Client acceptance and continuation decisions

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

Relevant but Delayed Information in Negotiated Audit Fees: Evidence from Stock Price Crashes

Audit fee negotiations conclude the first quarter of the year under audit, yet the audit fee is not disclosed until the first quarter of the following year. We conjecture that negotiated audit fees impound auditor’s consequential private, client-specific knowledge about events investors will eventually learn. We demonstrate that year-to-year changes in audit fees have an economically meaningful positive association with proxies for idiosyncratic risk — future negative stock performance (crashes, skewness, and volatility), debt downgrades and lawsuits. This relation holds in the year under audit as well as the following year. The results suggest that negotiated audit fees contain information meaningful to investors that if disclosed when known instead of in the following year, would reduce information asymmetry.https://fisher.osu.edu/supplements/10/11702/Jenkins%20OSU_presentationpaper.pd

Relevant but Delayed Information in Negotiated Audit Fees

SUMMARY: Audit fee negotiations conclude with the signing of an engagement letter, typically the first quarter of the year under audit. Yet investors do not learn the audit fee paid until disclosed in the following year's definitive proxy statement. We conjecture that negotiated audit fees impound auditors' consequential private, client-specific knowledge about “bad news” events investors will learn eventually. We demonstrate that a proxy for the year-to-year change in the negotiated audit fee has an economically meaningful positive association with proxies for public realizations of “bad news” events that occur during the roughly 12-month period between the negotiation of the audit fee and the disclosure of the audit fee paid. Our results suggest that negotiated audit fees contain information meaningful to investors and that if disclosed proximate to the signing of the engagement letter instead of the following year, information asymmetry between managers and investors would be reduced. JEL Classifications: G19, D89, M40. Data Availability: Available from public sources identified in the text.</jats:p

Relevant but Delayed Information in Negotiated Audit Fees

Audit fee negotiations conclude with the signing of an engagement letter, typically the first quarter of the year under audit. Yet investors do not learn the audit fee paid until disclosed in the following year's definitive proxy statement. We conjecture that negotiated audit fees impound auditors’ consequential private, client-specific knowledge about “bad news” events investors will learn eventually. We demonstrate that a proxy for the year-to-year change in the negotiated audit fee has an economically meaningful positive association with proxies for public realizations of “bad news” events that occur during the roughly 12-month period between the negotiation of the audit fee and the disclosure of the audit fee paid. Our results suggest that negotiated audit fees contain information meaningful to investors and that if disclosed proximate to the signing of the engagement letter instead of the following year, information asymmetry between managers and investors would be reduced.http://eds.a.ebscohost.com/ehost/pdfviewer/pdfviewer?vid=1&sid=175ece33-c294-471a-88b1-e2ce9523021e%40sessionmgr400

Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Release No. 2015-004, <i>Supplemental Request for Comment: Rules to Require Disclosure of Certain Audit Participants on a New PCAOB Form</i>

SUMMARY On June 30, 2015 the Public Company Accounting Oversight Board (PCAOB) issued a supplemental request for comment on its 2013 reproposal to require auditors to disclose in the auditor's report the name of the engagement partner and information about certain other participants in the audit. The supplemental request solicited public comments on an alternative to disclosure of this information in the auditor's report, namely that audit firms report (1) the name of the engagement partner, and (2) the names, locations, and extent of participation of other audit participants in a new form (Form AP) to be filed with the PCAOB within 30 days of the date the auditor's report is first included in a document filed with the SEC. The comment period ended on August 31, 2015. This commentary summarizes the participating committee members' views on the alternatives presented in the supplemental request for comment. Data Availability: The exposure drafts of the proposed and reproposed rules, the supplemental request for comment, and related information are available at: http://pcaobus.org/Rules/Rulemaking/Pages/Docket029.aspx</jats:p

Comments of the Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Staff Consultation Paper Auditing Accounting Estimates and Fair Value Measurements

Recently, the Public Companies Accounting Oversight Board (PCAOB) solicited public comments on its Staff Consultation Paper Auditing Accounting Estimates and Fair Value Measurements. This commentary summarizes the contributors’ views on the various questions asked in the PCAOB Staff Consultation Paper. Our comments submitted to the PCAOB appear below.http://eds.b.ebscohost.com/ehost/pdfviewer/pdfviewer?vid=1&sid=22f01d2b-8b01-4ee5-b934-363b2130cab0%40sessionmgr10

Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Release No. 2013-009, <i>Proposed Rule on Improving the Transparency of Audit: Proposed Amendments to PCAOB Auditing Standards to Provide Disclosure in the Auditor's Report of Certain Participants in the Audit</i>

SUMMARY On December 4, 2013 the Public Company Accounting Oversight Board (PCAOB) solicited public comments on its reproposed amendments to its standards that would improve the transparency of public company audits. The amendments would require (1) disclosure in the auditor's report of the name of the engagement partner, and (2) disclosure in the auditor's report of the names, locations, and extent of participation of other independent public accounting firms that took part in the audit and the locations and extent of participation of other persons not employed by the auditor that took part in the audit. The comment period initially ended on February 3, 2014, but was subsequently extended to March 17, 2014. This commentary summarizes the contributors' views on these amendments. Data Availability: The exposure drafts of the proposed and reproposed rules and related information are available at: http://pcaobus.org/Rules/Rulemaking/Pages/Docket029.aspx</jats:p