Auditing Section Research Summary Database

A Database of Auditing Research - Building Bridges with Practice

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  • Jennifer M Mueller-Phillips
    Auditor Realignments Accompanying Implementation of SOX 404...
    research summary last edited June 22, 2013 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.04 Impact of 404, 01.05 Impact of SOX, 07.0 Internal Control, 07.03 Reporting Material Weaknesses, 07.05 Impact of 404 on Fees and Financial Reporting Quality in Auditing Section Research Summaries Space public
    Title:
    Auditor Realignments Accompanying Implementation of SOX 404 ICFR Reporting Requirements
    Practical Implications:

    The results of this study are important for showing the impact of SOX requirements on the audit environment.  The evidence suggests that ICFR opinions provide clients with information to assess the effectiveness of auditors.  After adverse internal control opinions, clients dismiss auditors in order to obtain higher quality audits, measured by switches to Big 4 and industry specialist auditors.  However, only industry specialist auditors are associated with remediation of adverse reports. 

    Citation:

    Ettredge, M., J. Heintz, C. Li, and S. Scholz. 2011. Auditor realignments accompanying implementation of SOX 404 ICFR reporting requirements. Accounting Horizons 25 (1): 17-39.

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  • The Auditing Section
    The Global Audit Profession and the International Financial...
    research summary last edited May 25, 2012 by The Auditing Section, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards, 01.06 Impact of PCAOB in Auditing Section Research Summaries Space public
    Title:
    The Global Audit Profession and the International Financial Architecture: Understanding Regulatory Relationships at a Time of Financial Crisis
    Practical Implications:

    This paper provides insight into the effect of the global financial crisis on auditors and the relationships between large international accounting firms, regulators, and standard setters. The paper summarizes a variety of reports and policy proposals related to the global financial crisis, including the number of times auditors are mentioned in each of the reports. The paper discusses issues related to bank audits, including discussion of fair value issues and going concern reports.

    Citation:

    Humphrey, C., A. Loft and M. Woods. 2009. The Global Audit Profession and the International Financial Architecture: Understanding Regulatory Relationships at a Time of Financial Crisis. Accounting, Organizations and Society 34 (6-7): 810-825.

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  • The Auditing Section
    PCAOB Inspections of Smaller CPA Firms: Initial Evidence...
    research summary last edited May 25, 2012 by The Auditing Section, tagged 01.0 Standard Setting, 01.06 Impact of PCAOB, 11.0 Audit Quality and Quality Control, 11.11 Impact of Firm and External Inspection Programs in Auditing Section Research Summaries Space public
    Title:
    PCAOB Inspections of Smaller CPA Firms: Initial Evidence from Inspection Reports
    Practical Implications:

    This study provides a detailed analysis of the deficiencies identified in the PCAOB inspections of small firms, including an examination of firm-specific characteristics. It also provides insights into the PCAOB’s inspection practices, which is useful for regulators, audit firms, public companies and financial statement users to consider.

     

    Citation:

    Hermanson, D. R., R. W. Houston, and J. C. Rice. 2007. PCAOB Inspections of Smaller CPA Firms: Initial Evidence from Inspection Reports.  Accounting Horizons 21 (2):  137-152. 

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  • The Auditing Section
    From Inspection to Auditing: Audit and Markets as Linked...
    research summary last edited May 25, 2012 by The Auditing Section, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards in Auditing Section Research Summaries Space public
    Title:
    From Inspection to Auditing: Audit and Markets as Linked Ecologies
    Practical Implications:

    This study provides insight into the way the auditing market has evolved in Russia and how modern-day audits differ from Soviet-era  inspections. The author also focus on what services (i.e., consulting, tax) Russian businesses feel their auditors should provide, and how prestige is gained in the Russian audit markets. The results of this study should be of interest to accounting firms considering either initial entry into Russia or expanding current services in Russia.

    Citation:

    Mennicken, A. 2010. From Inspection to Auditing: Audit and Markets as Linked Ecologies. Accounting, Organizations and Society 35 (3): 334-359.

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  • The Auditing Section
    Auditor Standard Setting and Inspection for U.S. Public...
    research summary last edited May 25, 2012 by The Auditing Section, tagged 01.0 Standard Setting, 01.05 Impact of SOX, 01.06 Impact of PCAOB in Auditing Section Research Summaries Space public
    Title:
    Auditor Standard Setting and Inspection for U.S. Public Companies:
    Practical Implications:

    The authors hope to generate discussion and reform of accounting and auditing regulation, specifically with respect to the PCAOB, based upon the observations and points below. 

    • The authors believe that the audit “profession lost sight of its core values such as independence, high-quality audits, and responsibility to the public trust.  …in many ways, SOX led to a justified back-to-basics focus within the largest international accounting firms.”
    • Under the Auditing Standards Board (ASB), the United States was the global leader in auditing standard-setting.  There are currently three sets of auditing standards that may govern an audit:  the ASB, the PCAOB and the International Auditing and Assurance Standards Board (IAASB). 
    • Auditors of publicly held companies will continue to audit against audit standards sponsored by several different standard setters in efforts to conduct high quality audits. Audit quality will continue to be a high priority of regulators and the firm’s quality control functions.  Coordinating the various standard setters’ requirements into a single quality control system for firms will be a challenge.
    • In an effort to increase independence of standard-setting from the audit profession, the PCAOB has adopted a non-expert model.  The resulting standards may be costly and of poor quality.
      • PCAOB inspections are not able to conduct risk-based inspections.
      • Inspection reports do not adequately distinguish between trivial and significant findings for the public to understand whether the audit itself is of adequate quality.
      • Inspection reports are issued so late as to be of little value in the subsequent audit.
    • The PCAOB should reconsider its standard-setting and inspection processes.
      • Standard-setting should be better aligned with the process of financial accounting standards.  Specifically, the standards should be set by the profession with oversight by the PCAOB.  The analogy is that FASB sets the accounting standards with oversight by the SEC.  Alternatively, the PCAOB should adopt the IAASB/ASB standards.  Either approach utilizes the expertise not currently resident in the PCAOB and reduces the complexity and number of standards a firm must follow in conducting a quality audit.
      • Although the AICPA peer inspection process has weaknesses, it leverages industry and technical expertise that is currently lacking in the PCAOB process.   The authors recommend a “peer enhanced” federal inspection.  With direction and scope provided by the PCAOB, and inspections by industry expert peers, the inspections would improve at a reduced PCAOB cost.
      • Transparency should be a priority of the PCAOB in standard-setting as well as reporting of inspection findings.  In addition, a resolution process should be implemented so disputes between the inspection team and the firm can be resolved.
    Citation:

    Glover, S.M., D. F. Prawitt, and M. H. Taylor. 2009. Auditor standard setting and inspection for U.S. public companies:  A critical assessment and recommendations for fundamental change.  Accounting Horizons 23 (2): 221-237.

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  • The Auditing Section
    Assurance on XBRL for Financial Reporting
    research summary last edited May 25, 2012 by The Auditing Section, tagged 01.0 Standard Setting, 01.01 Changes in Reporting Formats in Auditing Section Research Summaries Space public
    Title:
    Assurance on XBRL for Financial Reporting
    Practical Implications:

    Auditors should recognize that agreement between the rendered and source documents alone does not provide sufficient evidence that financial statements are appropriately tagged.  If issues regarding sampling and materiality cannot be sufficiently resolved, the alternative is 100 percent testing, which may be more expensive than investors, regulators, and other users are willing to pay.  Technological advances are likely to yield applications that assist auditors in determining the appropriateness of XBRL tags based semantic relationships.  As the public availability of XBRL-tagged data reaches a critical mass, auditors may leverage it to perform analytic procedures that can be relied on to create efficiencies in other aspects of an audit engagement.  Given the granular nature of the data-centric reporting environment, different levels of assurance (e.g., data-level and continuous assurance) are receiving considerable attention by academic researchers and may eventually lead to significant shifts in the assurance model, including the use of specialized audit teams and/or third-party providers.

    Citation:

    Plumlee, R. D., and M. A. Plumlee. 2008. Assurance on XBRL for Financial Reporting.  Accounting Horizons 22 (3):  353-368. 

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  • The Auditing Section
    An Investigation of Auditor Perceptions about Subsequent...
    research summary last edited May 25, 2012 by The Auditing Section, tagged 01.0 Standard Setting, 01.07 Impact of SEC Actions, 09.0 Auditor Judgment, 09.03 Adequacy of Evidence in Auditing Section Research Summaries Space public
    Title:
    An Investigation of Auditor Perceptions about Subsequent Events and Factors That Influence This Audit Task
    Practical Implications:

    Auditors should recognize that an implicit tradeoff exists between the availability of subsequent event evidence and timelier reporting.  However, the net effect is not well understood because prior research has only focused on quantifying the benefits of timely reporting, not the costs associated with obtaining less subsequent event evidence.  The low evidence discovery rate reported by participants suggests that the current audit methodology might suffer from inefficiencies.  Further research should establish relative frequency information to help auditors generate hypotheses and guide audit planning.

     

    Citation:

    Janvrin, D. J. and C. G. Jeffrey. 2007. An Investigation of Auditor Perceptions about Subsequent Events and Factors That Influence This Audit Task.  Accounting Horizons 21 (3):  295-312

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  • The Auditing Section
    Do Investors’ Perceptions Vary with Types of Nonaudit F...
    research summary last edited May 25, 2012 by The Auditing Section, tagged 01.0 Standard Setting, 01.05 Impact of SOX, 04.01 Scope of Services, 04.02 Impact of Fees on Decisions by Auditors & Management, 04.03 Non-Audit Services, 04.08 Impact of SEC Rules Changes/SarbOx in Auditing Section Research Summaries Space public
    Title:
    Do Investors’ Perceptions Vary with Types of Nonaudit Fees? Evidence from Auditor Ratification Voting
    Practical Implications:

    This paper added to the discussion on what types of services audit firms should and should not provide to their audit clients. The evidence in this paper supports the view that investors do not view tax services provided to audit clients in the same light as audit-related services.  The findings of this study are relevant to managers and boards of directors who purchase non-audit services (audit-related, tax or other) from the external auditor.  This study is also useful to practicing auditors to address audit committee concerns on non-audit services.

    Citation:

    Mishra, S., K. Raghunandan, and D.V. Rama. 2005. Do Investors’ Perceptions Vary with Types of Nonaudit Fees? Evidence from Auditor Ratification Voting. Auditing: A Journal of Practice & Theory 24 (2): 9-25.

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