Audit Firm Size and Going-Concern Reporting Accuracy 3 Accounting Horizons, March () note that clients and ﬁnancial statement.
RESEARCH IN BUSINESS JANUARY VOL 3, NO 9 Audit Firm Size and Going-Concern Reporting Accuracy Dr. Daruosh Foroghi, PhD Faculty of Accounting Department of Accounting, University of Isfahan, Iran Amir Mirshams Shahshahani Graduate Student at Department of Accounting, Mobarakeh Branch, Islamic Azad Univeristy, Mobarakeh.
Audit Firm Size and Going-Concern Reporting Accuracy Essay Sample This study examines the association between measures of going-concern reporting accuracy and audit firm size of the companies listed in Tehran Stock Exchange.Download