Auditing

Statutory and internal audit though have differences in object but are both geared towards value enhancement. Internal audit assures the board of directors of the effectiveness and efficiencies of governance, risk management and internal control put in place to achieve overall organization’s objectives while statutory (external) audit assures the shareholders and the public of the financial report of organizations upon which the stakeholders make informed decisions.

Medical institutions operate in an extremely dynamic environment, in accordance with the
legal framework, through the organization and management of resources and processes, often in an emergency
situation. The main element of a health organization is its human resources. Health facilities operate in an
extremely dynamic environment, in accordance with the regulatory framework, through the organization and
management of resources and processes, often in an emergency situation. The main element of a health
organization is its human resources. The development of staffs, their motivation, and training in a number of
competencies are also developed by the organization itself. For its stability, the organizational structure,
communication channels and people, as well as their capabilities (knowledge and skills), are important. The
selection and development of personnel depends on the management. For a specific field, such as health care,
the competence of employees is important. Through various methods, management must constantly emphasize its
personnel (selection, development, certification, audit) in order to be able to adequately perform its activities.
This study aims to analyze the importance of human resources audit in the health organization and to find
out its need for each medical institution to fulfill its mission and provide quality services. The questions
concerning motivation of work, workload, problems accompanying the working process are considered. The
main conclusions relate to the necessity and advantages of using audit in healthcare organizations

Kitapta; yönetimin denetimi ve türleri, teftiş ve denetim  ile ilgili temel kavramlar, teftişin ve denetimin tarihi;  teftişin  konusu, kapsamı,  ilkeleri, gerekliliği ve boyutları,  teftişin aşamaları, yöntemleri, araçları ve türleri; teftiş kurullarının yapısı, görevleri ve işleyişi, müfettişin nasıl olması gerektiği, dünyadaki teftiş denetimi uygulamalarının nasıl olduğu, teftiş sisteminin yapısal sorunları ve çözüm önerileri incelenmektedir.
            Demokratik hukuk devletinde yönetimin  her türlü eylem, işlem ve faaliyetlerinin hukuka uygunluğunu sağlamak için çeşitli denetim yolları bulunması gerekmektedir. Yönetimin  hukuk kurallarına bağlı olması, takdir yetkisini kamu yararı amacıyla kullanması,  kuralların dışına çıktığında  kendini yaptırım karşısında bulması  hukuk devleti ilkesinin zorunlu bir sonucudur. Bunun için modern hukuk devletlerinde, yönetimin hukuk kurallarına uymasını sağlamak ve uymaması halinde gereken yaptırımları uygulamak üzere çeşitli denetim yolları oluşturulmuştur. Bu denetim yolları kamuoyu denetimi, siyasi denetim, yargı denetimi ve idari denetimdir. Kitapta, bu denetim yollarının hepsine kısaca değinildikten sonra  idari denetim kapsamında yer alan teftiş denetimi tüm boyutlarıyla ele alınmaktadır.
            Kamu yönetimi alanına, teftiş ve denetim alanına ilgi duyan herkesin yararlanabileceği bir kitap.  Özellikle müfettişlerin, denetim elemanlarının, öğrencilerin, akademisyenlerin, araştırmacıların kaynak olarak edinmeleri gereken bir kitap.
            Çalışmada,  Türk teftiş ve denetim sisteminin yapısının, işleyişinin, denetim anlayışının doğru bir şekilde tanıtılması,  sorunlarının doğru  tespit edilmesi ve tedavisinin doğru yapılmasına katkıda bulunulması  hedeflenmiştir

L’evoluzione dell’attuale quadro normativo in materia di vigilanza e controllo societario, unitamente al recepimento di standard internazionali, contabili e di revisione,  inciderà profondamente sui modelli operativi delle imprese costituite in forma societaria, obbligandole a rivedere radicalmente i propri sistemi informativi ed assetti organizzativi in materia di pianificazione e controllo interno. In particolare, sarà sempre più richiesto agli organi di controllo interno (sindaci) e alla funzione di revisione contabile un approccio non più solo a consuntivo ma, necessariamente, previsionale orientato alla cultura della pianificazione e controllo e alla salvaguardia della capacità di generare un adeguato flusso di cassa. Il tutto tenendo conto degli specifici ruoli, funzione, compiti e responsabilità di ciascun soggetto, come previsto dalla legge e dai principi professionali di riferimento.  Scopo del Quaderno N.71, dunque, quello di proporre agli organi di controllo societario, in particolare ai sindaci e ai revisori chiamati ad assolvere gli incarichi di revisione legale dei conti, un sistema organico di supporto decisionale (inteso quale insieme dei principi di comportamento professionale, metodologie orientate alle best practice, strumenti e procedure operative) a supporto della loro attività di monitoraggio e diagnosi precoce del rischio d’insolvenza  a salvaguardia del presupposto di continuità aziendale di cui all’art. 2423-bis del codice civile. Il documento, quindi, potrà essere un utile strumento anche per i professionisti incaricati di altre funzioni, quale quella della revisione legale dei conti.

The management of a modern company is faced with the need to make business decisions regarding the achievement of business goals. Increased interest in establishing internal control is affected by the presence increased corruption and the erosion of business morality. For internal controls, everyone is interested, from external auditors to management, board of directors, shareholders of large public companies and the state. With the constant growth of the company, the decentralization of business has been compounded by the management process. Therefore, in addition to internal control, internal audit is required. The company's management cannot deal with oversight because it has to deal with strategic issues. This is where internal audit is performed as an expert service. The results of the conducted empirical research showed that the stages of development of internal control in enterprises in Montenegro do not correspond with the achieved degree of development of this profession in the countries of the developed market economy.

An object of analysis in the paper is the quality of the information in the audit reports of forestry in Bulgaria, as a basis for attracting investments, increasing the confidence in the enterprises and achieving sustainability of the industry in macro level. The subject of analysis are the annual financial statements of public and private forestry for the period 2007 - 2017. A priority objective is to analyze the auditor's opinions on the annual financial statements of the Bulgarian forestry. An additional objective is to analyze the overall reporting of the financial-economic status and development of enterprises for the period 2007 - 2017. Main research tasks are: 1) to study the financial development and strategy of public and private forestry, as well as to compare it with the adopted and applied accounting policies; 2) to examine the audited opinions of the financial statements of the target group enterprises for 2017, as well as to analyze the quality of the audit performed and in this respect the reliability of the financial statements. The applied research methods are based on logical, deductive and comparative methods, as well as methods of analysis and synthesis. Main conclusions of the study are: violations of the control environment, lack of disclosed information in the financial statements of enterprises and the application of accounting policies irrelevant to the financial and economic status of organizations.

Several models for forecasting financial distress have been developed over the years, one of the reasons for which it plays significant role in decision – making. In this context, the research develops a model for predicting financial distress of Vietnam’s company. The predictive model is used the logistic regression technique with supporting of SPSS 20 software. The result research clarifies that the model 1- year prior forecast has the best model to predict financial distress with
the largest Cox & Snell R Square and smallest -2 Log likelihood coefficients. The results demonstrate that 3 variables consisting of quick asset ratio, asset turnovers and returns on equity are significant impact on financial distress and this model for predicting financial distress with 85.4% accuracy when applied to publicly – traded companies on Ho Chi Minh Stock Exchange in period of Quarter 1-2016 to Quarter 1-2019.
Keyword: Financial distress, Ho Chi Minh stock exchange, publicly-traded company, asset, asset turnover

The study dwelt on the effectiveness of forensic auditing in detecting, investigating, and preventing bank frauds. The study sought to find out to what level the forensic auditors are able to fulfill this mandate and investigate problems that hinder forensic auditors to make progress in their operations in developing countries. It also established the role of forensic auditing in banking operations. Questionnaires, personal interviews, and document review are the methods that were used to obtain data for this study. A sample of thirty forensic auditors was used from thirteen commercial banks, four building societies, and four audit firms in Zimbabwe. It was found that the forensic auditing departments suffer from multiple challenges, amongst them being the lack of material resources, technical know how, interference from management, and unclear recognition of the profession. Types of bank fraud were identified. The internationally recognized audit procedures used in detecting and in...

This paper discusses the impact of task performance, fraud risk assessment and forensic accountants and auditors’ skills and mindsets in the Nigerian public sector. It also draws the attention of the users of public sector accountants and auditors such as the Economic and Financial Crimes Commission, the Independent Corrupt Practices Commission, Special Control Unit of Money Laundering, Terrorism Financing and White collar crimes. The objective of the study is to enhance the fraud risk assessment task performance in the Office of both Auditor General for the Federation and Accountant General of the Federation through the effective use of skills and mindsets (forensic accountant and auditor), which will usher in the best corporate governance practices in the Nigerian public sector. Thus, the study suggests performance measurement can be improved considering the impact of forensic accountant skills and mindsets on fraud risk assessment in the Nigerian public sector.

This study examined the effect of information technology governance, internal control, and organizational culture of early prevention of potential fraud based on the perception of bank employees. The population was all the Indonesia Stock Exchange listed banks. The sampling method used a combination method, namely random sampling for bank selection and convenience sampling of survey respondents. The number of sample banks that responded was 14 banks, and the number of respondents was 72 people. We measured the variables with a Likert scale and used partial least square (PLS) for the data analysis. The results proved that internal control and organizational culture had a significant positive effect on early warning for fraud. Information technology governance had a positive, but not significant impact on early warning for fraud. Therefore, the banking industry, which has highly regulated business activities has implemented adequate internal control and organizational culture as an ef...

Executives are ‘affiliated’ if they previously worked for their companies’ audit firms. I find most affiliations (71.3%) occur when auditors become employees of audit clients (‘employment
affiliations’), but affiliations also arise when companies hire executives’ former CPA firms (‘alma mater affiliations’). Affiliated companies are significantly more likely than
unaffiliated companies to receive clean audit opinions—this finding holds for both employment and alma mater affiliations. Executive turnover is significantly lower for affiliated executives than for unaffiliated executives following the issuance of clean audit opinions—this suggests companies perceive affiliations are more valuable after they receive clean audit opinions.

The study dwelt on the effectiveness of forensic auditing in detecting, investigating, and preventing bank frauds. The study sought to find out to what level the forensic auditors are able to fulfill this mandate and investigate problems that hinder forensic auditors to make progress in their operations in developing countries. It also established the role of forensic auditing in banking

Kautilya’s Arthaśāstra, from the end of the fourth century BC, provides interesting insights into the problems of governance, accounting and control in the Mauryan society. This paper uses the extant English translations of Arthaśāstra to summarize the structure of the Mauryan economy, trade, accounting and control, auditing, regulation and governance processes based primarily on Chapters 6, 7, and 8 of Book 2 of Arthaśāstra.

According to the South African Small Business Act No. 102 of 1996 Small Medium and Micro Enterprises (SMMEs) are regarded as separate small business entities owned by one or more owners; operating in various sectors of the national economy. SMMEs play a significant role in contributing to the South African economy, particularly by means of providing employment opportunities and assisting in the equal distribution of wealth. Albeit the latter prior research reveals that 80% of SMMEs do not survive beyond their first five years of existence. Plausible reasons for the latter include the influence of micro-economic factors and macro-economic factors; resulting in direct, inevitable risks being placed on the overall existence of SMMEs. In order to identify and manage these risks, SMMEs need to make use of adequate risk management strategies. More often than not a risk management strategy should eliminate and/or mitigate risks and provide reasonable assurance that business objectives will...

Security is a crucial issue in cloud computing especially since a lot of stakeholders worldwide are involved. Achieving an acceptable security level in cloud environments is much harder when compared to other traditional IT systems due to specific cloud characteristics like: architecture, openness, multi-tenancy etc. Conventional security mechanisms are no longer suitable for applications and data in the cloud, since new security requirements have emerged. Furthermore, there is a clear need for a trusted security audit method for cloud providers. This paper identifies the security requirements that are specific to cloud computing and highlights how these requirements link to the cloud security policy while illustrating the structure of a General Security Policy Model. Furthermore , it proposes a method that can be adopted by cloud providers for auditing the security of their systems.

An implemented system for on-line analysis of multiple distributed data streams is presented. The system is conceptually universal since it does not rely on any particular platform feature and uses format adaptors to translate data streams into its own standard format. The system is as powerful as possible (from a theoretical standpoint) but still efficient enough for on-line analysis thanks to its novel rule-based language (RUSSEL) which is specifically designed for efficient processing of sequential unstructured data streams. The generic concepts are applied to security audit trail analysis. The resulting system provides powerful network security monitoring and sophisticated tools for intrusion/anomaly detection. The rule-based and command languages are described as well as the distributed architecture and the implementation. Performance measurements are reported, showing the effectiveness of the approach

This study examines the impact of busy season on auditors through ego depletion theory. Ego depletion theory posits that using self-control depletes a cognitive resource and decreases the ability to exercise self-control on subsequent tasks, which can decrease judgment and decision-making (JDM) quality. Using a within-subjects quasi-experiment, I compare self-control resources at the onset of days within and outside of busy season to determine whether auditors experience a between-day accumulation of depletion. I predict and find that auditors experience an accumulation of ego depletion, and therefore begin workdays within busy season in a depleted state. Starting a workday in a depleted state can exacerbate within-day depletion, as studied in prior research. This research contributes a theoretical mechanism linking busy season to auditors’ JDM quality and expands ego depletion theory by predicting and finding initial evidence of an accumulation effect, a more severe form of depletion than studied in prior literature.

Under Sarbanes-Oxley (SOX) Act Section 302, management should, from one hand, certify and disclose in reports the effectiveness of internal controls applied to processes and procedures followed by a listed entity and, on the other, highlight potential deficiencies and provide information on potential frauds or sources of risk that could negatively impact on the effectiveness of the internal controls in place. Building on the above, SOX Act Section 404 requires that management should report information in its annual reports regarding the adequacy and effectiveness of the system of internal controls, which affects the procedures of financial reporting. These internal control reports, as part of the internal audit system within an organization, they undergo a review initially by the internal audit department and then by external auditors. The external auditors’ comments may dictate certain changes to be made, which could inevitably lead to refinements, which are then depicted to the ad...

In this system we propose a novel privacy-preserving mechanism that supports public auditing on shared data stored in the cloud. In particular, we exploit ring signatures to compute verification metadata needed to audit the correctness of shared data. With our mechanism, the identity of the signer on each block in shared data is kept private from public verifiers, who are able to efficiently verify shared data integrity without retrieving the entire file. In addition, our mechanism is able to perform multiple auditing tasks simultaneously instead of verifying them one by one. Our experimental results demonstrate the effectiveness and efficiency of our mechanism when auditing shared data integrity. This Project Mainly Focus To Realize The Authentication For The Data Accesson a Demand Mode. New Security And The Privacy Concerns Can Be Performed. AIDA Algorithm Is Used For The Multiparty Oriented Cloud Services. SAPA Protocol for Address the Privacy Issue.

Research in the social and management sciences is characterized by theories contextually referred to as subjectivism and objectivism. To come to terms with the associated rigours of science, a researcher may opt for ideographic; nomothetic, or better still a blend of the two approaches. To this end, the former subscribes to subjectivism while the latter relates to objectivism. The blend/convergence of these qualitative and quantitative elements epitomizes the more appreciated triangulation methodology.

Often, the government auditor is required to issue an opinion on the compatibility of prices charged by public entities when contracting software services, which generally occurs in
two stages: in the tender process, based only on basic specifications of the project, and the implementation phase, from the analysis of the product actually delivered. The functional
size metric of software projects – Function Points, created by Allan J. Albrecht, has been used worldwide in the software industry, especially by Brazilian government entities, in
the establishment of a service contract for software development. In fact, the Function Point Analysis (FPA) has supported organizations and departments of software development in the analysis of quality and productivity and, especially, the generation of the estimated size of the projects. It is important to emphasize that the model of quality of software Capability Maturity Model (CMMI) recommends that the derivation of the
estimations of time, effort and cost are based on the estimated size of the project. Another benefit to be highlighted is that FPA is based on the user's view and independent of the technology used, ease the estimations of software projects in the early stages of its life cycle, i.e., considering the specifications of the projects bidding the contract. Moreover, the FPA is based on sound methodology, published in the Counting Practices Manual (CPM) by International Function Point Users Group (IFPUG). Brazil is one of the countries with highest number of professionals with certification of specialists in function points - CFPS. Thus, the FPA is a valuable tool to support the auditor on drafting opinions about the costs of software projects with solid theoretical foundations and consistent, allowing it to validate the estimates and measurements performed by contractors, and also facilitate the communication, during all stages of the contract, between the control entities, public managers and developing companies. This work intends to show how the of FPA technique
can be used in the procedures of audit of compliance, in order to obtain a correct assessment of the adequacy of prices for software development estimated or measured, from only two basic variables: the unit price of the function point, estimated by market research or established by competition among the bidders, and the number of function points corresponding to the services, obtained as a result of the estimate or measurement.

Primeiro: Como ele soube? A competência da Ouvidoria em denúncias é receber, triar, responder e encaminhar à apuração, em sigilo, e proteger os dados do denunciante, conforme Lei 13460/2017. (Jamais pedir informações ao denunciado.) Segundo: A ouvidoria jamais pode passar conteúdo, tampouco os dados do denunciante, que devem ser protegidos por 100 anos, conforme Lei 12527/2011 (LAI). (Se necessário, tarjar ou reescrever o conteúdo para passar adiante.) Terceiro: Em denúncias, a Ouvidoria apenas: (1) arquiva se não houver elementos mínimos; ou (2) passa às áreas de apuração. (Auditoria, se for problema de gestão, ou Corregedoria, se disciplinar.) Quarto: Na apuração, primeiro se fará uma verificação preliminar sigilosa. Se houver indícios, se abrirá processo formal pra investigar. Quinto: Se for sobre gestão, a Auditoria ou TCE será sigilosa até sua conclusão, baseada em fatos e dados, não em depoimentos. (O denunciado saberá quando sair o relatório e for notificado a justificar-se sobre os achados.) Sexto: Em caso de Sindicância ou PAD, o servidor saberá quando for notificado no processo, quando passa a ter direito a contraditório e ampla defesa. (Antes disso nunca, pois não existe processo.) Sétimo: Se o processo (auditoria, TCE, Pad, Sindicância) concluir que não houve nada, sendo auditoria, o servidor nem precisava mesmo ficar sabendo, só iria se incomodar à toa. Sendo Sindicância ou PAD, e se não der em nada, ele já estará se defendendo. Oitavo: Quando tomar ciência e, ao final, se sentir-se ofendido pela denúncia, pode processar o denunciante, mas ele deve pedir na justiça a abertura dos dados. (Que por serem pessoais, a Administração deve proteger por 100 anos.) PORTANTO: A denúncia é sempre sigilosa, até sua apuração final (auditoria) ou abertura de Sindicância/ PAD. ASSIM: Na via administrativa, jamais a Ouvidoria, Auditoria ou Corregedoria pode passar dados de denunciantes, mesmo que suspeito de ma-fé. FINALMENTE: Identificada má-fé no início, a denúncia será arquivada e o denunciado nem precisava ficar sabendo.

هدف البحث إلى تسليط الضوء على التقنيات الحديثة التي أفرزتها الثورة الصناعية الرابعة وآثارها على المحاسبة والمراجعة، وذلك بالاعتماد على المنهج الوصفي الوثائقي لمراجعة الوثائق المتوفرة من بحوث ومؤلفات وإصدارات وتحليلها واستخلاص الاستنتاجات التي تجيب عن تساؤلات البحث، ومن أهم تلك الاستنتاجات أن تقنيات الثورة الصناعية الرابعة تعمل على إحداث تغيرات في مفاهيم ومبادئ تصميم نظم المعلومات المحاسبية، وتحسين جودة التقارير المالية، والتقليل من إصدار الأحكام الشخصية وإعداد التقديرات المحاسبية، وحدوث تغيرات جوهرية في تنظيم وتخطيط عملية المراجعة وتقييم المخاطر وإجراءات المراجعة التحليلية، وبروز مجالات جديدة كالمراجعة بالاستثناء والمراجعة التلقائية، والتحليل المالي للبيانات الضخمة، وبنا ًء على ما أسفر عنه البحث من نتائج أوصى بضرورة أن تتكيف المحاسبة والمراجعة وبنفس الوتيرة مع التطورات التي تطرأ على بيئة أعمال الشركات نتيجة زيادة تبني تقنيات الثورة الصناعية الرابعة، وأن تأخذ إدارة الشركة قضايا الأمن السيبراني. في الاعتبار عند التخطيط الاسترايجي.

Analyse électronique des données et logiciels spécialisés : les gros volumes ne font plus peur.
Il est aujourd’hui inconcevable pour les auditeurs et contrôleurs d’utiliser les méthodes de travail d’il y a seulement vingt ans. Si les contrôles portent toujours sur l’examen des faits, les volumes de données ne permettent plus de se contenter d’un examen superficiel des livres et des pièces comptables. Les contrôleurs et les auditeurs incluent donc l’analyse électronique des données qui peut se faire avec des outils logiciels courants.

Audit energi adalah proses evaluasi pemanfaat energi dan identifikasi
peluang penghematan energi serta rekomendasi peningkatan efisiensi pada pengguna sumber energi dan pengguna energi dalam rangka konservasi energi. Proses audit dapat dilakukan oleh auditor internal maupun eksternal namun auditor auditor tersebut wajib memiliki sertifikat kompetensi sesuai dengan peraturan perundang – undangan.

The digitalisation of the economy has increased tax administrations' traditional tax risks and introduced new tax non-compliance risks, such as the use of income suppression software and tax fraud associated with the use of alternative payment methods, such as cryptocurrencies. This study focuses on the global reform that took place among tax authorities from a tax risk management and assurance perspective. The study was executed in two phases, including a cross-national literature review to synthesise international reform regarding tax risk management and assurance in response to the digitalisation of the economy. This process was followed by interviews with risk, technology and data experts of 30 global tax authorities in order to evaluate the level of implementation of the global reform measures identified in the first research phase. The research results suggest an imbalance in reform among participants from developed and developing economies. An inability to optimise tax ri...

The Covid-19 epidemic is going on as a serious health problem and threat. Indeed, it is also a devastating financial and economic problem. Unfortunately, the Covid-19 epidemic is causing many firms to shut down and go out of business. This triggers unemployment and instability in countries all over the World. The developed countries armed with higher funds are able to better support their citizens and businesses compared to developing and underdeveloped countries. All countries implement different measures to eliminate the several negative effects of Covid-19 epidemic, which has undesired reflections on numerous sectors such as the health, education, tourism, food & beverages and manufacturing industries. This paper argues that, the Covid-19 epidemic in fact has deeper reflections and it may be a new arena of financial fraud. Based on this research, citizens and governments must be extra careful about the new types of financial fraud observed as a result of the Covid-19 epidemic. Al...

Penelitian ini bertujuan untuk mengetahui pengaruh auditor switching, ukuran perusahaan, spesialisasi industri KAP, dan client importance pada kualitas audit.Populasi padapenelitian ini adalah seluruh perusahaan manufaktur yang terdaftar di Bursa Efek Indonesia (BEI) tahun 2013-2015. Perusahaan manufaktur yang menjadi populasi berjumlah 143 perusahaan.Berdasarkan hasil dari purposive sampling dengan kriteria yang telah ditetapkan diperoleh 89 perusahaan sebagai sampel. Periode pengamatan selama 3 tahun yaitu dari tahun 2013-2015 sehingga diperoleh total amatan sebanyak 267 perusahaan. Analisis data menggunakan regresi linier berganda. Pengujianhipotesis menunjukkan hasil bahwa variabel ukuran perusahaan dan spesialisasi industri KAP berpengaruh pada kualitas audit. Auditor switching, dan client importance tidak berpengaruh pada kualitas audit.

Audit firms have large numbers of alumni (that is, former employees) and they invest significant resources in generating and maintaining good relations with their alumni (Istwan and Wollman 1976). In a survey study, Iyer, Bamber, and Barefield
(1997) find that alumni are inclined to provide economic benefits to their former audit firms. One way that an alumnus can benefit his former firm is to influence the appointment of that firm as the company’s auditor. The alumnus likely has influence over the choice of audit firm if he is a senior officer within the company (for example, chief executive officer [CEO] or chief financial officer [CFO]). Prior studies find that audit quality can be impaired if the company is audited by a firm
that formerly employed one of the company’s senior officers (Menon and Williams 2004; Lennox 2005). Independent audit committees may perceive that officer–auditor affiliations represent a potential threat to audit quality and thus they may
not sanction the formation of affiliations. In this paper, we investigate (a) whether alumni influence audit firm appointment decisions, and (b) whether independent
audit committees mitigate the tendency of companies to select officers’ former firms.
To test (a), we use a sample of 1,198 companies that change auditors and appoint Big 5 firms in the period 1995 to 2000. We model the company’s decision to appoint one Big 5 firm instead of another, conditional upon the occurrence of an
auditor change and the company’s decision to appoint a Big 5 firm. Of the 1,198 auditor change companies, 189 have a chief executive officer or an accounting / finance officer who is an alumnus of a Big 5 firm. The accounting and finance positions
include chief financial officer, vice-president of finance, chief accounting officer, controller, and treasurer. We find that the presence of an alumnus has a major influence on the audit firm appointment decision. In particular, an audit firm
is more likely to be appointed if the company has an officer who is an alumnus of that firm. For example, we estimate that Deloitte & Touche is appointed with a mean probability of 19.5 percent if the company does not have an officer who previously
worked for Deloitte & Touche; this probability increases to 43.1 percent if the company has an officer who previously worked for Deloitte & Touche. Similarly, we find that audit firm appointment probabilities are significantly higher for
the other Big 5 firms if officers formerly worked for those firms.
To test (b), we focus on the 189 companies whose officers are alumni. The companies without alumni are dropped from the sample because these companies have no choice but to forgo affiliations. Of the 189 companies with alumni, 105
companies form affiliations by appointing their officers’ former firms while the remaining 84 companies choose not to form affiliations. Following prior research, we classify audit committee members as independent if they are neither employees of nor affiliated with the company (e.g., Klein 2002a; Abbott and Parker 2000).
We find that companies are less likely to appoint officers’ former firms if audit committees are more independent. Therefore, we conclude that independent audit committees reduce the incidence of officer–auditor affiliations. This finding
is consistent with audit committees perceiving affiliations to be a potential threat to audit quality. In addition, we find that companies are more likely to appoint officers’ former audit firms if officers left those firms more recently. This indicates that the alumni relation is stronger if the officer’s affiliation with the former audit firm is more recent.