AUDIT FIRM REPUTATION, AUDITOR SWITCHES, AND CLIENT STOCK PRICE REACTIONS: THE ANDERSEN EXPERIENCE

The financial scandal surrounding the collapse of Enron caused erosion in the reputation of its auditor, Andersen, leading to concerns about Andersen’s ability to continue in existence and ultimately its demise. In this paper we investigate the timing of switch by former Andersen’s clients. We find that the timing of the switch is related to variables hypothesized to be associated with the cost of switch. Specifically these are client size, auditor industry specialization, provision of non-audit services, auditor tenure, quality of earnings and financial distress In addition we find that clients with the greatest market losses attributable to disclosures pertaining to Andersen’s audit of Enron, and strongest corporate governance were more likely to switch early, while those with the strongest ties to Andersen were more likely to delay switching. We also find that clients switching from Andersen experienced positive abnormal returns during the three-day window surrounding the announcement. Importantly we find this positive return to be greater for clients with greater prior losses.Auditor Reputation, Auditor Change, Arthur Andersen, Enron

Mortality and pulmonary complications in patients undergoing surgery with perioperative SARS-CoV-2 infection: an international cohort study

Background: The impact of severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) on postoperative recovery needs to be understood to inform clinical decision making during and after the COVID-19 pandemic. This study reports 30-day mortality and pulmonary complication rates in patients with perioperative SARS-CoV-2 infection. Methods: This international, multicentre, cohort study at 235 hospitals in 24 countries included all patients undergoing surgery who had SARS-CoV-2 infection confirmed within 7 days before or 30 days after surgery. The primary outcome measure was 30-day postoperative mortality and was assessed in all enrolled patients. The main secondary outcome measure was pulmonary complications, defined as pneumonia, acute respiratory distress syndrome, or unexpected postoperative ventilation. Findings: This analysis includes 1128 patients who had surgery between Jan 1 and March 31, 2020, of whom 835 (74·0%) had emergency surgery and 280 (24·8%) had elective surgery. SARS-CoV-2 infection was confirmed preoperatively in 294 (26·1%) patients. 30-day mortality was 23·8% (268 of 1128). Pulmonary complications occurred in 577 (51·2%) of 1128 patients; 30-day mortality in these patients was 38·0% (219 of 577), accounting for 81·7% (219 of 268) of all deaths. In adjusted analyses, 30-day mortality was associated with male sex (odds ratio 1·75 [95% CI 1·28–2·40], p\textless0·0001), age 70 years or older versus younger than 70 years (2·30 [1·65–3·22], p\textless0·0001), American Society of Anesthesiologists grades 3–5 versus grades 1–2 (2·35 [1·57–3·53], p\textless0·0001), malignant versus benign or obstetric diagnosis (1·55 [1·01–2·39], p=0·046), emergency versus elective surgery (1·67 [1·06–2·63], p=0·026), and major versus minor surgery (1·52 [1·01–2·31], p=0·047). Interpretation: Postoperative pulmonary complications occur in half of patients with perioperative SARS-CoV-2 infection and are associated with high mortality. Thresholds for surgery during the COVID-19 pandemic should be higher than during normal practice, particularly in men aged 70 years and older. Consideration should be given for postponing non-urgent procedures and promoting non-operative treatment to delay or avoid the need for surgery. Funding: National Institute for Health Research (NIHR), Association of Coloproctology of Great Britain and Ireland, Bowel and Cancer Research, Bowel Disease Research Foundation, Association of Upper Gastrointestinal Surgeons, British Association of Surgical Oncology, British Gynaecological Cancer Society, European Society of Coloproctology, NIHR Academy, Sarcoma UK, Vascular Society for Great Britain and Ireland, and Yorkshire Cancer Research

Development of spray dried strawberry juice powder

This study explains the process and the optimum parameters to dry strawberry juice using laboratory scale spray dryer. The optimum parameters are the optimum drying temperature for minimum loss of vitamin C during drying process and optimum Maltodextrine 10 percentage for optimum colour, texture and taste of strawberry juice powder. There are 4 analytical experiments conducted on the strawberry juice powder produced which are vitamin C lost percentage, solubility analysis, effect of anti-caking and sensory evaluation. The strawberry juice is used as feed for spray drying process and production of strawberry powder. Firstly, strawberry juice is spray dried with spray dryer at various temperatures from 160 oC to 200 oC. Then, for the second experiment drying temperature is set constant at 170 oC and percentage of Maltodextrine is manipulated from 10% to 30%. Analytical experiment is conducted to measure the qualities of powder produced. Firstly, vitamin C loss studied before and after drying process to determine percentage of loss due to drying at different temperature. Then the solubility analysis conducted for powder produced with different percentage of Maltodextrine 10 addition. Then, the effect of anti-caking is analyzed by producing strawberry juice powder with addition of anti-caking agent (calcium carbonate). Lastly, sensory evaluation is conducted at cafeteria where people randomly choose to evaluate the qualities of reconstituted strawberry juice and powder produced. From the analysis, minimum loss of vitamin C observed at low temperature and it gradually increases as temperature increased. Solubility increases with increases of Maltodextrine 10 percentage. Anti-caking agent decreases hygroscopicity and increases the shelf life of powder. From all the analysis it is concluded that optimum temperature for drying is at 170 oC with optimum percentage of Maltodextrine 10 addition is 25%. High quality product is produced and it has high market potential in the future

Client influence and auditor independence revisited: Evidence from auditor resignations

Financial scandals such as the Enron-Andersen debacle provoke concerns that auditors lack independence when faced with influential clients. Unlike previous studies that examine whether client influence affects audit quality on ongoing engagements (providing mixed results), we investigate whether client influence (which engenders “independence risk”) at the audit-office level affects auditor resignations from high engagement-risk clients. We construct summary measures of engagement risk, using client disclosures on Form 8-K filings, potential risk factors (e.g., litigation risk), and auditor action (e.g., issuance of a going concern opinion) on the previous year’s financial statements. Focusing on risky clients, we find that auditors are more likely on average to resign from influential clients, and this positive association holds for auditors that are less likely to have mechanisms in place to mitigate independence risk. Also, importantly, influential clients are prevalent across the spectrum of client size, and the positive association between client influence and auditor resignations holds for both large and small clients

City-level auditor industry specialization, economies of scale, and audit pricing

We examine the effects of city-level auditor industry specialization and scale economies on audit pricing in the United States. Using a sample of Big N clients for the 2000-2007 period, and a scale measure based on percentile rankings of the number of audit clients at the city-industry level, we document significant specialization premiums and scale discounts in both the pre- and post-Sarbanes-Oxley Act (SOX) periods. However, the effects of industry specialization and scale economies on audit pricing are highly interactive. The negative effect of city-industry scale on audit fees obtains only for clients of specialist auditors. By contrast, clients of non-specialist auditors obtain scale discounts only when they enjoy strong bargaining power, suggesting that auditors are "forced" to pass on scale economies to clients with greater bargaining power

SOX Section 404 Material Weaknesses and Shareholder Dissatisfaction with Directors

Given the board of directors’ oversight role with respect to internal control systems, we examine how disclosures of internal control material weaknesses under Sarbanes-Oxley Section 404 affect shareholders’ voting in director elections. We find that the presence of material weaknesses is associated with shareholder voting, but the effect varies with the type of director (overall board, managers, and audit committee members), the type of material weakness, and the company’s restatement status. In both the board and manager samples, shareholders react negatively to account balance-level material weaknesses when there is no restatement (directors are possibly sharing the blame for an adverse internal control opinion viewed as unduly harsh in the absence of a restatement) and react negatively to company-level material weaknesses where there is a restatement (this reaction is more negative than for account balance-level weaknesses; thus, directors are possibly sharing the blame for very serious accounting problems). By contrast, regardless of restatement status, audit committee directors are not penalized for material weaknesses, but these directors are penalized for certain restatements. We also find, across all three samples, that shareholders are more satisfied with directors when a Big 4 auditor is in place, but less satisfied when nonaudit fees are higher. Overall, the results provide new insights into the effects of internal control strength, restatements, and auditor quality on shareholder dissatisfaction with directors. We also discuss implications and avenues for future research

Adverse Section 404 Opinions and Shareholder Dissatisfaction toward Auditors

Auditors issuing adverse Section 404 internal control opinions may be viewed as too conservative, or they may be blamed for being partly responsible for the existence of the internal control material weaknesses. Using a sample of 240 companies with adverse internal control opinions and 240 matched “clean” companies in their first year of Section 404 compliance, we examine how shareholder dissatisfaction with the auditors varies depending on material weakness existence/type (company-level versus noncompany-level) and the presence of recent accounting restatements. In the full sample, we find a significant positive interaction between restatement and company-level material weakness—company-level material weaknesses have a greater effect on shareholder dissatisfaction when a restatement has occurred. To provide insight, we partition our sample based on whether test companies have had recent accounting restatements. In the nonrestatement sample, we find that shareholders are less likely to vote for auditor ratification if the company received an adverse Section 404 internal control opinion because of noncompany-level material weaknesses. Shareholders may view the auditor as being too conservative when no company-level material weaknesses are cited and no recent accounting restatements have been issued. In the restatement sample, we find that shareholders are less likely to vote for auditor ratification if the company received an adverse Section 404 opinion with or without company-level material weaknesses cited—but with shareholder dissatisfaction greater for companies with company-level material weaknesses. Hence, in companies with recent accounting restatements, shareholders may blame the auditor for being partly responsible for the existence of material weaknesses (i.e., low audit quality). Overall, the results provide insights into shareholders\u27 perceptions of auditing and suggest that existing shareholders may sometimes prefer less conservative auditors. We encourage additional research on the role of auditors in protecting current versus prospective shareholders