Auditing Section Research Summaries Space

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  • The Auditing Section
    An Investigation of Auditor Perceptions about Subsequent...
    research summary posted April 13, 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 
    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
    Auditors’ Assessment and Incorporation of Expectation P...
    research summary posted April 16, 2012 by The Auditing Section, tagged 08.0 Auditing Procedures – Nature, Timing and Extent, 09.0 Auditor Judgment, 09.03 Adequacy of Evidence 
    Title:
    Auditors’ Assessment and Incorporation of Expectation Precision in Evidential Analytical Procedures
    Practical Implications:

    The results of this study suggest that auditors’ precision assessments may not be well calibrated for relevant precision factors. Thus, auditors may benefit from additional guidance indicating the factors that should be considered for assessing the precision of analytical
    procedures.  Furthermore, audit firms might want to consider integrating some of the findings of this study into future training sessions and/or decision aids that would assist auditors in improving their precision calibration. An insensitivity to important precision factors may lead to over-reliance on analytical procedures, negatively affecting audit effectiveness. Because the allowance for loan losses is an estimate, the results of this study provide insight into factors that could influence the potential effectiveness of audits of estimates. Understanding how auditors evaluate analytical procedure precision for estimates is particularly critical in that analytical procedures may be the only source of assurance for testing these accounts.

    Citation:

    McDaniel, L.S. and L.E. Simmons. 2007. Auditors’ assessment and incorporation of expectation precision in evidential analytical
    procedures. Auditing: A Journal of Practice & Theory 26(1): 1-18.

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  • The Auditing Section
    Auditors’ Assessment and Incorporation of Expectation P...
    research summary posted April 13, 2012 by The Auditing Section, tagged 08.0 Auditing Procedures – Nature, Timing and Extent, 09.0 Auditor Judgment, 09.03 Adequacy of Evidence 
    Title:
    Auditors’ Assessment and Incorporation of Expectation Precision in Evidential Analytical Procedures
    Practical Implications:

    The results of this study suggest that auditors’ precision assessments may not be well calibrated for relevant precision factors. Thus, auditors may benefit from additional guidance indicating the factors that should be considered for assessing the precision of analytical
    procedures.  Furthermore, audit firms might want to consider integrating some of the findings of this study into future training sessions and/or decision aids that would assist auditors in improving their precision calibration. An insensitivity to important precision factors may lead to over-reliance on analytical procedures, negatively affecting audit effectiveness. Because the allowance for loan losses is an estimate, the results of this study provide insight into factors that could influence the potential effectiveness of audits of estimates. Understanding how auditors evaluate analytical procedure precision for estimates is particularly critical in that analytical procedures may be the only source of assurance for testing these accounts.

    Citation:

    McDaniel, L.S. and L.E. Simmons. 2007. Auditors’ assessment and incorporation of expectation precision in evidential analytical procedures. Auditing: A Journal of Practice & Theory 26(1): 1-18.

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  • Jennifer M Mueller-Phillips
    Audits of Complex Estimates as Verification of Management...
    research summary posted October 19, 2015 by Jennifer M Mueller-Phillips, tagged 05.0 Audit Team Composition, 05.01 Use of Specialists e.g., financial instruments, actuaries, valuation, 08.0 Auditing Procedures – Nature, Timing and Extent, 08.04 Auditors’ Professional Skepticism, 09.0 Auditor Judgment, 09.03 Adequacy of Evidence, 09.12 Impact of potential post-audit review - e.g., PCAOB, internal firm inspections, 11.0 Audit Quality and Quality Control, 11.05 Training and General Experience, 11.09 Evaluation of Evidence 
    Title:
    Audits of Complex Estimates as Verification of Management Numbers: How Institutional Pressures Shape Practice.
    Practical Implications:

    Based on the interviews and problems identified, the authors conjecture that potentially suboptimal auditing methods are being used to evaluate complex estimates which are an important and growing part of the financial statements. This may be negatively impacting audit quality. More specifically, auditors over-rely on management estimates because they lack the knowledge and incentives to behave otherwise. This possibility has direct consequences for auditor professional skepticism because increasing professional skepticism may be less effective unless auditors are also given the requisite knowledge to properly use it. These problems are reinforced by auditing standards and regulators which generally outline/criticize the current auditing methods without suggesting new or better ones.  

    Citation:

    Griffith, E., J. Hammersley, and K. Kadous. 2015. Audits of Complex Estimates as Verification of Management Numbers: How Institutional Pressures Shape Practice. Contemporary Accounting Research 32 (3): 833-863.

  • Jennifer M Mueller-Phillips
    Biased Evidence Processing by Multidisciplinary Greenhouse...
    research summary posted August 31, 2016 by Jennifer M Mueller-Phillips, tagged 05.0 Audit Team Composition, 05.01 Use of Specialists e.g., financial instruments, actuaries, valuation, 09.0 Auditor Judgment, 09.03 Adequacy of Evidence 
    Title:
    Biased Evidence Processing by Multidisciplinary Greenhouse Gas Assurance Teams
    Practical Implications:

     This study has implications for public accounting firms engaging in GHG engagements. Team training that establishes an understanding of the knowledge and role of the team members from differing disciplines might help to alleviate over-reliance on peer-provided evidence. In the context of multidisciplinary assurance teams, establishing and adhering to audit firm quality control mechanisms relating to evidence collection, evaluation, and review are of particular importance. Accounting firms may also need to pay particular attention in fostering an assurance environment that encourages objective evidence processing.

    Citation:

     Kim, S., W. J. Green, and K. M. Johnstone. 2016. Biased Evidence Processing by Multidisciplinary Greenhouse Gas Assurance Teams. Auditing: A Journal of Practice and Theory 35 (3): 119-139.

  • Jennifer M Mueller-Phillips
    Big data as complementary audit evidence.
    research summary posted September 11, 2015 by Jennifer M Mueller-Phillips, tagged 08.0 Auditing Procedures – Nature, Timing and Extent, 08.09 Impact of Technology on Audit Procedures, 09.0 Auditor Judgment, 09.03 Adequacy of Evidence 
    Title:
    Big data as complementary audit evidence.
    Practical Implications:

    Incorporating Big Data into an audit poses several challenges. This article establishes how Big Data analytics satisfy requirements of audit evidence, namely that it is sufficient, reliable, and relevant. The authors bring up practical challenges (such as transferring information, privacy protection, and integration with traditional audit evidence) and provide suggestions for addressing them in incorporating Big Data into audit evidence. They also suggest that Big Data can complement tradition audit evidence at every level of audit evidence: financial statement, individual account, and audit objective.

    Citation:

    Yoon, K., L. Hoogduin, and L. Zhang. 2015. Big data as complementary audit evidence. Accounting Horizons 29 (2): 431-438.

  • The Auditing Section
    Covariation Assessments with Costly Information Collection...
    research summary posted April 16, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.03 Adequacy of Evidence 
    Title:
    Covariation Assessments with Costly Information Collection in Audit Planning: An Experimental Study
    Practical Implications:

    The study has significant implications for situations where auditors must make decisions based on preliminary analyses (i.e. analytical procedures). From this analysis they either pass or extend testing on the accounts under review. In the absence of guidance on the importance of subjecting all accounts and transactions to testing, auditors may tend to over (under) test in response to greater (lesser) sensitivity of an account to error (based on the preliminary testing). The ineffectiveness and inefficiencies that may result are potentially greater when transactions to be tested are chosen judgmentally. 

    Citation:

    Ganguly, A.R. and J. S. Hammersley. 2009. Covariation Assessments with Costly Information Collection in Audit Planning: An Experimental Study. Auditing: A Journal of Practice and Theory 28(1):1-27.

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  • Jennifer M Mueller-Phillips
    Differential Evaluation of Audit Evidence from Fixed versus...
    research summary posted November 24, 2014 by Jennifer M Mueller-Phillips, tagged 08.0 Auditing Procedures – Nature, Timing and Extent, 08.02 Sample Selection – use of statistical sampling, 09.0 Auditor Judgment, 09.03 Adequacy of Evidence 
    Title:
    Differential Evaluation of Audit Evidence from Fixed versus Sequential Sampling
    Practical Implications:

    The results have implications about situations in which others evaluate the auditor’s work after the fact, such as the audit review process or the examination of audit evidence by regulators, jurors, or judges. In such situations, decision makers need to evaluate the strength of previously gathered audit evidence, and to judge the extent to which the evidence supports a previously reached conclusion. Regarding the assessed sufficiency of audit evidence, the results suggest that evaluators of the auditor’s work could require larger sample sizes under sequential sampling than under fixed sampling, to support the same level of confidence in the auditor’s opinion. Although sequential sampling might in fact increase audit efficiency, the findings suggest that this benefit could be negated by subsequent unfavorable assessment of audit evidence from a sequential sampling plan.

    For more information on this study, please contact Marietta Peytcheva.

    Citation:

    Gillett, P. R., and M. Peytcheva. 2011. Differential evaluation of audit evidence from fixed versus sequential sampling. Behavioral Research in Accounting 23 (1): 65-85. 

  • Jennifer M Mueller-Phillips
    Extreme Estimation Uncertainty in Fair Value Estimates:...
    research summary posted February 19, 2015 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.03 Adequacy of Evidence, 12.0 Accountants’ Reports and Reporting, 12.05 Changes in Reporting Formats 
    Title:
    Extreme Estimation Uncertainty in Fair Value Estimates: Implications for Audit Assurance
    Practical Implications:

    The increasing use of uncertain fair value measurements and other estimates in financial statements place an increasingly difficult burden on auditors, who are required to provide a high level of positive assurance that financial statements—including those containing items subject to enormous inherent estimation uncertainty such as those described above—are fairly stated in all material respects. The authors state that auditors are doing their best within the requirements imposed by standard setters and regulators, but also suggest that it is time for those who set and regulate standards to consider ways to more clearly convey where extreme estimation uncertainty exists within financial statements, and to reconsider auditors’ ability to provide positive, high level audit assurance on these inherently uncertain estimates.

    For more information on this study, please contact Steven M. Glover.

    Citation:

    Christensen, B. E., S. M. Glover, and D. A. Wood. 2012. Extreme Estimation Uncertainty in Fair Value Estimates: Implications for Audit Assurance. AUDITING: A Journal of Practice & Theory 31 (1):127-146.

  • Jennifer M Mueller-Phillips
    Fraudulent Management Explanations and the Impact of...
    research summary posted September 19, 2013 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.01 Fraud Risk Assessment, 09.0 Auditor Judgment, 09.03 Adequacy of Evidence, 11.0 Audit Quality and Quality Control, 11.09 Evaluation of Evidence 
    Title:
    Fraudulent Management Explanations and the Impact of Alternative Presentations of Client Business Evidence
    Practical Implications:

    The study provides evidence that the format of the audit evidence (using the business model evidence versus using the chronological evidence) impacts the level of fraud risk assessment.  This indicates that using the business model provides an advantage in evaluating and assessing the potential risk of fraud.  The advantages of using both forms of evidence may enable auditors to determine the nature, timing and extent of procedures to corroborate management’s explanations for fluctuations beyond the context of fraud.  Therefore, the findings of this study have broader implications, as it can be applied to other audit procedures to ensure that auditors are obtaining sufficient evidence throughout the audit as well as for an assessment of fraud risk.


    For more information on this study, please contact William F. Wright.
     

    Citation:

    Wright, W.F., and L. Berger. 2011. Fraudulent Management Explanations and the Impact of Alternative Presentations of Client Business Evidence.   Auditing:  A Journal of Practice and Theory 30 (2): 153-171.

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