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Full-Text Articles in Business Law, Public Responsibility, and Ethics

Client Size, Auditor Specialization And Fraudulent Financial Reporting, Joseph Carcello, Albert Nagy Dec 2015

Client Size, Auditor Specialization And Fraudulent Financial Reporting, Joseph Carcello, Albert Nagy

Albert Nagy

This study examines the effect that client size has on the relation between industry-specialist auditors and fraudulent financial reporting. Most of the major accounting firms have organized their audit practices along industry lines, reflecting a belief that industry specialization leads to higher quality audits. Furthermore, regulatory bodies and extant research suggests that larger clients have greater bargaining power and are more likely to be able to convince the auditor to acquiesce to aggressive accounting. Also, it may be more difficult for an auditor to possess industry expertise for larger clients who are likely to be more complex and operate in ...


Audit Firm Tenure And Fraudulent Financial Reporting, Joseph Carcello, Albert Nagy Dec 2015

Audit Firm Tenure And Fraudulent Financial Reporting, Joseph Carcello, Albert Nagy

Albert Nagy

The Sarbanes-Oxley Act (2002) required the U.S. Comptroller General to study the potential effects of requiring mandatory audit firm rotation. The General Accounting Office (GAO) concludes in its recently released study of mandatory audit firm rotation that “mandatory audit firm rotation may not be the most efficient way to strengthen auditor independence” (GAO 2003, Highlights). However, the GAO also suggests that mandatory audit firm rotation could be necessary if the Sarbanes-Oxley Act's requirements do not lead to improved audit quality (GAO 2003, 5).We examine the relation between audit firm tenure and fraudulent financial reporting. Comparing firms cited ...


Ceo Involvement In Selecting Board Members, Audit Committee Effectiveness, And Restatements, Joseph Carcello, Terry Neal, Zoe-Vonna Palmrose, Susan Scholz May 2011

Ceo Involvement In Selecting Board Members, Audit Committee Effectiveness, And Restatements, Joseph Carcello, Terry Neal, Zoe-Vonna Palmrose, Susan Scholz

Joseph V. Carcello

No abstract provided.


Rules Rather Than Discretion In Audit Standards: Going-Concern Opinions In Belgium, Joseph Carcello, Ann Vanstraelen, Michael Willenborg Aug 2009

Rules Rather Than Discretion In Audit Standards: Going-Concern Opinions In Belgium, Joseph Carcello, Ann Vanstraelen, Michael Willenborg

Joseph V. Carcello

We study going-concern (GC) reporting in Belgium to examine the effects associated with a shift toward rules-based audit standards. Beginning in 2000, a major revision in Belgian GC audit standards took effect. Among its changes, auditors must ascertain whether their clients are in compliance with two “financial-juridical criteria” for board of directors' GC disclosures. In a study of a sample of private Belgian companies, we report two major findings. First, there is a decrease in auditor Type II errors, particularly by non-Big 6/5 auditors for their clients that fail both criteria. Second, there is an increase in Type I ...


Are Fully Independent Audit Committees Really Necessary?, Scott Bronson, Joseph Carcello, Carl Hollingsworth, Terry Neal Jun 2009

Are Fully Independent Audit Committees Really Necessary?, Scott Bronson, Joseph Carcello, Carl Hollingsworth, Terry Neal

Joseph V. Carcello

Accounting scandals and concerns about the quality of financial statements have led to many calls for improved audit committee effectiveness. Prior research indicates that audit committee independence is positively related to effective oversight of the financial reporting process. Unfortunately, prior research has not provided an answer as to how much independence on the audit committee is enough. This is an important unanswered question because while Section 301 of the Sarbanes-Oxley Act of 2002 (SOX) currently requires all listed companies to maintain an audit committee that is 100% independent there has been much debate regarding easing the SOX requirements for smaller ...


The Audit Committee Oversight Process, Mark Beasley, Joseph Carcello, Dana Hermanson, Terry Neal Dec 2008

The Audit Committee Oversight Process, Mark Beasley, Joseph Carcello, Dana Hermanson, Terry Neal

Joseph V. Carcello

No abstract provided.


Governance And The Common Good, Joseph Carcello Dec 2007

Governance And The Common Good, Joseph Carcello

Joseph V. Carcello

The importance of corporate governance in ensuring reliable financial reporting is examined in this article, and the roles of individuals involved in the governance process are examined from the perspective of ensuring the common good. Initially, adopting the positivist tradition that dominates the academic literature in accounting, the relations between financial reporting quality and the activities of senior management, the board of directors and its audit committee, and external auditors are examined. Unlike much of the academic literature, this article also adopts a normative perspective and offers suggestions as to the proper roles of these parties. Finally, suggestions for future ...


Audit Committee Financial Experts: A Closer Examination Using Firm Designations, Joseph V. Carcello, Cw Hollingsworth, Terry L. Neal Jan 2006

Audit Committee Financial Experts: A Closer Examination Using Firm Designations, Joseph V. Carcello, Cw Hollingsworth, Terry L. Neal

Accounting and Information Management Publications and Other Works

The Sarbanes-Oxley Act (SOX) requires the disclosure of whether the audit committee has a financial expert. We examine disclosures related to audit committee financial experts (ACFEs) in the first year that this disclosure requirement is in effect. We find that virtually all companies disclose whether an ACFE is on the audit committee, although the transparency of the disclosure regarding the ACFE’s background is limited. We also find that most ACFEs do not have a background in accounting or finance, although there are notable differences between stock exchanges on this dimension. In addition, we find that companies designate ACFEs who ...


Firm Characteristics And Voluntary Management Reports On Internal Control, Sn Bronson, Joseph Carcello, K Raghunandan Dec 2005

Firm Characteristics And Voluntary Management Reports On Internal Control, Sn Bronson, Joseph Carcello, K Raghunandan

Joseph V. Carcello

This study provides evidence on the nature of voluntary management reports on internal control (MRIC), and on the characteristics of firms issuing such reports, before internal control reports were mandated under Section 404 of the Sarbanes-Oxley Act. We examine the association between firm characteristics and the voluntary inclusion of an MRIC in the firm's annual report. Our analysis of 397 mid-sized firms in 1998 indicates that a voluntary MRIC is more likely for firms that are larger, have an audit committee that meets more often, have a greater level of institutional ownership, and have more rapid income growth. We ...


Audit Committee Financial Experts: A Closer Examination Using Firm Designations, Joseph V. Carcello, Cw Hollingsworth, Terry L. Neal Dec 2005

Audit Committee Financial Experts: A Closer Examination Using Firm Designations, Joseph V. Carcello, Cw Hollingsworth, Terry L. Neal

Joseph V. Carcello

The Sarbanes-Oxley Act (SOX) requires the disclosure of whether the audit committee has a financial expert. We examine disclosures related to audit committee financial experts (ACFEs) in the first year that this disclosure requirement is in effect. We find that virtually all companies disclose whether an ACFE is on the audit committee, although the transparency of the disclosure regarding the ACFE’s background is limited. We also find that most ACFEs do not have a background in accounting or finance, although there are notable differences between stock exchanges on this dimension. In addition, we find that companies designate ACFEs who ...


Changes In Internal Auditing During The Time Of The Major Us Accounting Scandals, Joseph Carcello, Dana Hermanson, K. Raghunandan Jun 2005

Changes In Internal Auditing During The Time Of The Major Us Accounting Scandals, Joseph Carcello, Dana Hermanson, K. Raghunandan

Joseph V. Carcello

We examine changes in internal auditing during the time of the Enron and WorldCom disasters and the related legislative and media focus on internal control and corporate governance. Data gathered from 271 mid-sized US public companies reveal that internal audit budgets, staffing levels, meetings with the audit committee, and meeting length increased markedly during this time. Regression analyses provide some evidence of (a) larger budget increases among smaller companies, (b) larger budget and staff increases in companies with greater financial resources (i.e., stronger operating cash flows) or with greater liquidity risk (i.e., lower current ratios), and (c) industry ...


Factors Associated With U.S. Public Companies' Investment In Internal Auditing, Joseph Carcello, Dana Hermanson, K. Raghunandan May 2005

Factors Associated With U.S. Public Companies' Investment In Internal Auditing, Joseph Carcello, Dana Hermanson, K. Raghunandan

Joseph V. Carcello

Internal auditing has been the focus of much attention in recent years. This study examines factors associated with U.S. public companies' investment in internal auditing. Data from a survey administered to Chief Audit Executives of midsized U.S. public companies were supplemented with publicly available data. Based on data from 217 companies, the results indicate that total internal audit budgets (inhouse plus outsourced portions) are related to several factors associated with company risk, ability to pay for monitoring, and auditing characteristics. Specifically, we find evidence that internal audit budgets are positively related to company size, leverage, financial, service, and ...


Discussion Of Audit Research After Sarbanes-Oxley, Joseph Carcello Dec 2004

Discussion Of Audit Research After Sarbanes-Oxley, Joseph Carcello

Joseph V. Carcello

No abstract provided.


Auditors’ Reporting Options And Client Disclosure Quality, Joseph Carcello, Jing Lin, K. Raghunandan Dec 2004

Auditors’ Reporting Options And Client Disclosure Quality, Joseph Carcello, Jing Lin, K. Raghunandan

Joseph V. Carcello

Auditors, legislators, and others have recently suggested that audit-reporting options be expanded so as to provide better information about expected future events. However, the last action by the Auditing Standards Board (ASB) related to auditor reporting was to reduce the reporting options available to the auditor. In this paper, we examine if the quality of footnote disclosures about pending litigation related loss contingencies deteriorated after SAS No. 79 removed the option available to auditors to issue a modified audit report for uncertainties. We find that there is no difference in the quality of disclosures in periods before and after SAS ...


Audit Firm Tenure And Fraudulent Financial Reporting, Joseph Carcello, Albert Nagy Aug 2004

Audit Firm Tenure And Fraudulent Financial Reporting, Joseph Carcello, Albert Nagy

Joseph V. Carcello

The Sarbanes-Oxley Act (2002) required the U.S. Comptroller General to study the potential effects of requiring mandatory audit firm rotation. The General Accounting Office (GAO) concludes in its recently released study of mandatory audit firm rotation that “mandatory audit firm rotation may not be the most efficient way to strengthen auditor independence” (GAO 2003, Highlights). However, the GAO also suggests that mandatory audit firm rotation could be necessary if the Sarbanes-Oxley Act's requirements do not lead to improved audit quality (GAO 2003, 5).We examine the relation between audit firm tenure and fraudulent financial reporting. Comparing firms cited ...


Client Size, Auditor Specialization And Fraudulent Financial Reporting, Joseph Carcello, Albert Nagy May 2004

Client Size, Auditor Specialization And Fraudulent Financial Reporting, Joseph Carcello, Albert Nagy

Joseph V. Carcello

This study examines the effect that client size has on the relation between industry-specialist auditors and fraudulent financial reporting. Most of the major accounting firms have organized their audit practices along industry lines, reflecting a belief that industry specialization leads to higher quality audits. Furthermore, regulatory bodies and extant research suggests that larger clients have greater bargaining power and are more likely to be able to convince the auditor to acquiesce to aggressive accounting. Also, it may be more difficult for an auditor to possess industry expertise for larger clients who are likely to be more complex and operate in ...


Audit Committee Independence And Disclosure: Choice For Financially Distressed Firms, Joseph Carcello, Terry Neal Sep 2003

Audit Committee Independence And Disclosure: Choice For Financially Distressed Firms, Joseph Carcello, Terry Neal

Joseph V. Carcello

This study examines the relation between audit committee independence and disclosure choice for financially distressed US firms. The tenor of both the financial statement notes and Management Discussion and Analysis (MD&A) is considered. For firms experiencing financial distress, there is a significant positive relation between the percentage of affiliated directors on the audit committee and the optimism of the going-concern discussion in both the notes and the MD&A. These results add to the growing body of literature documenting a relation between audit committee independence and financial reporting quality.


Audit Committee Characteristics And Auditor Dismissals Following “New” Going-Concern Reports, Joseph Carcello, Terry Neal Dec 2002

Audit Committee Characteristics And Auditor Dismissals Following “New” Going-Concern Reports, Joseph Carcello, Terry Neal

Joseph V. Carcello

One important role of audit committees is to protect external auditors from dismissal following the issuance of an unfavorable report. We examine auditor dismissals following new going-concern reports that Big 6 firms issued between 1988 and 1999. Our findings suggest that audit committees with greater independence, greater governance expertise, and lower stockholdings are more effective in shielding auditors from dismissal after the issuance of new going-concern reports. In addition, we find that the relation between audit committee independence and auditor protection from dismissal has grown stronger over time. Finally, independent audit committee members experience a significant increase in turnover rate ...


Auditor Reporting Behavior When Gaas Lack Specificity: The Case Of Sas No. 59, Joseph Carcello, Dana Hermanson, Terry Neal Dec 2002

Auditor Reporting Behavior When Gaas Lack Specificity: The Case Of Sas No. 59, Joseph Carcello, Dana Hermanson, Terry Neal

Joseph V. Carcello

Statement on Auditing Standards No. 59 did not clearly specify the language to be used in the going concern (GC) report. Subsequent standards prohibited GC reports that failed to use the terms “substantial doubt” and “going concern” and that used conditional language. We find that: (1) most “subsequently prohibited” (SP) GC reports (those that fail to use the terms “substantial doubt” and “going concern” or that use conditional language) contain conditional language and refer to financing and capital issues; (2) practicing CPAs and regulators have concerns about clients pressuring auditors to soften the wording of GC reports, but also recognize ...


Disclosures In Audit Committee Charters And Reports, Joseph Carcello, Dana Hermanson, Terry Neal Nov 2002

Disclosures In Audit Committee Charters And Reports, Joseph Carcello, Dana Hermanson, Terry Neal

Joseph V. Carcello

In response to recent criticisms of audit committee performance, new SEC and stock exchange rules require companies to prepare an audit committee charter and to publish the charter in their proxy statement at least once every three years. Audit committees also must disclose how they discharged their responsibilities during the year.We study the disclosures in audit committee charters and reports by examining a random sample of 150 proxy statements filed in Spring 2001. The primary purposes of this analysis are to understand audit committee activities and to identify possible areas for further audit committee reform.We find that what ...


Auditor Industry Specialization And Fraudulent Financial Reporting, Joseph Carcello, A. Nagy Dec 2001

Auditor Industry Specialization And Fraudulent Financial Reporting, Joseph Carcello, A. Nagy

Joseph V. Carcello

No abstract provided.


Board Characteristics And Audit Fees, Joseph Carcello, Dana Hermanson, Terry Neal, Richard Riley Dec 2001

Board Characteristics And Audit Fees, Joseph Carcello, Dana Hermanson, Terry Neal, Richard Riley

Joseph V. Carcello

This paper examines the relations between three board characteristics (independence, diligence, and expertise) and Big 6 audit fees for Fortune 1000 companies. To protect its reputation capital, avoid legal liability, and promote shareholder interests, a more independent, diligent, and expert board may demand differentially higher audit quality (greater assurance, which requires more audit work) than the Big 6 audit firms normally provide. The audit fee increases as the auditor's additional costs are passed on to the client, such that we expect positive relations between audit fees and the board characteristics examined. We find significant positive relations between audit fees ...


Fraudulent Financial Reporting: Consideration Of Industry Traits And Corporate Governance Mechanisms, Mark Beasley, Joseph Carcello, Dana Hermanson, Paul Lapides Nov 2000

Fraudulent Financial Reporting: Consideration Of Industry Traits And Corporate Governance Mechanisms, Mark Beasley, Joseph Carcello, Dana Hermanson, Paul Lapides

Joseph V. Carcello

This paper provides insight into financial statement fraud instances investigated during the late 1980s through the 1990s within three volatile industries—technology, health care, and financial services—and highlights important corporate governance differences between fraud companies and no-fraud benchmarks on an industry-by-industry basis. The fraud techniques used vary substantially across industries, with revenue frauds most common in technology companies and asset frauds and misappropriations most common in financial-services firms.For each of these three industries, the sample fraud companies have very weak governance mechanisms relative to no-fraud industry benchmarks. Consistent with prior research, the fraud companies in the technology and ...


Audit Committee Composition And Auditor Reporting, Joseph Carcello, Terry Neal Sep 2000

Audit Committee Composition And Auditor Reporting, Joseph Carcello, Terry Neal

Joseph V. Carcello

This study examines the relation between the composition of financially distressed firms' audit committees and the likelihood of receiving going-concern reports. For firms experiencing financial distress during 1994, we find that the greater the percentage of affiliated directors on the audit committee, the lower the probability the auditor will issue a going-concern report. These results support regulators' concern about financial-reporting quality and the recent calls for more independent audit committees.


Going-Concern Opinions: The Effects Of Partner Compensation Plans And Client Size, Joseph Carcello, Dana Hermanson, H. Huss Feb 2000

Going-Concern Opinions: The Effects Of Partner Compensation Plans And Client Size, Joseph Carcello, Dana Hermanson, H. Huss

Joseph V. Carcello

Partner compensation plans in large accounting firms tend to emphasize either local office profits or worldwide firm profits (“small-pool” or “large-pool” firms, respectively) (Trompeter 1994). Some have expressed concern over possible impairment of auditor independence when a small-pool compensation plan is used, and Trompeter (1994) found in an experimental setting that partners in small-pool firms were less likely to require income-decreasing adjustments.We examine, in an archival setting, the association of partner compensation plans and client size with auditors' propensity to issue going-concern audit opinions to stressed clients. We find no evidence that auditors' going-concern reporting decisions were directly affected ...


A Decision Aid For Assessing The Likelihood Of Fraudulent Financial Reporting, T. Bell, Joseph Carcello Feb 2000

A Decision Aid For Assessing The Likelihood Of Fraudulent Financial Reporting, T. Bell, Joseph Carcello

Joseph V. Carcello

The auditor's responsibility for detecting fraudulent financial reporting is of continuing importance to both the profession and society. The Auditing Standards Board has recently issued SAS No. 82, Consideration of Fraud in a Financial Statement Audit, which makes the auditor's responsibility for the detection of material fraud more explicit without increasing the level of responsibility.Using a sample of 77 fraud engagements and 305 nonfraud engagements, we develop and test a logistic regression model that estimates the likelihood of fraudulent financial reporting for an audit client, conditioned on the presence or absence of several fraud-risk factors. The significant ...


Client Satisfaction And Big 6 Audit Fees, Bruce Behn, Joseph Carcello, Dana Hermanson, Roger Hermanson Dec 1998

Client Satisfaction And Big 6 Audit Fees, Bruce Behn, Joseph Carcello, Dana Hermanson, Roger Hermanson

Joseph V. Carcello

This study examines whether client satisfaction can help explain cross-sectional variation in Big 6 audit fees paid by Fortune 1000 clients. After controlling for other factors related to audit fees (including audit quality attributes), client satisfaction with the audit team is positively associated with fees. It appears that a dimension of client satisfaction unrelated to audit quality attributes is the factor associated with an audit fee premium. This dimension of satisfaction may reflect other aspects of service quality not documented in the literature, or it may simply enable an auditor to earn economic rents through enhanced bargaining power. Client satisfaction ...


Factors Associated With Audit Client Relationships “At Risk”, Joseph Carcello, Dana Hermanson, Roger Hermanson Dec 1997

Factors Associated With Audit Client Relationships “At Risk”, Joseph Carcello, Dana Hermanson, Roger Hermanson

Joseph V. Carcello

On occasion, rather than having a successful relationship, an audit client relationship is “at risk”—the client is giving consideration to changing auditors in the next few years. Can client relationships “at risk” be predicted or at least identified early enough to minimize the damage? This exploratory study provides insight into this important question. Based on a large sample of Fortune 1000 companies, the results indicate that client satisfaction, corporate controller work experience, and audit firm executive involvement in the engagement all are important determinants of the success of the relationship.


The Effect Of Sas No. 59: How Treatment Of The Transition Period Influences Results, Joseph Carcello, D. Hermanson, H. Huss Dec 1996

The Effect Of Sas No. 59: How Treatment Of The Transition Period Influences Results, Joseph Carcello, D. Hermanson, H. Huss

Joseph V. Carcello

No abstract provided.


Inappropriate Audit Partner Behavior: Views Of Partners And Senior Managers, Joseph Carcello Dec 1995

Inappropriate Audit Partner Behavior: Views Of Partners And Senior Managers, Joseph Carcello

Joseph V. Carcello

No abstract provided.