||Auditor’s Client Concentration and Audit Quality
||Department of Accountancy
The aim of this study is to examine the association between auditor’s client concentration and audit quality. I further test whether the relationship between auditor’s client concentration and audit quality for large clients is different from small clients in the auditor’s portfolio. Faced with the situation of limited audit resources, an auditor with a more concentrated client base could over-allocate the audit resources to large clients in his audit portfolio because they generate higher revenues than other clients, implying that they have more power in the auditor-client relationship. I hypothesize that this kind of resource distortion making an auditor focus on large clients at the expense of smaller ones results in a negative association between client concentration and audit quality. In addition, this negative impact of client concentration on audit quality is more pronounced for relatively small clients in the auditor’s client portfolio. Using the performance adjusted abnormal accruals, earnings benchmark, and going-concern audit reports as proxies of audit quality, I find a negative association between client concentration and audit quality. However, this relation is more pronounced for small clients only in the abnormal accruals test.
第壹章 緒論 1
第貳章 文獻探討與假說發展 4
第一節 會計師特性與審計品質 4
第二節 客戶集中程度 5
第三節 假說發展 6
第參章 研究設計 8
第一節 變數衡量與實證模型 8
1. 異常應計數 9
2. 盈餘門檻 12
3. 繼續經營疑慮意見 13
第二節 樣本選取與資料來源 14
第肆章 實證結果 15
第一節 敘述性統計 15
第二節 複迴歸分析 22
1. 客戶集中程度與審計品質之實證結果 22
2. 客戶集中程度、客戶重要性與審計品質之實證結果 28
第伍章 結論 34
Anderson, E., L. M. Lodish, and B. A. Weitz. 1987. Resource allocation behavior in conventional channels. Journal of Marketing Research 24(1): 85-97.
Balsam, S., J. Krishnan, and J. S. Yang. 2003. Auditor industry specialization and earnings quality. Auditing: A Journal of Practice & Theory 22 (2): 71-97.
Becker, C., M. DeFond, J. Jiambalvo, and K. R. Subramanyam. 1998. The effect of audit quality on earnings management. Contemporary Accounting Research 15 (1): 1-24.
Breesch D., and J. Branson. 2009. The Effects of Auditor Gender on Audit Quality. The IUP Journal of Accounting Research and Audit Practices 53 (3-4): 78-107.
Burgstahler, D., and I. Dichev. 1997. Earnings management to avoid earnings decreases and losses. Journal of Accounting and Economics 24 (1): 99-126.
Carcello, J. V., D. Hermanson, and F. Huss. 1995. Temporal changes in bankruptcy-related reporting. Auditing: A Journal of Practice & Theory 14 (2): 133-143.
Carey, P., and R. Simnett. 2006. Audit partner tenure and audit quality. The Accounting Review 81 (3): 653-676.
Chen, C. Y., C. J. Lin, and Y. C. Lin. 2008. Audit partner tenure, audit firm tenure, and discretionary accruals: Does long auditor tenure impair earnings quality? Contemporary Accounting Research 25 (2): 415-445.
Chen, S., S. Y. J. Sun, and D. Wu. 2010. Client importance, institutional improvements, and audit quality in China: An office and individual auditor level analysis. The Accounting Review 85 (1): 127-158.
Chin, C. L., and H. Y. Chi. 2009. Reducing restatements with increased industry expertise. Contemporary Accounting Research 26 (3): 729–765.
Chi, W., E. Douthett, and L. Lei. 2012. Client importance and audit partner independence. Journal of Accounting and Public Policy 31 (3): 320-336.
Chi, W., and H. Huang. 2005. Discretionary accruals, audit-firm tenure and auditor tenure: Evidence from Taiwan. Journal of Contemporary Accounting & Economics 1 (1): 65-92.
Chi, W., H. Huang, Y. Liao, and H. Xie. 2009. Mandatory audit-partner rotation, audit quality and market perception: Evidence from Taiwan. Contemporary Accounting Research 26 (2): 359-391.
Choi, J. H., J. B. Kim, and Y. Zang. 2010. Do abnormally high audit fees impair audit quality? Auditing: A Journal of Practice & Theory 29 (2): 115-140.
Christensen, C. M., and J. L. Bower. 1996. Customer power, strategic investment, and the failure of leading firms. Strategic Management Journal 17 (3): 197-218.
Craswell, A. T., D. J. Stokes, and J. Laughton. 2002. Auditor independence and fee dependence. Journal of Accounting and Economics 33 (2): 253-275.
Craswell, A. T., J. R. Francis, and S. L. Taylor. 1995. Auditor brand name reputations and industry specializations. Journal of Accounting and Economics 20 (3): 297-322.
DeAngelo, L. E. 1981. Auditor size and auditor quality. Journal of Accounting and Economics 3 (3): 183-199.
Dechow, P. M., R. Sloan, and A. Sweeney. 1995. Detecting earnings management. The Accounting Review 70 (2): 193-225.
DeFond, M. L., and J. Jiambalvo. 1994. Debt covenant violation and manipulation of accruals. Journal of Accounting and Economics 17 (1-2): 145-176.
DeFond, M. L., J. R. Francis, and T. J. Wong. 2000. Auditor industry specialization and market segmentation: Evidence from Hong Kong. Auditing: A Journal of Practice & Theory 19 (1): 49-66.
DeFond, M. L., K. Raghunandan, and K. R. Subramanyam. 2002. Do non-audit service fees impair auditor independence? Evidence from going concern audit opinions. Journal of Accounting Research 40 (4): 1247-1274.
Degeorge, F., J. Patel, and R. Zeckhauser. 1999. Earnings management to exceed thresholds. Journal of Business 72 (1): 1-33.
Dhaliwal, D., J. S. Judd, M. Serfling, and S. Shaikh. 2016. Customer concentration risk and the cost of equity capital. Journal of Accounting and Economics 61 (1): 23-48.
Doyle, J., G. Weili, and S. McVay. 2007. Accruals quality and internal control over financial reporting. The Accounting Review 82 (5): 1141-1170.
Farrell, A. M., K. Kadous, and K. L. Towry. 2012. Does the communication of causal linkages improve employee effort allocations and firm performance? An experimental investigation. Journal of Management Accounting Research 24 (1): 77-102.
Francis, J. R., E. L. Maydew, and H. C. Sparks. 1999. The role of big 6 auditors in the credible reporting of accruals. Auditing: A Journal of Practice & Theory 18 (2): 17-34.
Frankel, R. M., M. F. Johnson, and K. K. Nelson. 2002. The relation between auditors' fees for nonaudit services and earnings management. The Accounting Review 77 (4): 71-105.
Geiger, M. A., and D. V. Rama. 2003. Audit fees, nonaudit fees, and auditor reporting on stressed companies. Auditing: A Journal of Practice & Theory 22 (2): 53-69.
Geiger, M. A., and K. Raghunandan. 2002. Auditor tenure and audit reporting failures.Auditing: A Journal of Practice & Theory 21 (1): 67-78.
Ghosh A. and D. Moon. 2005. Auditor tenure and perceptions of audit quality. The Accounting Review 80 (2): 585-612.
Gul, F. A., M. Ma, and K. Lai. 2012. Auditing multiple public clients, partner-client tenure and audit quality. Working paper, available at SSRN:
https://ssrn.com/abstract=2156399 or http://dx.doi.org/10.2139/ssrn.2156399
Hammersley, J. S. 2006. Pattern identification and industry-specialist auditors. The Accounting Review 81 (2): 309-336.
Hannan, R. L., G. P. McPhee, A. H. Newman, and I. D. Tafkov. 2013. The effect of relative performance information on effort allocation and performance in a multi-task environment. The Accounting Review 88 (2): 553-575.
Holmstrom, B., and P. Milgrom. 1991. Multitask principal-agent analyses: Incentive contracts, asset ownership, and job design. Journal of Law, Economics, & Organization 7 (Special): 24-52.
Hopwood, W., J. McKeown, and J. Mutchler. 1994. A reexamination of auditor versus model accuracy within the context of the going-concern opinion decision. Contemporary Accounting Research 10 (2): 409-431.
Hossain, S., L. Chapple. 2012. Does Auditor Gender Affect Issuing a Going-Concern Opinion? Working paper, available at SSRN: https://ssrn.com/abstract=2094200
Hribar, P., and D. Nichols. 2007. The use of unsigned earnings quality measures in tests of earnings management. Journal of Accounting Research 45 (5): 1017-1053.
Johnson, V., I. K. Khurana, and J. K. Reynolds. 2002. Audit-firm tenure and the quality of financial report. Contemporary Accounting Research 19 (4): 637-660.
Johnstone, K. M., M. H. Sutton, and T. D. Warfield. 2001. Antecedents and consequences of independence risk: Framework for analysis. Accounting Horizons 15 (1): 1-18.
Jones, J. 1991. Earnings management during import relief investigations. Journal of Accounting Research 29 (2): 193-228.
Kothari, S. P., A. J. Leone, and C. E. Wasley. 2005. Performance matched discretionary accrual measures. Journal of Accounting and Economics 39 (1): 163-197.
Krishnan, G. V. 2003. Does big 6 auditor industry expertise constrain earnings management? Accounting Horizons 17 (Supplement): 1-16.
Lanier, D., W. F. Wempe, and Z. G. Zacharia. 2010. Concentrated supply chain membership and financial performance: Chain-and firm-level perspectives.Journal of Operations Management 28 (1): 1-16.
Lee, J. Z., H. C. Chen, and L. F. Tang. 2013. Client importance and audit quality: Audit-partner level analysis. Journal of Contemporary Accounting 14 (2): 147-174.
Levitt, A. 1998. The numbers game. Speech delivered at New York University, Center for Law and Business, September 28. Available at: http://www.sec.gov/news/speech/speecharchive/1998/spch220.txt.
Lys, T., and R. L. Watts. 1994. Lawsuits against auditors. Journal of Accounting Research 32 (Supplement): 65-93.
Matsumoto, D. A. 2002. Management's incentives to avoid negative earnings surprises. The Accounting Review 77 (3): 483-514.
Menon, K., and D. Williams. 2004. Former audit partners and abnormal accruals. The Accounting Review 79 (4): 1095-1118.
Mitra, S., D. R. Deis, and M. Hossain. 2009. The association between audit fees and reported earnings quality in pre- and post-Sarbanes-Oxley regimes. Review of Accounting and Finance 8 (3): 232-251.
Mutchler, J., W. Hopwood, and J. McKeown. 1997. The influence of contrary information and mitigating factors in audit opinion decisions on bankrupt companies. Journal of Accounting Research 35 (2): 295-310.
Myers J., L. A. Myers, and T. C. Omer. 2003. Exploring the term of auditor-client relationship and the quality of earnings: a case for mandatory auditor rotation? The Accounting Review 78 (3): 779-799.
Palmrose, Z-V. 1986. Audit fees and auditor size: Further evidence. Journal of Accounting Research 24 (1): 97-110.
Patatoukas, P. N. 2012. Customer-base concentration: Implications for firm performance and capital markets. The Accounting Review 87 (2): 363-392.
Radner, R., and M. Rothschild. 1975. On the allocation of effort. Journal of Economic Theory 10 (3): 358-376.
Raghunandan, K., and D. V. Rama. 1995. Audit reports for companies in financial distress: Before and after SAS No.59. Auditing: A Journal of Practice & Theory 14 (1): 50-63.
Reynolds, J. K., and J. R. Francis. 2000. Does size matter? The influence of large clients on office level auditor reporting decisions. Journal of Accounting and Economics 30 (3): 375-400.
Srinidhi, B., and F. A. Gul. 2007. The differential effects of auditors' nonaudit and audit fees on accrual quality. Contemporary Accounting Research 24 (2): 595-629.
Trotman, K. T., A. M. Wright, and S. Wright. 2005. Auditor negotiations: An examination of the efficacy of intervention methods. The Accounting Review 80 (1): 349-367.
Tubbs, R. M. 1992. The effect of experience on the auditor’s organization and amount of knowledge. The Accounting Review 67 (4): 783-801.
Warfield, T., J. Wild, and K. Wild. 1995. Managerial ownership, accounting choices,and informativeness of earnings. Journal of Accounting and Economics 20 (1): 61- 91.