合伙人輪換與審計(jì)質(zhì)量的關(guān)系論文PPT簡(jiǎn)介

1、Audit Partner Rotation and Financial Reporting QualityBarri Litt, Divesh S.Sharma, Thuy Simpson, and Paual N.TanyiAuditing: A Journal of Practice & TheoryAugust 2014Summary7 years5 years5 years2 yearsRrotation periodCooling-off periodSarbanes-Oxley ActAudit partner rotation has received consider

2、able attention globally and in the U.S.SummaryAim: Investigate the effect of rotation on financial reporting quality in the U.S.Findings:Lower financial reporting quality following an audit parnter change, which is more prevalent for larger clients.The first 2 years witha new audit partner The final

3、 2 years withthe outing going partnerThe initial year post-rotatiion presents audit challenges for partners andthe challenges appear greater for city-level non-industry specialistauditors and smaller audit offices(e.g. non-Big 4)IntroductionSarbanes-Oxley ActPolicymakersAudit firmsEnhance the audito

4、rs perceived and actual independenceA fresh look at the client would improve the quality of auditThe ultimate intent is to enhance the quality of audited financial informationThe new incoming partner would not possess the intricate knowledge and experience with the cilentThis loss of quality would b

5、e more pronounced during the initial years ofa partners client engagementThis loss of audit quality would reduce the quality of financial statement information Larger clients present greater audit challengesIntroductionBedard and Johnstone(2010) :Report that audit effort increases in the year of aud

6、it partner changeUnable to test consequences of partner tenure on audit outputs due to data limitationsDaugherty,Dickins,Hatfield,and Higgs(2012):Audit partners believe that while partner rotation may enhance auditor independence, it may ultimately cause a significant adverse effect on audit quality

7、, primarily due to a 2-3 years client familiarization period for the new audit partnerThe lack of publicly available data on audit partner identities No prior study has empirically examined the effects of partner rotation In the U.S.IntroductionIn Australia and Taiwan, partner identity is available,

8、 studies have yielded inconsistent results. In Australia, there is a marginal negative association between audit partner rotation and discretionary accruals, Humilton,Ruddock,Stokes and Taylor (2005)In Australia, when partner tenure exceeds 7 years, audit quality is lower, particularly for non-Big 4

9、 clients, Carey and Simnett(2006) In Taiwan, longer partner tenure increases quality in a voluntary rotation setting, Chen,C.Lin,and Y.Lin(2008) In Taiwan, mandatory audit partner rotation is related to lower financial reporting quality in the initial year of the new partner, Chi,Huang,Liao and Xie(

10、2009) IntroductionThis study makes significant contributions to literature and practiceFirst, it is among the few U.S. studies examining audit partner rotation, and the first U.S. study documenting rotation effects on financial reporting qualitySecond, this study informs the debates on costs and ben

11、efits of audit partner rotationThird, it support the audit professions concern over resource challenges brought on by more stringent partner rotation requirementsBackgroundNeither side has presented systematic, rigorous evidence of the costs of rotating audit partners. This paper inform these policy

12、 debates by empirically examining the consequences of audit partner rotation on the quality of audited financial information.AICPA(1978):audit partner rotation every 7 years with a 2-year cooling-off periodSOX(2002) ,SEC (2003) audit partner rotation every 5 years with a 5-year cooling-off period U.

13、S. House of Representatives(2013) Congress most recently prohibiting the PCAOB from mandating audit firm rotationAudit partner rotation regulations:Prior LiteratureHumilton, Ruddock, Stokes, and Taylor (2005):Australian data (1998-2003)a marginal negative association between audit partner rotation a

14、nd discretionary accruals for clients of Big 5 auditors, with the association becoming significantly negative when partner rotation was mandatedclients of non-Big5 auditors also to report marginally lower accruals following a partner change Hypothesis DevelopmentThese various conflicting views sugge

15、st the impact of audit partner rotation on financial reporting quality as an empirical issue, which we examine by advancing the following null hypothesis:Proponentsindependencea fresh perspectiveclient-specific knowledge and experiencemanagement may opportunistically manage earningsOpponentsH1: Ther

16、e is no association between audit partner rotation and the quality of audit clients financial reportingResearch DesignDetermining Audit Partner RotationThe commencement and termination of an audit partners engagement with a client is generally impossible to determine from public recordsHowever, one

17、circumstance allows us to determine audit partner rotation periods:clients that switch to a new audit firmAn important sample condition we impose is that clients switching audit firmsmust consecutively engage the audit firm at the office level for at least seven years, so that there is one partner r

18、otation and two years of data for the new incoming partnere.g. Change in 2003 2006,2007&2008,2009This design minimizes confounding factors that would be present if we examined data in the initial years of a new partner change occurring simultaneously with an audit firm change.Research DesignAudi

19、t Engagement Partner Survey and PCAOB Report InspectionAssumption: partners usually remain on the audit engagement through the five year period before being rotated off to another engagement.A survey to examine (1) follow the SOX 203;(2) rotate off prior to the fifth year; (3)reasons for early rotat

20、ionThe survey is mailed to 44 public accounting firms, the results of this survey indicate that public accounting firms follow the five-year audit partner rotation regulations and that it is very rare for partners to leave an engagement prior to the five-year rotation periodPCAOB Inspection Report:

21、no exception noted in relation to audit partner rotation complianceResearch DesignFinancial Reporting QualityWe employ managements use of discretionary accruals to just meet or beat analysts earnings forecasts ( MBE_ADJ) as a measure of financial reporting quality.MBE_ADJ=1discretionary accruals all

22、ow the firm to meet or beat EPS forecastslow audit quality and thus lower financialreporting qualityclassify a firm as meeting or beating analysts forecastsResearch DesignFinancial Reporting QualityDACCRUALS _PS=(DACCRUALS*TAt-1)/(SHARES_EPS)DACCRUALS _PS: discretionary accruals per shareDACCRUALS:

23、use the cross-sectional modified Jones model portfolio performance-adjusted approachSHARES_EPS: in the Compustat databaseADJUSTED_EPS=ACTUAL_EPS-DACCRUALS_PSACTUAL_EPS: in the I/B/E/S databaseACTUAL_EPS FORECAST_EPSADJUSTED_EPS FORECAST_EPSassume that the firm has used discretionary accruals to meet

24、 or beat analysts forecasts of EPSResearch DesignFinancial Reporting Qualitymultivariate regression model:MBE_ADJ= 0+ 1 NEW+ 2 LEV+ 3 ALTMAN_Z+ 4 LOSS+ 5 LNTA+ 6 SEGS+ 7 FOREIGN+ 8 STDRET+ 9 OCF_TA+ 10 BIG4+ 11 BTM+ 12 EXORD+ 13 ICW+ 14 ANALYS+ 15 PIND+ 16 BDMTGS + 17 INSPCTG+ DataResearch DesignIde

25、ntified all firms that switched audit firms between 2000 and 2004The sample includes only clients that consecutively engaged an audit firm at a specific office for at least seven yearsThis approach permits us to determine that at least one audit partner rotation took place at the audit office level.

26、This approach permits us to conduct additional tests to isolate the effects of audit partner change from audit firmResearch DesignDataResultsUnivariate AnalysesResultsResultsThe highest correlation between the independent variables is 0.600 The highest variance inflation factor ( VIF) is less than 2

27、.8Both are well below multicollinearity threat thresholds of 0.80 and 10, respectivelyUnivariate AnalysesResultsProbit-Regression-ResultsFirms are more likely to use accruals toin the first two years with a new audit partner compared to the last two years with the meet or beat analysts earnings fore

28、casts outgoing partnerUsing Accruals to Meet or Beat Analysts Earnings ForecastsResultsAuditor Size EffectsAudit partner rotation adversely affects financial reporting quality for clients of both Big 4 and non-Big4 auditors, but more so for the latterResultsAudit partner rotation primarily affects t

29、he financial reporting quality of larger audit clientsClient Size EffectsResultsPersistence of Effects of Partner RotationThe greater resource capacity available at Big 4 audit firms enables Big 4 auditors to better manage SOX 203 partner rotation requirementsResultsAuditor Resources: Auditor Specia

30、lization and Office SizeThe adverse consequences of partner rotation on financial reportingquality are greater when the audit office is not a specialist in the industry of the client and when the audit office has fewer audit resourcesConclusionProvide evidence of lower financial reporting quality fo

31、llowing partner rotationFinancial reporting quality of larger clients and clients of non-Big 4 auditors suffer the most following partner rotationThe greater complexity of larger clients poses audit challenges for all incoming partners, but more so for non-Big 4 audit partnersIndustry specialist auditors and auditors with larger offices are better able to manage effects of partner rotationLimitationlimit the sample to clients that changed audit firms and retained the same audit firm office for at least seven consecu