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Critique Paper on Completing the Audit and Post-Audit Reponsibilities

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Critique Paper on Completing the Audit and Post-Audit Reponsibilities

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  • March 2013
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Page 1 of 7
2013
Antonio, Mark Earl Angelo P.
ACT162 – B74
3/3/2013
2013
Antonio, Mark Earl Angelo P.
ACT162 – B74
3/3/2013
Critique Paper #03: Completing the Audit and Post-Audit Responsibilities Critique Paper #03: Completing the Audit and Post-Audit Responsibilities

Summary
The first article of Moez Bennouri, entitled “Does Auditors’ Reputation ‘Discourage’ Related Party Transactions? The French Case” studies the relationship between the frequency of RPTs and the external auditors’ reputation. Regulators, standard setters and market participants consider related party transactions a major problem in financial markets. The quality of external auditing may be proposed as an important governance mechanism to alleviate the propensity of insiders to use related party transactions. The study tests the prevalence of audit quality to reduce the number of these transactions. Audit quality is positively correlated with audit reputation. 85 French firms over the period 2002-2005 were used as sample. The French legal system concentrates on the reputation dimension of audit firms, as a motivation that mitigates the propensity of insiders to initiate related-party transactions. The results show that high quality external audit firms reduce significantly the frequency of related-party transactions. The effect of audit quality seems to be the most important variable explaining the frequency of related-party transactions. These results are obtained after controlling for the selection bias related to the choice of external auditors, using a two-step Heckman procedure.

The second article of Feng Chen, et al, entitled “Fair Value Measurements and Auditor versus Management Conservatism: Evidence from the Banking Industry” showed the relationship between conservative financial reporting and the subjective nature of fair value measurements. The adoption of FAS 157 coincided with the economic difficulties brought by financial crisis and is seen by the researcher as a motivator...