The impact of auditor independence regulations on established and emerging firms.
Clout, Victoria J., Chapple, Larelle, & Gandhi, Nilan (2013) The impact of auditor independence regulations on established and emerging firms. Accounting Research Journal, 26(2), pp. 88-108.
Purpose – The purpose of this paper is to study whether auditor independence reforms introduced in 2004 led to an enhancement in earnings quality in the post-reform era. Design/methodology/approach – This study predicts that as the cost of compliance will vary based on a firm's existing corporate governance regime and the level of external scrutiny (monitoring) it faces, we compare the earnings quality of a sample of “established” (S&P/ASX 100) to a sample of “emerging” (S&P/ASX Small Ordinaries Index) firms. The paper examines the reporting behaviour of the two groups of listed entities, covering the regulatory change period 2003-2006. The paper uses regression modelling to test the associations between increased audit independence, earnings quality and corporate governance mechanisms over the pre- and post-regulatory period. Findings – The paper's results confirm that earnings quality for the established firms was enhanced in the post-reform period; while this was not the case for emerging firms. The evidence also suggests that corporate governance mechanisms of board independence and board financial skill are associated with higher earnings quality; while the higher the concentration of insider firm ownership is associated with lower earnings quality. Practical implications – This study provides policy makers with evidence as to changes in reporting behaviour following law reform aimed at strengthening auditor independence. Originality/value – The studies on earnings quality are informed by the US market practices. Australia provides a unique setting through its auditor independence reforms to examine the impact of reform choices. This study also investigates two specific subsets of the market: established firms and emerging firms.
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|Item Type:||Journal Article|
|Keywords:||Auditor independence, Auditors, Corporate governance, Earnings quality|
|Subjects:||Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > ACCOUNTING AUDITING AND ACCOUNTABILITY (150100)
Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > BANKING FINANCE AND INVESTMENT (150200)
|Divisions:||Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Accountancy
|Deposited On:||04 Sep 2013 05:26|
|Last Modified:||08 May 2014 22:59|
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