We expect that country risk affects a country's audit risk. Hence, audit price in a country, represented by average hourly audit fee, should be positively associated with country-specific audit risk. We identify a small sample of companies listed on the Tel Aviv Stock Exchange (Israel) that use auditors in different countries. As these companies must disclose total audit fees and hours of engagement, we compiled a novel dataset that includes both fees and hours in 25 different countries for 10 years in order to compute the average hourly audit fee per country. We use the Corruption Perception Index (CPI), published annually by Transparency International, as the primary measure of country risk for each country. We expect and find a positive association between perceived corruption and average hourly audit fee normalized by a country's per-capita Gross Domestic Product. We use several alternative measures of country risk with similar results. However, we find no association between audit hours and any country-specific risk measures, including corruption. Our results are consistent with the argument that auditors in more corrupt countries charge higher hourly audit rate for their services, but we do not find simultaneously an increase in audit effort in terms of total hours.

We examine differences in audit scope between publicly-listed family and non-family firms in Israel, using a unique dataset that includes external and internal audit hours, audit fees and billing rates. We find that external auditors charge lower average hourly rates for family firms than for non-family firms. However, audit effort, measured as the number of audit hours, is lower in family firms than in non-family firms, but the difference is not statistically significant. Moreover, the number of internal audit hours is smaller, on average, in family firms than in non-family firms. Our findings suggest family ownership affects audit mainly when the family is actively involved in the firm's management. We also examine a subsample of eponymous family firms and obtain similar results. Analysis of a sub-sample of firms that switched from family to non-family status or vice-versa shows that audit fees and hourly rates decrease (increase) when a firm changes its status from non-family (family) to family (non-family) status. Lastly, we find that the reporting quality of family firms is higher than that of non-family firms. Overall, our results suggest that auditors perceive family firms to be less audit-risky.

We examine differences in audit scope between family and non-family firms in Israel, using a unique database that includes both external and internal audit fees, hours, and billing rates. Consistent with prior literature, we argue that the number of audit hours reflects an auditor’s effort, and the hourly rate reflects the auditor’s risk premium. We find that external auditors exert less effort and charge lower hourly rates for family firm engagements than for non-family firm engagements. Moreover, internal audit efforts are lower in family firms than in non-family firms. Using a sub-sample of firms that switched from family to non-family status and vice-versa, we provide evidence on the causal relationship between family firm status and the scope of the audit. Our results mean that auditors reduce the scope of the audit in family firms because they perceive these firms to be less audit-risky. Nevertheless, we find that the reporting quality of family firms is higher than that of non-family firms.

We show negative stock returns reverse more and contain less information on the long-term changes in share prices than positive stock returns mostly on nondisclosure days, and these information differences between negative and positive returns decrease substantially on disclosure days. The results suggest investors are more likely to acquire positive information on nondisclosure days and to obtain both negative and positive information on disclosure days. Accounting conservatism and litigation exposure compels managers to reveal their negative information in disclosures, and if managers withhold negative information, they do it when investors are less likely to find the information on nondisclosure days. Moreover, we use the exogenous imposition of Regulation Fair Disclosure (Reg. FD) to demonstrate that positive information leakage from firms during the quarter is driving the positive slant in investors’ information. Taken together, our results suggest that disclosure plays an important role in the differential informativeness and reversals of positive and negative returns.

This textbook analyses M&A transactions using information provided in financial statements and covering accounting and reporting of consolidations, goodwill, non-controlling interests, step acquisitions, spin-offs, equity carve-outs, joint ventures, leveraged buyouts, and taxes