Christopher Bleibtreu

Routledge Handbook of Auditing p. 209-226 Doi: https://doi.org/10.4324/9781032651545-18

The chapter highlights the differences between the audit of private and public companies, particularly considering the demand and supply for audits of private companies, and reviews the empirical literature on private company audits. The review is organized around the concept of audit quality and focuses on studies on the auditors’ ability to detect misstatements and auditor independence, as well as on audit quality inferred from proxy measures in private company audit settings. As access to credit can be of vital importance for private companies, we further review the literature investigating the effect of audits on the private clients’ access to credit, financing costs, and credit ratings. Finally, we review the literature on the auditor choice of private companies. To identify the relevant current literature, we conducted a systematic literature search. The review reveals that the majority of the current empirical literature on private company audits largely deals with issues that have already been addressed for public companies and does not exploit the unique opportunities that the private sector offers, such as lower market concentration, different incentives for auditors, and overall greater flexibility due to less regulation. We therefore call for more ingenuity in the choice of topics and research designs.

Journal of Business Economics (JBE) 95 p. 257-294 Doi: https://doi.org/10.1007/s11573-024-01198-4

This study is a quasi-replication and extension of Bae et al. (Account Rev 92(2):19– 40, 2017), which examines the relationship between auditors’ characteristics and their audit clients’ investment efficiency. Whereas Bae et al. (Account Rev 92(2):19–40, 2017) use U.S. public firm data, we draw a more general picture by using both public and private firm data from Norway. Overall, the results for Norwegian public and private firms are in line with those Bae et al. (Account Rev 92(2):19–40, 2017) find for public U.S. firms. That is, audit clients invest more efficiently if their auditors have more knowledge and resources, measured by auditor market shares or whether a Big N audit firm performs the audit. Further, an auditor’s influence on its client’s investment efficiency is more pronounced when clients have a higher demand for information, proxied by client complexity. Finally, exploiting a regulatory change in 2011 that allowed small private Norwegian firms to opt out of previously mandatory auditing, we extend the study by Bae et al. (Account Rev 92(2):19–40, 2017). We find that audits can increase investment efficiency for small private firms. Specifically, firms that dismiss their auditors tend to overinvest more than similar firms that are not eligible to opt out of auditing. Further, firms that voluntarily keep their auditor have an overall higher investment efficiency than similar firms that are not audited.

Journal of International Accounting, Auditing and Taxation 54 Doi: https://doi.org/10.1016/j.intaccaudtax.2023.100594

This article systematically reviews 94 accounting and finance studies that address the real effects of financial reporting. Whereas the effects of financial reporting on capital suppliers’ decisions traditionally have received much attention, recent research has generated important new insights into the feedback effects of financial reporting on the reporting firms’ real activities (e.g., investments or allocation and use of resources). We identify the consequences of financial reporting for (1) the reporting firm, (2) its peer firms, and (3) the input and output markets. We also highlight the effects of firms’ internal controls over financial reporting and consider how accounting and auditing regulations influence and contribute to real effects. The studies we review are consistent in their findings that high-quality financial reporting is positively associated with the efficiency of the reporting firm’s resource allocation. Many studies also suggest a positive association between high-quality financial reporting and an efficient allocation of resources in the real sector, which can also benefit other market participants like consumers or employees. The article concludes with an outlook on fruitful research opportunities.

Review of accounting studies 29(2) p. 1524-1574 Doi: https://doi.org/10.1007/s11142-022-09734-9

This paper addresses the effects of a prohibition of providing non-audit services (NAS) to audit clients. By combining a strategic auditor–client game with a circular market-matching model that has an endogenous number of auditors, we take into account the interdependence between the auditors’ and clients’ incentives, the market structure, and the quality of audited reports. We show that the regulation’s effects depend on the preexisting audit market concentration and the types of blacklisted NAS. In sharp contrast to the effects that regulators desire, a prohibition of providing NAS to audit clients can further increase audit market concentration and decrease the quality of audited reports if the fees that auditors previously earned from providing the blacklisted NAS were relatively high, compared to the reduction in audit costs that result from spillovers. In contrast, a prohibition of the NAS that generate intense spillovers and low NAS fees can have the unexpected—but desired—effect of decreasing market concentration; however, reporting quality also decreases.

Journal of Accounting and Public Policy 41(3) Doi: https://doi.org/10.1016/j.jaccpubpol.2021.106904

We analyze the interactions between accounting institutions and corporate political connections (CPCs). We present a model where a costly policy depends on the perceived economic condition of a firm. This policy and the valuation of the firm by capital market participants create incentives for the firm to manipulate its financial reports. A politician has some discretion over the policy and can use it to favor a connected firm. Our analysis reveals that the firm’s financial reporting is determined by the interplay of an accounting standard, enforcement strictness, and the salience of the policy for the firm. The possibility to manipulate the financial reports imposes an upper boundary on the value of political connectedness which does not exist if only truthful reporting is possible. The reason is that a low credibility of reported figures leads only to a weak revision of the policy. In general, the value of CPCs is highest when the financial reporting regime evenly splits between firms in good and bad economic condition. Our analysis further suggests that while connected firms generally report being in good condition more often than non-connected firms do, the effect of CPCs on absolute reporting manipulation depends on policy salience. If policy salience is low, connected firms exhibit a higher absolute degree of manipulation than non-connected firms do; the opposite holds if policy salience is high.

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