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Whistleblowing Allegations, Audit Fees, and Internal Control Deficiencies

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  • Yu Flora Kuang
  • Gladys Lee
  • Bo Qin

Abstract

We investigate whether audit fees and auditors' opinions on internal controls are associated with whistleblowing allegations externally filed to regulatory agencies. We find that firms subject to whistleblowing allegations have significantly higher audit fees, regardless of the substance of these allegations, whereas an auditor is more likely to issue an adverse opinion on internal controls when the allegation is substantiated, rather than frivolous. Further, our findings suggest that auditors are involved in the auditing of whistleblowing when the allegation is still in an internal stage. We also show that firms subject to external whistleblowing allegations have a lower likelihood of restating financial statements prepared in the allegation year when greater audit effort is made in that year. Our study is among the first to demonstrate the role of auditors in the context of whistleblowing. Dénonciation de comportements allégués, honoraires d'audit et déficiences du contrôle interne Les auteurs se demandent si les honoraires d'audit et les opinions des auditeurs quant aux contrôles internes ont un lien avec la dénonciation par des tiers de comportements allégués auprès des organismes de réglementation. Ils constatent que les sociétés faisant l'objet de telles allégations ont des honoraires d'audit sensiblement plus élevés, peu importe le contenu de ces allégations, un auditeur étant davantage susceptible d'exprimer une opinion défavorable sur les contrôles internes lorsque l'allégation est fondée que lorsqu'elle est infondée. En outre, les constatations des auteurs semblent indiquer que les auditeurs prennent part à l'audit de dénonciations lorsque l'allégation n'en est encore qu'au stade de la gestion interne. Les auteurs montrent également que les sociétés faisant l'objet d'allégations de comportement répréhensible dénoncé par des tiers sont moins susceptibles de retraiter les états financiers établis dans l'année des llégations lorsque l'effort d'audit dans l'année en question est plus important. L’étude figure parmi les premières à démontrer le rôle des auditeurs dans le contexte de la dénonciation.

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  • Yu Flora Kuang & Gladys Lee & Bo Qin, 2021. "Whistleblowing Allegations, Audit Fees, and Internal Control Deficiencies," Contemporary Accounting Research, John Wiley & Sons, vol. 38(1), pages 32-62, March.
    • Handle: RePEc:wly:coacre:v:38:y:2021:i:1:p:32-62
    DOI: 10.1111/1911-3846.12619
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    2. Václav Kupec & Přemysl Písař & Michal Lukáč & Gabriela Pajtinková Bartáková, 2021. "Conceptual Comparison of Internal Audit and Internal Control in the Marketing Environment," Sustainability, MDPI, vol. 13(12), pages 1-18, June.
    3. Zhou, Fuzhao, 2023. "Auditors’ responses and whistleblowing allegations," Finance Research Letters, Elsevier, vol. 58(PB).
    4. Baban Eulaiwi & Ahmed Al‐Hadi & Lien Duong & Keira Clark & Grantley Taylor & Brian Perrin, 2022. "Audit pricing and corporate whistleblower governance: evidence from Australian financial firms," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(2), pages 2339-2384, June.

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