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http://ssrn.com/abstract=439360
 
 

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Evidence on the Impact of Audit-Firm Portfolio Characteristics on Client Financial Reporting Quality


Ann Gaeremynck


KU Leuven

Sofie Van der Meulen


Tilburg University - Department of Accounting & Accountancy

Marleen Willekens


Katholieke Universiteit Leuven (KUL)

August 2003

Department of Applied Economics KU Leuven Working Paper

Abstract:     
The aim of this study is to test the impact of some new measures of expected future audit-firm losses on client financial reporting quality. In prior studies audit-firm size has been used as a proxy for expected future audit-firm losses and hence - following DeAngelo's (1981) argument's - for audit quality. In particular, a big 6 indicator variable has been tested empirically against various measures of client financial reporting quality. This is however a very rough measure that does not distinguish between the likelihood and the size of future audit-firm losses. In this study, we define and measure various audit-firm portfolio characteristics that relate to both the likelihood as well as the size of future audit-firm losses. We find, for a large sample of Belgian companies, that audit-firm portfolio characteristics better explain variations in client financial reporting quality than the traditionally used big 6 indicator variable. In particular, we find that - ceteris paribus - client financial reporting quality is positively associated with the incumbent auditor's percentage of distressed audit clients and the size characteristics of its audit client portfolio.

Number of Pages in PDF File: 31

Keywords: audit-firm portfolio characteristics, financial reporting quality, factor analysis

JEL Classification: M41, M49

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Date posted: October 20, 2003  

Suggested Citation

Gaeremynck, Ann and Van der Meulen, Sofie and Willekens, Marleen, Evidence on the Impact of Audit-Firm Portfolio Characteristics on Client Financial Reporting Quality (August 2003). Department of Applied Economics KU Leuven Working Paper. Available at SSRN: http://ssrn.com/abstract=439360 or http://dx.doi.org/10.2139/ssrn.439360

Contact Information

Ann Gaeremynck
KU Leuven ( email )
Oude Markt 13
Leuven, Vlaams-Brabant B-3000
Belgium
3216326921 (Phone)
Sofie Van der Meulen
Tilburg University - Department of Accounting & Accountancy ( email )
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
31134668296 (Phone)
31134668001 (Fax)
Marleen Willekens (Contact Author)
Katholieke Universiteit Leuven (KUL) ( email )
Naamsestraat 69
B-3000 Leuven
Belgium
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