The role of risk management and governance in determining audit demand.

Most prior research into audit fees has been based on a theoretical model which treats audit fees as the by-product of a production function (Simunic, 1980) hereby ignoring potential demand forces that may drive the level of the audit fee. In such a production-oriented view of auditing, alternative control mechanisms (such as internal auditing and corporate governance) are hypothesized to be substitutes for external auditing, and hence more of one control mechanism is expected to be negatively associated with the level of external auditing, and hence the audit fee. In this paper we examine the impact of risks and controls in the determination of audit fees. Inspired by prior 'anomalous' results, we take a different perspective by focusing on some omitted demand factors that may affect the level of the audit fee. Based on Hay and Knechel (2004), we argue that when multiple stakeholders are included in the analysis a positive association between various risk management / control mechanisms and external audit demand is a very likely outcome, which is attributable to sharing of control costs between stakeholders and positive control externalities amongst stakeholders. Using data collected from a sample of listed companies in Belgium, we consider both disclosures about risk and risk management and actual decisions about corporate governance to examine whether audit fees are higher when hypothesized demand forces exist. Consistent with our expectations, our results indicate that audit fees are higher when a company has an audit committee, discloses a relatively high level of financial risk management, and has a larger proportion of independent Board Members. Audit fees are lower when a company discloses a relatively high level of compliance risk management. The latter result indicates that controls are only complementary as long as they are voluntary, as mandated controls act as substitutes for non-mandated controls.Auditing; Belgium; Companies; Cost; Decision; Stakeholders;

The Role of the Independent Accountant in Effective Risk Management

The purpose of this paper is to present a perspective on the ways in which an independent accountant can contribute to the management of risk in a business organization. Business conditions and challenges have heightened the interest in risk management by many stakeholders. Independent accountants have an important role to play in providing assurance related to the quality of risk management processes which extends beyond their traditional role as the auditor of financial statements. As organizations become more and more affected by externa1 and internal risks, and increasingly dependent on integrated information systems and the expansion of nonfinancial information for monitoring risk, the value of extemal assurance services should increase. However, while presenting an opportunity to the profession, the focus on risk management also comes with a few challenges, including obtaining market permission to provide risk-based assurance services, acquiring the necessary skills and expertise, avoiding regulatory intervention and maintaining independence as the scope of services provided by independent accountants increases. Overcoming these challenges should position the accountancy profession to well serve its clients in a broad array of risk-related services.

Client acceptance and continuation decisions

https://egrove.olemiss.edu/dl_proceedings/1049/thumbnail.jp

Exploratory analysis of the determinants of audit engagement resource allocations

https://egrove.olemiss.edu/dl_proceedings/1051/thumbnail.jp

Earnings management and audit quality:stakeholders’ perceptions

This paper examines the perceptions of Libyan Commercial Banks’ (LCBs) stakeholders regarding the role of the external auditor in relation to earnings management (EM). A total of 28 semi-structured interviews were carried out with a range of LCB stakeholders comprising preparers of financial statements, users, regulators and academics. A questionnaire survey of stakeholders which yielded 102 Responses (response rate 53%) was also carried out. A variety of views were held which varied to some extent according to stakeholder group. A widely held perception amongst interviewees was that the auditor has the ability to detect EM practices but may not be able to prevent it. However questionnaire respondents were, in aggregate, more confident of the auditor’s ability to deter EM due to the influence of the audit report. The paper provides insights into stakeholders’ perceptions of the quality of bank audits. The findings are of particular relevance to regulators, and specifically, the Central Bank of Libya. Perceptions of audit quality raise questions about its guidance and regulations especially in connection with audit firm rotation. Perceptions of audit quality, and therefore, of the credibility of financial statements should be of interest to all stakeholders. The importance of the banking sector for society has been amply demonstrated in recent years. A well-functioning audit function is a key component of its regulation. To the best of our knowledge, this paper is the first to examine issues related to banks’ audit quality and audit firm rotation in Libya