Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

The homogeneity of BIG4 audit reports after the implementation of key audit matters in the context of fair value accounting

The homogeneity of BIG4 audit reports after the implementation of key audit matters in the... This study examines the homogeneity of BIG4 audit reports after implementing key audit matters (KAMs) in the context of fair value accounting. We focus on reported KAMs and the procedures related to the fair values of investment properties, particularly those related to challenging management's estimations and valuation specialists' use. Our data consist of 235 individual audit reports from the real estate sector from 2017 to 2018 and cover 60% of the listed real estate companies in the EU, Switzerland, and Norway. We found that the BIG4 audit firms are not homogenous in their audit reports. There is a statistically significant difference among the BIG4 audit firms in reporting the challenge of management estimates and in the number of audit procedures. We also found that a country's legal origin plays a significant role when auditors report KAMs. Our findings contribute to the current audit quality and reporting literature. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Auditing Wiley

The homogeneity of BIG4 audit reports after the implementation of key audit matters in the context of fair value accounting

Download PDF
17 pages

Loading next page...
 
/lp/wiley/the-homogeneity-of-big4-audit-reports-after-the-implementation-of-key-5HD38B1ZmL
Publisher
Wiley
Copyright
© 2022 John Wiley & Sons Ltd
ISSN
1090-6738
eISSN
1099-1123
DOI
10.1111/ijau.12285
Publisher site
See Article on Publisher Site

Abstract

This study examines the homogeneity of BIG4 audit reports after implementing key audit matters (KAMs) in the context of fair value accounting. We focus on reported KAMs and the procedures related to the fair values of investment properties, particularly those related to challenging management's estimations and valuation specialists' use. Our data consist of 235 individual audit reports from the real estate sector from 2017 to 2018 and cover 60% of the listed real estate companies in the EU, Switzerland, and Norway. We found that the BIG4 audit firms are not homogenous in their audit reports. There is a statistically significant difference among the BIG4 audit firms in reporting the challenge of management estimates and in the number of audit procedures. We also found that a country's legal origin plays a significant role when auditors report KAMs. Our findings contribute to the current audit quality and reporting literature.

Journal

International Journal of Auditing – Wiley

Published: Jul 1, 2022

Keywords: audit quality; BIG4; fair value; IFRS; investment properties; key audit matter; the challenge of management estimation; use of specialists

References

  • Factors associated with internal audit function involvement with XBRL implementation in public companies: An international study
    Abdolmohammadi, M. J.; DeSimone, S. M.; Hsieh, T. S.; Wang, Z.
  • The impact of fair value measurement on audit fees: Evidence from financial institutions in 24 European countries
    Alexeyeva, I.; Mejia‐Likosova, M.
  • Real effects of reporting key audit matters on auditors judgment and choice of action
    Asbahr, K.; Ruhnke, K.
  • The effect of international institutional factors on properties of accounting earnings
    Ball, R.; Kothari, S. P.; Robin, A.
  • The relation between CEO compensation and past performance
    Banker, R. D.; Darrough, M. N.; Huang, R.; Plehn‐Dujowich, J. M.
  • Including estimates of the future in todays financial statements
    Barth, M. E.
  • The effect of audit quality on earnings management
    Becker, C.; DeFond, M.; Jiambalvo, J.; Subramanyam, K. R.
  • Consequences of expanded audit reports: Evidence from the justifications of assessments in France
    Bédard, J.; Gonthier‐Besacier, N.; Schatt, A.
  • Enhancing and structuring the MD & a to aid investors when using interactive data
    Bedard, J. C.; Sutton, S. G.; Arnold, V.; Philips, J.
  • Does auditor reputation “discourage” related‐party transactions? The French case
    Bennouri, M.; Nekhill, M.; Touron, P.
  • Experience effects in auditing: The role of task‐specific knowledge
    Bonner, S.
  • Do the big 4 and the second‐tier firms provide audits of similar quality?
    Boone, J. P.; Khurana, I. K.; Raman, K. K.
  • Auditors and specialists views about the use of specialists during an audit
    Boritz, J. E.; Kochetova, N. V.; Robinson, L. A.; Wong, C.
  • Updates regarding audit reporting
    Botez, D.
  • When does utilizing valuation specialists reduce auditors litigation risk?
    Brown, J. O.; Brenier, J. H.; Pyzoha, J. S.; Rewffelt, A.; Zielinski, N.
  • Auditing challenging fair value measurements: Evidence from the field
    Cannon, N. H.; Bedard, J. C.
  • What do investors want from the standard audit report?
    Carcello, J. V.
  • Audit reporting for going‐concern uncertainty: A research synthesis
    Carson, E.; Fargher, N.; Geiger, M. A.; Lennox, C. S.; Raghunandan, K.; Willekens, M.
  • Organizational structure, environment and performance: The role of strategic choice
    Child, J.
  • Audit pricing, legal liability regimes, and big 4 premiums: Theory and cross‐country evidence
    Choi, J.‐H.; Kim, J.‐B.; Liu, X.; Simunic, D. A.
  • Do critical audit matter paragraphs in the audit report change nonprofessional investors decision to invest?
    Christensen, B. E.; Glover, S. M.; Wolfe, C. J.
  • Extreme estimation uncertainty in fair value estimates: Implications for Audit Assurance
    Christensen, B. E.; Glover, S. M.; Wood, D. A.
  • The auditors reporting model: A literature overview and research synthesis
    Church, B. K.; Davis, S. M.; McCracken, S. A.
  • The commission on auditors responsibilities: Report, conclusions, & recommendations
  • Does auditor size matter? Evidence from small audit firms
    Comprix, J.; Huang, H.
  • The Routledge companion to auditing
    Coram, P.
  • Understanding audit reporting changes: Introduction of key audit matters
    Cordos, G. S.; Fülöp, M. T.
  • Auditor size and audit quality
    DeAngelo, L.
  • Auditor industry specialization and market segmentation: Evidence from Hong Kong
    DeFond, M.; Francis, J.; Wong, T. J.
  • The value relevance of managers and auditors disclosures about material measurement uncertainty
    Dennis, S. A.; Griffin, J. B.; Zehms, K. M.
  • The reliability of investment property fair value estimates
    Dietrich, J. R.; Harris, M. S.; Muller, K. A.
  • Importance of country factors for global differences in audit pricing: New empirical evidence
    Eierle, B.; Hartlieb, S.; Hay, D. C.; Niemi, L.; Ojala, H.
  • Are auditors professionally skeptical? Evidence from auditors going‐concern opinions and management earnings forecasts
    Feng, M.; Li, C.
  • The effects of firm‐wide and office‐level industry expertise on audit pricing
    Ferguson, A.; Francis, J.; Stokes, D.
  • What do we know about audit quality?
    Francis, J.
  • Accounting accruals and auditor reporting conservatism
    Francis, J.; Krishnan, J.
  • Auditor changes: A joint test of theories relating to agency costs and auditor differentiation
    Francis, J.; Wilson, E.
  • A framework for understanding and researching audit quality
    Francis, J. R.
  • The pricing of national and city‐specific reputations for industry expertise in the US audit market
    Francis, J. R.; Reichelt, K.; Wang, D.
  • Transparency report disclosure by Australian audit firms and opportunities for research
    Fu, Y.; Carson, E.; Simnett, R.
  • Studies in Managerial & Financial Accounting
    Geiger, M. A.
  • The effect of fair value method adoption: Evidence from real estate firms in the EU
    Ghosh, C.; Liang, M.; Petrova, M. T.
  • The constitution of society: Outline of the theory of structuration
    Giddens, A.
  • Current practices and challenges in auditing fair value measurements and complex estimates: Implications for auditing standards and the academy
    Glover, S. M.; Taylor, M. H.; Wu, Y. J.
  • Equifinality: Functional equivalence in organizational design
    Grezov, C.; Drazin, R.
  • When do auditors use specialists work to improve problem representations of and judgments about complex estimates?
    Griffith, E. E.
  • Auditors, specialists, and professional jurisdiction in audits of fair values
    Griffith, E. E.
  • Audits of complex estimates as verification of management numbers: How institutional pressures shape practice
    Griffith, E. E.; Hammersley, J. S.; Kadous, K.
  • Auditor mindsets and audits of complex estimates
    Griffith, E. E.; Hammersley, J. S.; Kadous, K.; Young, D.
  • Audit quality, management ownership, and the informativeness of accounting earnings
    Gul, F.; Lynn, S. G.; Tsui, J.
  • Judgment and choice: The psychology of decision
    Hogarth, R. M.
  • Development of a scale to measure professional skepticism
    Hurtt, R. K.
  • Research on auditor professional skepticism: Literature synthesis and opportunities for future research
    Hurtt, R. K.; Brown‐Liburd, H.; Earley, C. E.; Krishnamoorthy, G.
  • International financial reporting standard 13—Fair value
  • International accounting standard 40—Investment properties
  • International Standard on Auditing (ISA) 701 (NEW), communicating key audit matters in the independent auditor's report
  • Do firms manage fair value estimates? An examination of SFAS 142 goodwill impairments
    Jarva, H.
  • CAM versus KAM—A distinction without a difference
    Jermakowicz, E. K.; Epstain, B. J.; Ramamooti, S.
  • Use of high quantification evidence in fair value audits: Do auditors stay in their comfort zone?
    Joe, J. R.; Vandervelde, S. D.; Wu, Y.
  • Creative accounting, fraud, and international accounting scandals: Fraud & international accounting scandals
    Jones, M. J.; Jones, M.
  • IQ and audit quality: Do smarter auditors deliver better audits?
    Kallunki, J.; Kallunki, J. P.; Niemi, L.; Nilsson, H.; Aobdia, D.
  • Investigating recent audit reform in the Australian context: An analysis of the KAM disclosures in audit reports 2017–2018
    Kend, M.; Nguyen, L. A.
  • Litigation risk and the financial reporting credibility of big 4 versus non‐big 4 audits: Evidence from Anglo‐American countries
    Khurana, I.; Raman, K.
  • Auditor conservatism, asymmetric monitoring, and earnings management
    Kim, J.‐B.; Chung, R.; Firth, M.
  • The impact of mandatory IFRS adoption on audit fees: Theory and evidence
    Kim, J.‐B.; Liu, X.; Zheng, L.
  • The Routledge companion to auditing
    Knechel, W.; Shefchik, L.
  • Behavioral research in auditing and its impact on audit education
    Knechel, W. R.
  • Audit quality: Insights from the academic literature
    Knechel, W. R.; Krishnan, G. V.; Pevzner, M.; Shefchik, L.; Velury, U.
  • The effects of key audit matters on the auditors reports communicative value: Experimental evidence from investment professionals and non‐professional investors
    Köhler, A.; Ratzinger‐Sakel, N.; Theis, J.
  • Are large auditors more accurate than small auditors?
    Lennox, C.
  • Assessing the impact of the new auditors report
    Li, H. A.; Hay, D.; Lau, D.
  • The effects of industry specialization on audit risk assessments and audit‐planning decisions
    Low, K. Y.
  • Auditing fair value measurements: A synthesis of relevant research
    Martin, R. D.; Rich, J. S.; Wilks, T. J.
  • Investor reaction to going concern audit reports
    Menon, K.; Williams, D. D.
  • The audit reporting model: Current research synthesis and implications
    Mock, T. J.; Bénaed, J.; Coram, P. J.; Davis, S. M.; Espahbodi, R.; Carne, R. C.
  • When do investors value key audit matters?
    Moroney, R.; Phang, S. Y.; Xiao, X.
  • Mandatory fair value accounting, and information asymmetry: Evidence from the European real estate industry
    Muller, K.; Riedl, E.; Sellhorn, T.
  • A model and literature review of professional skepticism in auditing
    Nelson, M. W.
  • An analysis of auditor litigation and audit service quality
    Palmrose, Z. V.
  • Auditor attention to and judgments of aggressive financial reporting
    Phillips, F.
  • What matters in disclosures of key audit matters: Evidence from Europe
    Pinto, I.; Morais, A. I.
  • Agency costs and audit quality: Evidence from France
    Piot, C.
  • Law and finance
    Porta, R. L.; Lopez‐de‐Silanes, F.; Shleifer, A.; Vishny, R. W.
  • The risk management of everything: Rethinking the politics of uncertainty
    Power, M.
  • Are auditor and audit committee report changes useful to investors? Evidence from the United Kingdom
    Reid, L. C.; Carcello, J. V.; Li, C.; Terry, L.
  • Auditors comfort with uncertain estimates: More evidence is not always better
    Rowe, S. P.
  • Fair value exposure, changes in fair value and audit fees: Evidence from the Australian real estate industry
    Sangchan, P.; Habib, A.; Jiang, H.; Bhuiyan, B.
  • ISA 701: Key audit matters—An exploration of the rationale and possible unintended consequences in a south African
    Segal, M.
  • Key audit matters: Insight from audit experts Meditari
    Segal, M.
  • The problem of management bias in accounting estimates: An investor perspective on root causes and solutions
    Selling, T. I.; Nordlund, B.
  • Earnings quality in privately held firms: The roles of external audits, stakeholders, and governance mechanisms
    Sercu, P.; Vander Bauwhede, H.; Willekens, M.
  • Understanding the determinants of the magnitude of entity‐level risk and account‐level risk key audit matters: The case of the United Kingdom
    Sierra‐García, L.; Gambetta, N.; García‐Benau, M. A.; Orta‐Pérez, M.
  • The pricing of audit services: Theory and evidence
    Simunic, D. A.
  • Product differentiation in auditing: Auditor choice in the market for unseasoned new issues
    Simunic, D. A.; Stein, M. T.
  • A proposal to replace ‘true and fair view’with ‘acceptable risk of material misstatement’
    Smieliauskas, W.; Craig, R.; Amernic, J.
  • Value relevance of FAS no. 157 fair value hierarchy information and the impact of corporate governance mechanisms
    Song, C. J.; Thomas, W. B.; Yi, H.
  • The impact of key audit matter (KAM) disclosure in audit reports on stakeholders’ reactions: A literature review
    Velte, P.; Issa, J
  • The uncertainties of risk management: A field study on risk management internal audit practices in a Finnish municipality
    Vinnari, E.; Skærbæk, P.
  • Audit quality: a synthesIS of
    Watkins, A. L.; Hillison, W.; Morecroft, S. E.
  • Do expert informational intermediaries add value? Evidence from auditors in microcap IPOs
    Weber, J.; Willenborg, M.