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SUMMARY: While component auditors audit a significant proportion of public companies, lenders may not be aware of their involvement before Form AP disclosure. We study whether the disclosure of component auditor use and the extent of their involvement is useful to lenders. We find that the loan spread is higher when firms' lead auditors use component auditors relative to engagements without component auditor participation. Further, for firms whose lead auditors use component auditors, we find a positive association between the extent of such participation and the loan spread. However, the positive effect of component auditor use on the loan spread is mitigated for firms with a high level of foreign operations, consistent with the notion that the use of component auditors is more beneficial for firms with significant foreign operations. Overall, our findings suggest that the disclosure of information on component auditor participation in global group audits is useful to lenders. Data Availability: All data used in this paper are publicly available. JEL Classifications: M42; G32. [ABSTRACT FROM AUTHOR]

While prior research has examined the relation between firm-level attributes and auditors' decisions, there is little empirical evidence on whether managerial attributes are informative to auditors. We examine the relation between managerial ability, i.e., ability in transforming corporate resources to revenues, and audit fees and a going concern opinion. We use the managerial ability measure recently developed by Demerjian, Lev, and McVay (2012). We find that incremental to firm-level attributes, both audit fees and the likelihood of issuing a going concern opinion are decreasing in managerial ability. Collectively, our findings support the notion that managerial ability is relevant to auditors' decisions. [ABSTRACT FROM AUTHOR]

This study presents a review of academic research on audit quality. We begin with a review of existing definitions of audit quality and describe general frameworks for establishing audit quality. Next, we summarize research on indicators of audit quality such as inputs, process, and outcomes. Finally, we offer some suggestions for future research. The study should be useful to academics interested in audit quality as well as to the Public Company Accounting Oversight Board (PCAOB) and other regulators. [ABSTRACT FROM AUTHOR]

This study examines Big N auditors' client risk management strategy in response to the risk of upward (i.e., income-increasing) earnings management in the post-SOX era. Specifically, we empirically study the relation between clients' signed discretionary accruals and subsequent audit pricing and auditor resignation decisions. We find that audit fees and resignations are positively associated with the risk of upward earnings management. We document a pecking order of auditor responses and find that auditors are more likely to respond in the order of charging higher abnormal audit fees if the trade-off between upward earnings management risk and return is within an acceptable level, and then resign if the risk is more severe and exceeds the auditors' tolerance level. Our results are robust to alternative accruals measures, controlling for clients' internal control quality and corporate governance characteristics. [ABSTRACT FROM AUTHOR]

The article presents abstracts of several articles that have been published in the March 2003 issue of the journal "Auditing." The authors examine whether auditors of different professional ranks are influenced by opportunities to generate additional client business. While business opportunities may put pressure on auditors to agree with a client-suggested aggressive accounting treatment, risk management concerns may make auditors more cautious. To promote growth, the culture and incentive structures of large audit firms may encourage contact partners to evaluate new clients as favorably as possible. Contact partners may thus be tempted to associate with clients that are overly risky, which could trigger litigation and diminish firm reputation. Two developments have heightened audit firms' interest in imposing their understanding of knowledge transfer. First, the number of different professional services has increased substantially. Second, advances in information technology have improved the capacity to capture and disseminate knowledge throughout the organization. There have been shortages of experienced assurance services professionals. One way firms deal with this problem is to offer flexible work arrangements to help professionals balance work and family demands.