Audit firm tenure and financial restatements: An analysis of industry specialization and fee effects

Journal of Accounting and Public Policy

Volumn 26, Issue 2, 2007, Pages 131-159

  Stanley, Jonathan D ^a   Todd DeZoort, F ^a  

^a UNIVERSITY OF ALABAMA   (United States)

Author keywords

Audit fees; Audit tenure; Financial restatements; Industry specialization; Nonaudit fees

Indexed keywords

EID: 33947163991     PISSN: 02784254     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.jaccpubpol.2007.02.003     Document Type: Article

References (69)

1. American Institute of Certified Public Accountants (AICPA). Commission on Auditors' Responsibilities: Report, Conclusions, and Recommendations (1978), American Institute of Certified Public Accountants, New York, NY
2. American Institute of Certified Public Accountants (AICPA). Statement of Position Regarding Mandatory Rotation of Audit Firms of Publicly Held Companies (1992), American Institute of Certified Public Accountants, New York, NY
3. American Institute of Certified Public Accountants (AICPA). Landmark accounting reform legislation signed into law. The CPA Newsletter 82 7 (2002) 1
4. Archambeault D., and DeZoort F.T. Auditor opinion shopping and the audit committee: an analysis of suspicious auditor switches. International Journal of Auditing 5 1 (2001) 33-52
5. Ashbaugh H., LaFond R., and Mayhew B. Do nonaudit services compromise auditor independence? Further evidence. The Accounting Review 78 3 (2003) 611-639
6. Ashton A. Experience and error frequency knowledge as potential determinants of audit expertise. The Accounting Review 66 2 (1991) 218-239
7. Balsam S., Krishnan J., and Yang J.S. Auditor industry specialization and earnings quality. Auditing: A Journal of Practice and Theory 22 2 (2003) 71-97
8. Bazerman M., Morgan K., and Loewenstein G. The impossibility of auditor independence. Sloan Management Review 38 4 (1997) 89-94
9. Beck P., Frecka T., and Solomon I. A model of the market for MAS and audit services: Knowledge spillovers and auditor-auditee bonding. Journal of Accounting Literature 7 (1988) 50-64
10. Becker C.L., DeFond M.L., Jiambalvo J., and Subramanyam K.R. The effect of audit quality on earnings management. Contemporary Accounting Research 15 1 (1998) 4-24
11. Biggs, J., 2002. Testimony before the US Senate Committee on Banking, Housing and Urban Affairs. (February 27), Washington, DC.
12. Bonner S., and Lewis B. Determinants of auditor expertise. Journal of Accounting Research 28 Suppl. (1990) 1-20
13. Carcello J., and Nagy A. Client size, auditor specialization and fraudulent financial reporting. Managerial Auditing Journal 19 5 (2004) 651-668
14. Carcello J., and Nagy A. Audit firm tenure and fraudulent financial reporting. Auditing: A Journal of Practice & Theory 23 2 (2004) 55-70
15. Carcello J., and Neal T. Audit committee composition and auditor reporting. The Accounting Review 75 4 (2000) 453-467
16. Carcello J., and Neal T. Audit committee characteristics and auditor dismissals following "new" going-concern reports. The Accounting Review 78 1 (2003) 95-117
17. Chung H., and Kallapur S. Client importance, nonaudit services, and abnormal accruals. The Accounting Review 78 4 (2003) 931-955
18. Conference Board. Commission on Public Trust and Private Enterprise (2003), The Conference Board, New York, NY
19. DeAngelo L. Auditor independence, "low balling," and disclosure regulation. Journal of Accounting and Economics 3 2 (1981) 113-127
20. Dechow P., Sloan R., and Sweeney A. Causes and consequences of earnings manipulation: an analysis of firms subject to enforcement actions by the SEC. Contemporary Accounting Research 13 1 (1996) 1-36
21. DeFond M.L., Raghunandan K., and Subramanyam K.R. Do non-audit service fees impair auditor independence? Evidence from going concern audit opinions. Journal of Accounting Research 40 4 (2002) 1247-1274
22. DeFond M.L., and Subramanyam K.R. Auditor changes and discretionary accruals. Journal of Accounting and Economics 25 1 (1998) 35-67
23. Deis D., and Giroux G. The effect of auditor changes on audit fees, audit hours, and audit quality. Journal of Accounting and Public Policy 15 1 (1996) 55-76
24. Desai H., Hogan C., and Wilkins M.S. The reputational penalty for aggressive accounting: Earnings restatements and management turnover. The Accounting Review 81 1 (2006) 83-112
25. Dunn K., and Mayhew B. Audit firm industry specialization and client disclosure quality. Review of Accounting Studies 9 1 (2004) 35-58
26. Ettredge M., and Greenberg R. Determinants of fee cutting on initial audit engagements. Journal of Accounting Research 28 1 (1990) 198-210
27. Francis J., Reichelt K., and Dechun W. The pricing of national and city-specific reputations for industry expertise in the US audit market. The Accounting Review 80 1 (2005) 113-136
28. Frankel R., Johnson M., and Nelson K. The relation between auditors' fees for nonaudit services and earnings management. The Accounting Review 77 Supplement (2002) 71-105
29. Geiger M., and Raghunandan K. Auditor tenure and audit reporting failures. Auditing: A Journal of Practice and Theory 21 1 (2002) 68-78
30. General Accounting Office (GAO), 2002. Financial statement restatements: Trends, market impacts, regulatory responses, and remaining challenges. Report to Congressional Committees, Washington, DC.
31. General Accounting Office (GAO), 2003. Public accounting firms: Required study on the potential effects of mandatory audit firm rotation. Report to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services, Washington, DC.
32. Ghosh A., and Moon D. Auditor tenure and perceptions of audit quality. The Accounting Review 80 2 (2005) 585-612
33. Gramling A., and Stone D. Audit firm industry expertise: a review and synthesis of the archival literature. Journal of Accounting Literature 20 (2001) 1-27
34. Heninger W. The association between auditor litigation and abnormal accruals. The Accounting Review 76 1 (2001) 111-126
35. Hosmer D., and Lemeshow S. Applied Logistic Regression (2000), Wiley, New York
36. Imhoff E. Accounting quality, auditing, and corporate governance. Accounting Horizons 17 Supplement (2003) 117-128
37. Johnson V., Kurana I., and Reynolds K. Audit-firm tenure and the quality of financial reports. Contemporary Accounting Research 19 4 (2002) 637-660
38. Kinney W.R., Palmrose Z.-V., and Scholz S. Auditor independence, non-audit services, and restatements: Was the US government right?. Journal of Accounting Research 42 3 (2004) 561-588
39. Krishnan G. Does Big 6 auditor industry expertise constrain earnings management?. Accounting Horizons 17 Suppl. (2003) 1-16
40. Loebecke J., Eining M., and Willingham J. Auditors' experience with material irregularities: Frequency, nature, and detectibility. Auditing: A Journal of Practice and Theory 9 1 (1989) 1-28
41. Magee R., and Tseng M. Audit pricing and independence. The Accounting Review 65 2 (1990) 315-336
42. Mansi S.A., Maxwell W.F., and Miller D.P. Does auditor quality and tenure matter to investors? Evidence from the bond market. Journal of Accounting Research 42 4 (2004) 755-793
43. Mautz R., and Sharaf H. The philosophy of auditing. American Accounting Association Monograph No. 6 (1961), American Accounting Association, Sarasota
44. Menon K., and Williams D.D. Former audit partners and abnormal accruals. The Accounting Review 79 4 (2004) 1095-1118
45. Myers J., Myers L., and Omer T. Exploring the term of the auditor-client relationship and the quality of earnings: A case for mandatory auditor rotation?. The Accounting Review 78 3 (2003) 779-799
46. Neal T., and Riley R. Auditor industry specialist research design. Auditing: A Journal of Practice and Theory 23 2 (2004) 169-177
47. Neter J., Kutner M., Nachtsheim C., and Wasserman W. Applied Linear Statistical Models. fourth ed. (1996), McGraw-Hill, Chicago
48. Palmrose Z.-V., Richardson V., and Scholz S. Determinants of market reactions to restatement announcements. Journal of Accounting and Economics 37 1 (2004) 1-31
49. Palmrose Z.-V., and Scholz S. The circumstances and legal consequences of non-GAAP reporting: Evidence from restatements. Contemporary Accounting Research 21 1 (2004) 139-180
50. PricewaterhouseCoopers LLP (PwC). Mandatory Rotation of Audit Firms: Will it Improve Audit Quality? (2002), PricewaterhouseCoopers LLP, New York, NY
51. Public Oversight Board (POB). The Panel on Audit Effectiveness Report and Recommendations (2000), Public Oversight Board, Stanford, CT
52. Raghunandan K., Read W., and Whisenant S. Initial evidence on the association between nonaudit fees and restated financial statements. Accounting Horizons 17 3 (2003) 223-234
53. Reynolds J., Deis D., and Francis J. Professional service fees and auditor objectivity. Auditing: A Journal of Practice and Theory 23 1 (2004) 29-52
54. Richardson, S., Tuna, I., Wu, M., 2003. Capital market pressures and earnings management: The case of earnings restatements. Working Paper, The University of Pennsylvania.
55. Sankaraguruswamy, S., Whisenant, S., 2005. Pricing initial audit engagements: Empirical evidence following public disclosure of audit fees. Working Paper, University of Houston.
56. Sarbanes-Oxley Act, 2002. Public Law No. 107-204. Government Printing Office, Washington, DC.
57. Securities and Exchange Commission (SEC). Final Rule: Revision of the Commission's Auditor Independence Requirements (2000), Securities and Exchange Commission, Washington, DC
58. Securities and Exchange Commission (SEC). Proposed Rule: Framework for Enhancing the Quality of Financial Information Through Improvement of Oversight of the Auditing Process (2002), Securities and Exchange Commission, Washington, DC
59. Securities and Exchange Commission (SEC). Final Rule: Strengthening the Commissions' Requirements Regarding Auditor Independence (2003), Securities and Exchange Commission, Washington, DC
60. Simon D., and Francis J. The effects of auditor change on audit fees: Tests of price cutting and price recovery. The Accounting Review 63 2 (1988) 255-269
61. Stice J. Using financial and market information to identify pre-engagement factors associated with lawsuits against auditors. The Accounting Review 66 3 (1991) 516-533
62. Summers S., and Sweeney J. Fraudulently misstated financial statements and insider trading: an empirical analysis. The Accounting Review 73 1 (1998) 131-146
63. Turner, L., Dietrich, J., Anderson, K., Bailey, A., 2001. Accounting restatements. Working Paper, Securities and Exchange Commission.
64. US Senate, 1976. The accounting establishment: a staff study. Subcommittee on Reports, Accounting, and Management of the Committee on Government Operations, Washington, DC.
65. Watkins A.L., Hillison W., and Morecroft S.E. Audit quality: a synthesis of theory and empirical evidence. Journal of Accounting Literature 23 (2004) 153-194
66. Weil J., and Rapoport M. Redefined by the SEC, audit fees get murky. The Wall Street Journal 22 (2003) C1
67. Whisenant S., Sankaraguruswamy S., and Raghunandan K. Evidence on the joint determination of audit and non-audit fees. Journal of Accounting Research 41 4 (2003) 721-744
68. Wu, M., 2003. Earnings restatements: a capital market perspective. Dissertation, New York University.
69. Zmijewski M. Methodological issues related to the estimation of financial distress prediction models. Journal of Accounting Research 22 Supplement (1984) 59-82