In this study, I examine how firms change their tax avoidance and financial reporting following large tax settlements. I find that firms decrease tax avoidance following large settlements and this effect is concentrated among firms under-reserved for the settlement for financial accounting purposes. Additionally, my results suggest firms learn from tax examination resolutions in a way that affects their financial reporting over the tax account. Finally, I find that the effect of large settlements also spills over to firms within the same auditor network. This study provides context to the tax authority's efficacy in deterring tax avoidance and highlights its role in the financial reporting process.

The purpose of this dissertation is to examine the informational role of audit client (i.e. firm) reputation in the auditor switching and retention decision. I perform an experimental examination of an analytical model, prescribing the optimal choices made by firms in the decision to retain or switch auditors without considering firm reputation. Using an experimental markets approach, I provide evidence of the market reaction to a firm's switch/retention decision under two alternative treatments. In the first (baseline) treatment, an explicit test of the analytical model, firms do not incur reputation effects when making the decision to switch or retain auditors. In the second treatment, firms consider market perceptions of opportunistic auditor switching and retention and the potential effects on the firm's reputation.The choice of auditor switching and retention is a significant component of the firm's corporate governance structure. I precisely measures reputation formation and its impact on this specific governance decision by the inclusion of prior period auditor switch/retention decisions made by firms in reputation treatment conditions. Prior archival research has demonstrated a link between auditor quality and earnings quality. These studies suggest that the retention of a high-quality auditor, or dismissal of a poor-quality auditor, can signal high quality earnings to the market. The converse is also suggested; retention of a poor-quality auditor, or dismissal of a high-quality auditor, can signal poor earnings quality. The decision to retain or switch auditors is made annually by firms who have superior information over their auditors and investors. In the short run, the decision to retain or switch auditors offers a temporary signal which the market may not clearly price. However, including the firm's track record of auditor switching and retention decisions among auditors of differing quality allows for the development of a positive or negative reputation on this portion of corporate governance.The results presented provide evidence of the model's descriptive validity for the firm's optimal choices and related market reaction to the auditor switching decision for a finite time horizon. Additionally, the study examines the market reaction to a firm's reputation on the auditor switching and retention decision.

The purpose of this study is to describe and analyze how auditors are affected by quality controls and if audit practice changes because of quality controls. To fulfill the purpose of this study there has been interviews made with five auditors. The conclusion by this study is that the interviewed auditors work practices are affected by quality controls and that the extent and effect depends on the auditor and the office that the auditor works in. The auditors who worked as quality reviewers at the agencies where they are employed at, we felt that they were more secured in the response towards quality controls. This may be because they are quality reviewers themselves and they know what the quality control requires and what must be met to be approved. One of the key elements of a quality control is feedback and suggestions for improving the next audit. This seems to be appreciated by all auditors and an important tool to help the auditors evolve in the profession. The majority of the auditors believe that mandatory education is one of the most important steps into keeping themselves updated on new standards. To summarize the result of the study we conclude that quality controls can affect the audit practice, but this comes to expression in different ways depending on the auditors experiences of quality control and what agency the auditor work in.

Bakgrund: Rådgivningstjänster utgör idag en betydande del för många revisionsbyråers verksamhet. Revisionsbyråer har på grund av sin revision en kunskapsbas som konkurrenterna ofta inte har, och ett förtroende som revisorer som ger en fördel i rådgivningsbranschen. Dock är det detta förtroende, eller oberoende, som många är rädda för ska åsidosättas när revisorn utför rådgivningstjänster. Studien tar stöd av olika ekonomiska teorier, med fokus på agentteorin. Syfte: Studien syfte är att granska forskning avseende förhållandet mellan rådgivningstjänster och revisorns oberoende. Metod: Studien har utförs genom en litteraturstudie. Fem stycken tidigare publicerade vetenskapliga artiklar har analyserats. Samtliga utvalda artiklar behandlar ett land som är medlem i EU. Resultat: Studiens resultat visar att rådgivningstjänster påverkar revisorns synbara oberoende, men hittar inga starka bevis för att det påverkar revisorns faktiska oberoende. Olika länder i EU förhåller sig olika till revision och rådgivningstjänster. Studien visar även att intressenterna i regel upplever revisorn som mer oberoende om rådgivningstjänster utförs av en annan avdelning/personal på revisionsbyrån än den som utför revisionen. Den relativa nivån mellan rådgivning- och revisionsavgifter spelar också roll, samt om man köper rådgivningen från en Big-4 byrå eller inte. Diskussion: IFACs etiska regler som EU följer nämner att revisorn måste vara synbart oberoende för sakkunniga intressenter. Vilka dessa intressenter är och huruvida de är sakkunniga eller ej diskuteras i studien, samt eventuell diskrepans mellan de analyserade artiklarnas resultat och intressenters faktiska åsikter och konkreta agerande. Studien väger företagens efterfrågan av rådgivning mot intressenters negativa syn på rådgivning och oberoende. / Background: Non-auditing services is a big part of the revenue of auditing firms. Because of auditing, auditing firms aquire a knowledge about their clients that their competitors do not, along with a trust as auditors which gives them a competitive advantage in the non-auditing services industry. However it is this trust, or independence, that is of concern. There is a fear of an auditor compromising their independence when the auditor also supplies non-auditing services to the same client. This study is supported by different economic theories and models, focusing primarily on the agency-theory. Purpose: The purpose of this study is to peruse research concerning the relationship between non-auditing services and auditor independence. Method: The study is performed through a literature review. Five previously published articles have been analyzed. All the selected articles base their research on a specific country, being a member of the EU. Results: The results of this study show that non-auditing services influences auditor independence in appearance, but find no strong evidence for influence on independence in fact. Different member states in the EU approach auditing and non-auditing services differently. The study shows that interested parties sometimes experience the auditor as more independent if the non-auditing services are performed by another division or personnel than the same auditor performing the audit itself. The relative level between non-auditing fees and auditing fees matter to some extent, as well as if the non-auditing services are bought from a Big-4 firm or not. Discussion: The EU follows IFAC’s ethical guidelines, which mentions that auditors must be both independent in fact and independent in appearance to their interested parties, which are deemed to be outside experts. The study further discusses if these interested parties are experts or not, and if there is a discrepancy between the results of the analyzed articles and the actual opinions and actions of the interested parties. The study also weighs the demand for non-auditing services by the business management against the interested parties’ reported negative opinion towards non-auditing services and independence.

In this thesis, I examine how auditors construct their mental representations and test their hypotheses about the strength of a client’s control environment. With regard to the former, I hypothesize that management’s frame of the control system and auditor’s retrieval of control environment information from memory may influence the auditor’s control environment mental representation and impact subsequent audit judgments. Consistent with my theoretical predictions, I find that retrieval of control environment information from memory biases an auditor’s mental representation, and that this biased mental representation impacts subsequent fraud assessment. In addition, there is limited evidence to support the conjecture that auditors may be susceptible to management’s framing of the internal control system resulting in relatively positive control environment evaluations which was found to transfer to some subsequent audit judgments. With regard to the latter, prior audit literature has examined how auditors evaluate person specific characteristics, such as competence, of other auditors, however there has been no research that has examined how auditors test such characteristics of client management. I disentangle whether auditors utilize a diagnostic and/or a conservative hypothesis testing strategy when testing client management’s ethicality and competence as these are fundamental components of the client’s control environment. A diagnostic testing strategy is evidenced by the auditor searching for the most informative information, whereas a conservative testing strategy is evidenced by the auditor searching for risks. I examine how a checklist decision aid contained in the current institutional context may inhibit auditors’ utilization of a diagnostic testing strategy, and examine how a schematic decision aid is able to enhance diagnostic testing. The results indicate that auditors utilize both diagnostic and conservative testing strategies when testing client management ethicality; however, the auditor’s testing strategy is only diagnostic when testing client management competence. In regard to decision aids, I found that when testing client management ethicality and competence, a schematic decision aid was able to increase the auditor’s extent of diagnostic testing. The checklist decision aid decreased the auditor’s extent of diagnostic testing only when testing client management ethicality, and was not different from unaided judgments when testing client management competence. / Thesis (Ph.D, Management) -- Queen's University, 2011-02-22 13:43:07.232

This paper discusses the history of auditor independence in the United States and the regulation of the public accounting profession over time. Special emphasis is put on the increasing importance that regulators have placed on the perception of auditor independence and on its effectiveness. Next, I analyze the efficacy of the Sarbanes-Oxley Act of 2002 and provide several reasons for its shortcomings. Finally, I provide two distinct suggestions aimed at improving the current audit landscape.

I examine how risk-based inspections influence auditor behavior in a multi-client setting. I conduct an experiment using an abstract setting that captures the theoretical constructs present in the audit ecology. I manipulate the presence of risk-based inspections between-participants and the level of client risk (higher vs. lower) within-participants. Consistent with the theoretical predictions, under conditions of high resource pressure, I find that auditor effort is higher under a regime with risk-based inspections as compared to a regime without inspections, and the auditor effort increases more for higher-risk clients than for lower-risk clients. More notably, following attentional control theory, I predict and find that risk-based inspections diminish the quality of auditor decision performance for lower-risk clients. Specifically, auditors' decision performance is worse (i.e., more suboptimal) for lower-risk clients than for higher-risk clients (ceteris paribus), but only under a risk-based inspections regime. Likewise, auditors' decision performance for lower-risk clients is worse in a regime with risk-based inspections than in a regime without inspections. I theorize that accountability pressures from PCAOB inspections combined with pressures from high resource constraints (that naturally occur in the audit environment) induce task-related anxiety on auditors. Following attentional control theory in a multi-task setting, I predict anxiety interrupts auditors' decision-making processing shifting attention toward higher-risk clients contributing to the anxiety, and away from lower-risk (untargeted) clients, thereby decreasing the quality of decision performance for lower-risk clients. I perform several supplemental analyses to test the underlying theory. First, I conduct a second experiment where auditors operate under relatively lower resource pressure and find that auditors’ decision performance is no longer worse for lower-risk clients in an inspections regime. The results support the theory that it is the combined pressures of inspections and high resource constraints causing the negative effects. Second, I conduct a supplemental experiment and measure participants' levels of anxiety. In support of the underlying theory, participants' reported anxiety levels are higher under a regime with versus without inspections. Third, I perform several robustness checks to rule out alternative explanations of the findings. The findings of this study contribute to the auditing literature, and they have practical and regulatory implications. First, by identifying higher auditor effort in a regime with inspections, I join others in documenting potential benefits of inspections on auditor behavior, and thus audit quality. Second, by examining the effect of risk-based inspections on auditor effort in a multi-task setting, I extend prior research by providing evidence that inspections increase auditor effort more for higher-risk clients than for lower-risk clients. Third, and most notably, by identifying diminished auditor decision performance for lower-risk clients under a risk-based inspections regime, this is the first study to provide theory and evidence on how risk-based inspections can lead to potential negative consequences on audit behavior, and thus audit quality.

Tidspress existerar inom revisionsbranschen och vi vill genom denna undersökning studera tidspressens påverkan på revisorns välbefinnande, om välbefinnandet tar skada. Syftet med uppsatsen är att förklara hur tidspress påverkar revisorns välbefinnande och därtill utreda hur sambandet påverkas av olika revisor- och revisionsspecifika faktorer samt av revisorns professionsidentitet, organisationsidentitet och familjeidentitet. Följaktligen vill vi besvara följande frågeställning: Hur påverkar tidspress revisorns välbefinnande? För att besvara syftet och frågeställningen har en kvantitativ enkätundersökning genomförts. Enkäten skickades ut till revisorsassistenter och auktoriserade revisorer i Sverige för att inhämta tillräcklig och användbar information. Totalt erhölls 232 svar från respondenterna, vilket därefter statistiskt bearbetades för att testa studiens hypoteser. Resultatet av studien påvisade ett negativt samband mellan revisorns tidspress och välbefinnande. Därutöver kunde studien ge belägg för att revisorns familjesituation kan ha påverkan på sambandet vid en något högre signifikansnivå än fem procent. Slutsatsen blir att ju mer tidspress revisorn upplever desto sämre blir välbefinnandet. / Time pressure exists within the audit profession and we performed a survey to study the influence that time pressure has on the auditor’s well-being, if well-being is harmed. The purpose of this dissertation is to explain how time pressure affects the auditor's well-being. Additionally, we examine how the relationship is affected by various auditors- and auditspecific factors, as well as by the auditor's professional identity, organizational identity and family identity. Consequently, we want to answer the following research question: How does time pressure affect the auditor's well-being? To achieve the purpose and answer the research question, a quantitative survey has been conducted. A questionnaire was sent out to audit assistants and certified auditors in Sweden to obtain sufficient and useful information. A total of 232 answers were obtained from the respondents, and the data were statistically processed to test the hypotheses of the study. The results of this study demonstrate a negative relationship between the auditor's time pressure and well-being. In addition, the study seems to indicate that the auditor's family situation has a impact on the relationship between time pressure and well-being, but only if the significance level is slightly higher than five percent. The conclusion is that the more auditors experience time pressure the worse is their well-being.

The modern auditor is, because of an increased complexity, dependent on the use of experts. Simultaneously different scandals have occurred where the auditor in fact have been using experts. Although the auditor is using an expert, the auditor alone is responsible for the statement that the expert makes. Research simultaneously indicates that the auditor’s use of experts is a difficult task. Because of the scandals that have occurred and that research in this specific area is limited it would be interesting to investigate the affects on comfort. The purpose of this paper is to investigate how the auditor’s use of experts affects comfort. To fulfill this purpose, this paper builds on a deductive approach. A model have been developed based on previous research containing various factors such as; Risk, “structure/judgment”, “trust”, information asymmetry and auditor overconfidence. This model has been empirically tested through the use of interviews with auditors and experts. The results from this study indicate that the use of experts have a positive affect on the auditors perceived comfort. The conclusions drawn indicate, among other things, that the customer perspective is a vital part in the auditor’s work and that this seems to have an affect on comfort. This study also is considered to demonstrate the importance of the concept trust for the creation of comfort. It has also appeared that the auditors’ control of the expert evaluation sometimes is inadequate. The contributions made by this paper is mainly that it illuminates an area that is relatively unexplored, as no earlier research seems to have investigated the use of experts from a comfort perspective. This paper also contributes in highlighting the problems with the auditor’s lack of controlling the expert, when the auditors mission is to bring comfort to the public / Den moderna revisorn är nuförtiden, på grund av en ökad komplexitet, beroende av användningen av experter. Olika skandaler har samtidigt inträffat där det visats sig att revisorn har använt sig av experter i revisionen. Trots att revisorn använder experter står denna ensamt ansvarig för det utlåtande som experten ger. Forskning ger samtidigt indikationer på att revisorns användande av experter innebär en svår situation. På grund av de skandaler som skett och att forskning inom området är begränsad gör det intressant att undersöka hur detta påverkar revisorns komfort. Syftet med denna studie är att undersöka hur revisorns användning av experter påverkar komforten. För att kunna uppfylla detta syfte har denna studie baserats på en deduktiv ansats. En modell har utvecklats baserad på tidigare forskning innehållande olika faktorer såsom; risk, structure/judgement, ”trust”, informationsasymmetri och revisorns övertro. Denna modell har sedan testats empiriskt genom intervjuer med revisorer och experter. Resultaten från denna studie indikerar att användningen av experter har en positiv effekt på revisorns komfort. Slutsatserna som dragits innefattar bland annat att indikationer på att kundperspektivet har en central del i revisorns arbete och att detta är något som tycks ha en påverkan på komforten. Denna studie anses även visa på betydelsen av begreppet ”trust” för skapandet av komfort. Det har även framkommit att revisorns kontroll av expertens bedömning ibland är bristande. Uppsatsens bidrag är framförallt att den belyser ett forskningsområde som är tämligen outforskat, då ingen tidigare forskning tycks ha undersökt användandet av experter ur komfortperspektivet. Uppsatsen bidrar även i form av att den belyser problematiken med att revisorn brister i kontrollen av experten trots att revisorns uppdrag är att skapa komfort hos allmänheten.

The research of organizational structure and control in the audit profession suggest that there is a contradiction in that auditors should both nurture collegialities while they at the same time have their own responsibility for their individual development and career. This creates a competitive situation among colleagues who in return are expected to maintain a good social relationship and team spirit with each individual. Subsequently, being part of the collegiality and being highly individualistic, gives rise to a theoretical dilemma where these opposing forces are supposed to coincide with each other.The purpose of this paper is to create a bigger understanding of how auditors at major accounting firms can handle the conflict that arises. In order to explore this dilemma, we conducted a qualitative study based on an abductive approach. We have made seven semi-structured interviews from a localistic view. In addition, we have limited our sample to auditors in the Big 4 of southern Sweden.Furthermore, we have chosen to analyse the conflict from an identity perspective to better understand how auditors can relate to both collegiality and individualism. Through this study we have concluded that it only looks like a paradox in theory. Our empirical evidence suggests that this is not a practical problem. This principal contradiction dissolves in the everyday chaos where one is automatically suppressed by the other. Our conclusion that auditors do not see this as a practical problem, does not lead to that the theoretical dilemma is unimportant. It rather requires a deeper understanding of the phenomenon. The conclusion also results into questioning what this means for the theory of control and organizational structure.This phenomenon can also be applied to other parts of society. Today's labour market is considered increasingly individualized where each individual is responsible for their own success, while they at the same time are supposed to consider the collegiality and collaborate with others as well as the company at large. Therefore, our study provides a social contribution in the form of increased understanding of how individuals deal with the conflict between collegiality and individualism. / Forskningen inom området organisationsstruktur och kontroll i revisionsbranschen tyder på att det finns en motstridighet i att revisorer både ska värna om kollegialiteten samtidigt som varje individ står som ensam ansvarig för sin egen utveckling och karriär. Detta skapar en konkurrenssituation till de kollegor som man förväntas upprätthålla goda sociala relationer till och samarbeta med. Att både vara en del av kollegialiteten och samtidigt vara starkt individualistisk, ger upphov till ett teoretiskt dilemma där dessa motpoler ska sammanfalla med varandra. Syftet med denna uppsats är att bidra till att skapa förståelse för hur revisorer på de större revisionsbyråerna hanterar denna konflikt. För att närma oss detta dilemma har vi gjort en kvalitativ undersökning som bygger på en abduktiv ansats. Vi har gjort 7 semistrukturerade intervjuer ur ett lokalistiskt perspektiv. Vi har begränsat vårt urval till revisorer inom Big 4 i södra Sverige. Vi har valt att analysera konflikten ur ett identitetsperspektiv för att tydligare begripa hur revisorer kan förhålla sig till både kollegialitets- och individualismaspekten. Genom detta har vi kommit fram till att det endast ser paradoxalt ut på ett teoriplan. Vår empiri tyder på att detta inte är ett praktiskt problem. Denna principiella motsättning löses i vardagens kaos där det ena per automatik undertrycks av det andra. Slutsatsen att revisorer inte ser detta som ett praktiskt problem leder dock inte till att det teoretiska dilemmat är oviktigt utan snarare att det kräver djupare kunskap om fenomenet. Slutsatsen leder dessutom till att man kan ifrågasätta vad detta betyder för de teorier som behandlar kontroll och organisationsstruktur. Detta fenomen kan även härledas till andra delar av samhället. Dagens arbetsmarknad anses i allt högre utsträckning individualiserad och varje individ får ansvara för sitt eget bästa samtidigt som man förutsetts att tänka på kollegialiteten och samarbeta med andra människor. Därför ger vår studie ett samhälleligt bidrag i form av ökad förståelse för hur individer hanterar konflikten mellan kollegialitet och individualism.