Auditing Section Research Summaries Space

A Database of Auditing Research - Building Bridges with Practice

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  • Jennifer M Mueller-Phillips
    Audit Fees and Investor Perceptions of Audit...
    research summary posted September 9, 2015 by Jennifer M Mueller-Phillips, tagged 02.0 Client Acceptance and Continuance, 02.01 Audit Fee Decisions, 09.0 Auditor Judgment, 09.06 Adequacy of Disclosure 
    Title:
    Audit Fees and Investor Perceptions of Audit Characteristics.
    Practical Implications:

    These findings provide important insight into investors’ current perceptions of auditor independence, particularly in the absence of relative or comparative information, and suggests that it might be useful for regulators, when contemplating additional disclosure requirements, to allocate some attention to disclosures that have the potential to enhance investor perceptions of auditor independence. The findings of this study contribute to the forum of debate concerning the current state of audit-related disclosures and their value for investors.

    Citation:

    Beck, A. K., R. M. Fuller, L. Muriel, and C. D. Reid. 2013. Audit Fees and Investor Perceptions of Audit Characteristics. Behavioral Research in Accounting 25 (2): 71-95.

  • Jennifer M Mueller-Phillips
    Do Political Connections Add Value to Audit Firms? Evidence...
    research summary posted July 29, 2015 by Jennifer M Mueller-Phillips, tagged 02.0 Client Acceptance and Continuance, 02.01 Audit Fee Decisions, 04.0 Independence and Ethics, 04.05 Ethics and Consultation 
    Title:
    Do Political Connections Add Value to Audit Firms? Evidence from IPO Audits in China.
    Practical Implications:

    To the extent that political connections bring significant economic benefits, non-top-tier firms may be induced to spend scarce resources in competing for such connections while reducing the amount of resources directed towards improving audit quality. Audit clients may also be attracted to audit firms with political connections rather than to those providing high-quality audit services. Auditors in China play a role in reducing the risk of an IPO application being rejected. Because the Chinese IPO market has become the largest in the world in recent years, this finding should be of interest to academics, practitioners, and regulators.

    Citation:

    Yang, Z. 2013. Do Political Connections Add Value to Audit Firms? Evidence from IPO Audits in China. Contemporary Accounting Research 30 (3): 891-921.

  • Jennifer M Mueller-Phillips
    Are There Adverse Consequences of Mandatory Auditor...
    research summary posted July 27, 2015 by Jennifer M Mueller-Phillips, tagged 02.0 Client Acceptance and Continuance, 02.01 Audit Fee Decisions, 15.0 International Matters, 15.04 Audit Firm Rotation 
    Title:
    Are There Adverse Consequences of Mandatory Auditor Rotation? Evidence from the Italian Experience.
    Practical Implications:

    The consequences of mandatory rotation appear to be (1) higher audit fees, and (2) lower-quality audited earnings following rotation (which is consistent with the evidence in non-mandatory settings). The authors conclude with some conjectures on how the negative effects of mandatory rotation observed in Italy might be even greater in countries with larger audit markets and larger clients, such as the United States and other European Union countries, which should give regulators pause. Another unintended consequence of mandatory rotation in the United States would be to reduce an audit firm’s industry expertise. A rotation rule in the United States and other large economies could disrupt the market and fundamentally change the way accounting firms are organized for the delivery of audits. 

    Citation:

    Cameran, M., Francis, J. R., Marra, A., & Pettinicchio, A. 2015. Are There Adverse Consequences of Mandatory Auditor Rotation? Evidence from the Italian Experience. Auditing: A Journal of Practice & Theory 34 (1): 1-24.

  • Jennifer M Mueller-Phillips
    Conditional Conservatism and Audit Fees.
    research summary posted July 24, 2015 by Jennifer M Mueller-Phillips, tagged 02.0 Client Acceptance and Continuance, 02.01 Audit Fee Decisions, 02.02 Client Risk Assessment 
    Title:
    Conditional Conservatism and Audit Fees.
    Practical Implications:

    The results should be of interest to regulators, standard setters, auditors, and firms. Regulators and standard setters may benefit from the results as they consider promulgating accounting rules and standards, particularly those involving fair value measures. Auditors and the firms’ managers may also benefit from the results by knowing the possible effect of accounting conservatism on audit fees and the moderating effect of the quality of corporate governance as they select auditors and accounting policies.

    Citation:

    Lee, H. S., Li, X., & Sami, H. 2015. Conditional Conservatism and Audit Fees. Accounting Horizons 29 (1): 83-113.

  • Jennifer M Mueller-Phillips
    Audit Fees and Social Capital.
    research summary posted July 23, 2015 by Jennifer M Mueller-Phillips, tagged 02.0 Client Acceptance and Continuance, 02.01 Audit Fee Decisions 
    Title:
    Audit Fees and Social Capital.
    Practical Implications:

    By showing that the social capital where the firm is headquartered affects audit fees, this study makes an important contribution to the auditing literature. It shows that the social environment where the firm is headquartered can affect its relation with auditors and, consequently, the audit fees. This is a new way of looking at the auditor and client’s relation. Although the audit-fee literature is extensive, no studies the authors know of have investigated the possible impact of the social environment on how much the auditors charge. The study suggests that trust is an important component of the auditor-client relation, that local social capital proxies to some extent for auditor trust, and its impact on audit fees is meaningful.

    Citation:

    Jha, A., & Chen, Y. 2015. Audit Fees and Social Capital. Accounting Review 90 (2): 611-639.

  • Jennifer M Mueller-Phillips
    CEO Turnover and Audit Pricing.
    research summary posted July 21, 2015 by Jennifer M Mueller-Phillips, tagged 02.0 Client Acceptance and Continuance, 02.01 Audit Fee Decisions, 02.02 Client Risk Assessment 
    Title:
    CEO Turnover and Audit Pricing.
    Practical Implications:

    Voluntary turnover of a CEO does no effect the audit fees of a company. Forced CEO turnover causes the business risk of both the client and the auditor to increase. Thus, audit fees increase. The study has practical implications for companies, by estimating the extra audit costs associated with forced CEO turnover.

    Citation:

    Huang, H., Parker, R. J., Yan, Y., & Lin, Y. 2014. CEO Turnover and Audit Pricing. Accounting Horizons 28 (2): 297-312.

  • Jennifer M Mueller-Phillips
    Relevant but Delayed Information in Negotiated Audit Fees
    research summary posted March 30, 2015 by Jennifer M Mueller-Phillips, tagged 02.0 Client Acceptance and Continuance, 02.01 Audit Fee Decisions, 02.05 Business Risk Assessment - e.g., industry, IPO, complexity 
    Title:
    Relevant but Delayed Information in Negotiated Audit Fees
    Practical Implications:
    • The study is a first step in documenting the economically relevant information contained in negotiated fees.
    • The market is precluded from assimilating timely, consequential information embedded in the negotiated audit fee simply because the current mandate is to disclose the audit fee paid essentially one year after the negotiated audit fee is known by insiders.
    • The study does not address how accelerating the disclosure of audit fee information would complicate the auditor-auditee fee negotiation process, or more generally, the auditor-client relationship.

    For more information on this study, please contact Karl Hackenbrack.

    Citation:

    Hackenbrack, K., N.T. Jenkins and M. Pevzner. 2014. Relevant but delayed information in negotiated audit fees. Auditing: A Journal of Practice and Theory 33 (4): 95-117

  • Jennifer M Mueller-Phillips
    Strategic analysis and auditor risk judgments
    research summary posted March 11, 2015 by Jennifer M Mueller-Phillips, tagged 02.0 Client Acceptance and Continuance, 02.02 Client Risk Assessment, 02.05 Business Risk Assessment - e.g., industry, IPO, complexity, 06.0 Risk and Risk Management, Including Fraud Risk, 06.05 Assessing Risk of Material Misstatement 
    Title:
    Strategic analysis and auditor risk judgments
    Practical Implications:

    The results of this study have important implications:

    • First, the results demonstrate that auditor judgments of the risk of material misstatement at the entity (financial statement) level are linked to the performance and documentation of strategic analysis of strategy positioning and the strategy implementation process
    • Second, this study provides preliminary evidence on the association between performing an analysis of the entity’s strategy implementation process and auditors’ judgments of the strength of the control environment
    • Third, the fact that auditors who performed strategic analysis did not identify a greater number of significant business and financial statement risks than auditors who did not perform strategic analysis warrants further research

    For more information on this study, please contact Natalia Kochetova-Kozloski.

    Citation:

    Kochetova-Kozloski, N., and W. F. Messier Jr. 2011. Strategic analysis and auditor risk judgments. Auditing: A Journal of Practice & Theory 30(4): 149-171.

  • Jennifer M Mueller-Phillips
    Auditor business process analysis and linkages among auditor...
    research summary posted March 10, 2015 by Jennifer M Mueller-Phillips, tagged 02.0 Client Acceptance and Continuance, 02.02 Client Risk Assessment, 06.0 Risk and Risk Management, Including Fraud Risk, 06.05 Assessing Risk of Material Misstatement 
    Title:
    Auditor business process analysis and linkages among auditor risk judgments
    Practical Implications:

    The results of this study have implications for public accounting firms that have adopted business-risk audit methodologies and for regulators that have incorporated ideas and concepts from business-risk audit methodologies into promulgated standards

    • Public accounting firms adopting business-risk methodologies have broadened, deepened, and reemphasized the long-standing requirement in auditing standards to understand the client business so as to use this understanding as a source of information about possible material misstatements to the financial statements.
    • Firms and regulators should be encouraged by the support found in this study for the relationship and connections between, for instance, the significant business risks identified and the magnitude of the assessments of the risk of material misstatement at the entity level; the performance of business process analysis and the conservatism of entity- and process-level assessments of the risk of material misstatement; and the significant business risks identified and the risk of material misstatement at the process level.

    For more information on this study, please contact Natalia Kochetova-Kozloski.

    Citation:

    Kochetova-Kozloski, N., T. M. Kozloski, and W. F. Messier Jr. 2013. Auditor business process analysis and linkages among auditor risk judgments. Auditing: A Journal of Practice & Theory 32(3): 123-139.

  • Jennifer M Mueller-Phillips
    Are Capitalized Software Development Costs Informative About...
    research summary posted March 10, 2015 by Jennifer M Mueller-Phillips, tagged 02.0 Client Acceptance and Continuance, 02.01 Audit Fee Decisions, 02.02 Client Risk Assessment 
    Title:
    Are Capitalized Software Development Costs Informative About Audit Risk?
    Practical Implications:

    In general, the results of this study provide empirical evidence that capitalized software development costs are incrementally informative about the client’s business risk and the overall audit risk.

    • First, although intangible assets play an increasing role in firm valuation, very little is known about whether and how auditors regard these assets in assessing audit risk. Thus it fills a void in the literature on the auditor’s assessment of capitalized software development costs.
    • Second, this study examines a setting that mitigates the client’s business risk. It is important in that while economic models predict that audit fees reflect business risk, there is some evidence that audit practice does not support a relation between business risk and audit fees
    • Third, this study could be viewed as a ‘‘bridge’’ between the limited literature on investor valuation of capitalized software assets and auditing
    • Fourth, this study also shed light on how auditing under certain circumstances could potentially enhance the informativeness of recognized assets that are subject to a high degree of information asymmetry and managerial discretion

    For more information on this study, please contact Gopal V. Krishnan.

    Citation:

    Krishnan, G. V., and C. Wang. 2014. Are Capitalized Software Development Costs Informative About Audit Risk? Accounting Horizons 28(1): 39-57.

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