Financial restatements and auditor quality
type: CreativeWork
description: This thesis examines the association between auditor quality and the likelihood of financial restatements for Australian listed companies. I focus on two types of restatements: error-based restatements, which are financial restatements to correct a prior-period error-based misstatement, and stealth restatements, which are restatements made without qualitative disclosures required by the regulation. I document that 32%, 23% and 1.9% of Australian listed companies made restatements, stealth restatements and error-based restatements respectively in my sample of 1,465 Australian listed companies in the 2012/2013 reporting period. I construct an Error Restatement Model and a Stealth Restatement Model to examine the effects of auditor quality and auditor quality changes on the likelihood of different types of restatements. I find some evidence that prior-period auditor quality, measured by whether an auditor is a Big 4 audit firm, is associated with a lower likelihood of a current-period error-based restatement. However, a change in auditor to a Big 4 audit firm (or to an industry specialist audit firm) is associated with a higher likelihood of an error-based restatement arising from the first year audit engagement. I find evidence that higher auditor quality, measured by whether an auditor is an industry specialist audit firm, is associated with a lower likelihood of a stealth restatement and that a change in auditor increases the likelihood of a stealth restatement, but no evidence that higher quality auditors are more effective at detecting or deterring client restatements without qualitative disclosures in first year audit engagements.
abstract: This thesis examines the association between auditor quality and the likelihood of financial restatements for Australian listed companies. I focus on two types of restatements: error-based restatements, which are financial restatements to correct a prior-period error-based misstatement, and stealth restatements, which are restatements made without qualitative disclosures required by the regulation. I document that 32%, 23% and 1.9% of Australian listed companies made restatements, stealth restatements and error-based restatements respectively in my sample of 1,465 Australian listed companies in the 2012/2013 reporting period. I construct an Error Restatement Model and a Stealth Restatement Model to examine the effects of auditor quality and auditor quality changes on the likelihood of different types of restatements. I find some evidence that prior-period auditor quality, measured by whether an auditor is a Big 4 audit firm, is associated with a lower likelihood of a current-period error-based restatement. However, a change in auditor to a Big 4 audit firm (or to an industry specialist audit firm) is associated with a higher likelihood of an error-based restatement arising from the first year audit engagement. I find evidence that higher auditor quality, measured by whether an auditor is an industry specialist audit firm, is associated with a lower likelihood of a stealth restatement and that a change in auditor increases the likelihood of a stealth restatement, but no evidence that higher quality auditors are more effective at detecting or deterring client restatements without qualitative disclosures in first year audit engagements.
author: Chiu, Yi-Hsuan
language: EN
keywords: Financial restatements, Audit
license: https://purl.org/coar/access_right/c_abf2
license: https://creativecommons.org/licenses/by-nc-nd/3.0/au/
date published: 2017
date modified: 2026-07-24T05:31:47Z
provider: University of New South Wales
publisher: Networked Digital Library of Theses and Dissertations
type: WebPage
source organization: UNSW, Sydney

PropertyValue
property ID: Handle
value: http://hdl.handle.net/1959.4/59302

PropertyValue
property ID: DOI
value: 10.26190/unsworks/20204