Pork Bellies and Public Company Audits: Have Audits Once Again Become Just Another Commodity?

March 4, 2014 Leave a comment

Pork Bellies and Public Company Audits: Have Audits Once Again Become Just Another Commodity?

Brant E. Christensen 

Texas A&M University – Department of Accounting

Thomas C. Omer 

University of Nebraska at Lincoln – School of Accountancy

Nathan Y. Sharp 

Texas A&M University – Department of Accounting

Marjorie K. Shelley 

University of Nebraska at Lincoln – School of Accountancy
October 8, 2013

Abstract: 
Prior research has established that from 2000 to 2007, auditors recognized clients’ financial reporting risk and incorporated that risk into their audit fees (Charles et al. 2010; Doogar et al. 2010, 2012). However, regulators have expressed concerns about the impact of the subsequent economic downturn and resulting fee pressure on auditor effort. We provide evidence of a marked decline in auditors’ pricing of financial reporting risk during the 2006-2010 period, suggesting auditors have been unable to sustain their focus on the risk of misreporting in recent years. This decline is particularly evident among non-industry expert auditors. Additionally, we find higher rates of financial statement restatements among high-risk clients where their risk appears not to be incorporated in audit fees. Our results are consistent with a return to the commoditization of financial statement audits and its negative impact on audit quality.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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