Auditing Section Research Summaries Space

A Database of Auditing Research - Building Bridges with Practice

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  • Jennifer M Mueller-Phillips
    Group judgment and decision making in auditing: Past and...
    research summary posted February 17, 2016 by Jennifer M Mueller-Phillips, tagged 05.0 Audit Team Composition, 05.09 Group Decision-Making, 09.0 Auditor Judgment, 09.09 Impact of Consultation on Judgments, 09.11 Auditor judgment in the workpaper review process 
    Title:
    Group judgment and decision making in auditing: Past and future research.
    Practical Implications:

    The insights highlighted in this paper from research on audit groups/teams inform one’s understanding of how best to design group interactions between auditors within the firm and with professionals outside the audit firm, including management, audit committees, and inspectors. These insights are important given the criticism audit firms have faced from regulators and inspectors over the past decade and the multi-person setting present in auditing. Further, while a large literature exists on single-person decision-making, these studies may not generalize to multi-person settings. The review also highlights the need for continued research in this area and the importance audit practitioner involvement with future research efforts.

    Citation:

    Trotman, K., T. Bauer, and K. Humphreys. 2015. Group judgment and decision making in auditing: Past and future research. Accounting, Organizations and Society 47: 56-72.

  • Jennifer M Mueller-Phillips
    Audit team time reporting: An agency theory perspective
    research summary posted October 21, 2015 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.11 Auditor judgment in the workpaper review process, 11.0 Audit Quality and Quality Control, 11.06 Working Paper Review – Conduct, Biases and Predispositions 
    Title:
    Audit team time reporting: An agency theory perspective
    Practical Implications:

    The findings show that managers implicitly encourage auditors to underreport time when dealing with a favorable client. While CPA firms have decreased explicit incentives to underreport, these implicit incentives makes it likely that seniors are underreporting their time. This can lead to unrealistic budgets and possible costing issues for firms. Also, if a senior does not underreport they could risk getting a bad evaluation or not be assigned to desirable future engagements. These situations could lead to a reduction in raises, promotions, and continued employment.

    Citation:

    Agoglia, C. P., R. C. Hatfield, and T. A. Lambert. 2015. Audit team time reporting: An agency theory perspective. Accounting, Organizations and Society 44: 1-14.

  • Jennifer M Mueller-Phillips
    Does the Arrangement of Audit Evidence According to Causal...
    research summary posted October 19, 2015 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.11 Auditor judgment in the workpaper review process, 11.0 Audit Quality and Quality Control, 11.06 Working Paper Review – Conduct, Biases and Predispositions 
    Title:
    Does the Arrangement of Audit Evidence According to Causal Connections Make Auditors More Susceptible to Memory Conjunction Errors?
    Practical Implications:

    Evaluating multiple causally arranged evidence sets may precipitate an auditor’s inability to accurately discern the source that pertains to specific information. Susceptibility to source misattributions may cause auditors to inadvertently evoke erroneous client information when rendering memory-based auditing judgments for a client and, therefore, create the potential for impaired judgment quality. Although working papers can serve to curtail informational misattributions, such as those created by MCEs, auditors can become overconfident in the accuracy of their memories and not thoroughly reexamine the working papers for verification. Subsequent to rendering an auditing decision, auditors concurrently working on multiple clients should consider reducing reliance on memory and tailoring working paper review to ensure the relationship between a decision for a certain client and its evidence.

    Citation:

    Grossman, A. M., and R. B. Welker. 2011. Does the Arrangement of Audit Evidence According to Causal Connections Make Auditors More Susceptible to Memory Conjunction Errors? Behavioral Research in Accounting 23 (2): 93-115.

  • Jennifer M Mueller-Phillips
    How Audit Reviewers Respond to an Audit Preparer's...
    research summary posted July 23, 2015 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.11 Auditor judgment in the workpaper review process 
    Title:
    How Audit Reviewers Respond to an Audit Preparer's Affective Bias: The Ironic Rebound Effect.
    Practical Implications:

    These findings extend the audit review process literature by highlighting that reviewers might not always mitigate biases in preparers’ judgments, particularly in cases where they cannot readily determine how much the bias influenced the preparer’s judgment. Reviewers may be inappropriately influenced by the preparer’s judgment. Audit firms should be interested in these findings because they view the review process as a key quality control mechanism. If reviewers rely too heavily on a preparer’s biased judgment, then they inadvertently increase the firm’s audit risk. Identifying this potential limitation of the review process is a necessary first step in helping reviewers respond more appropriately when they believe it is likely that a preparer’s judgment is biased.

    Citation:

    Frank, M. L., & Hoffman, V. B. 2015. How Audit Reviewers Respond to an Audit Preparer's Affective Bias: The Ironic Rebound Effect. Accounting Review 90 (2): 559-577.

  • Jennifer M Mueller-Phillips
    The Auditors’ Approach to Subsequent Events: Insights from t...
    research summary posted February 19, 2015 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.11 Auditor judgment in the workpaper review process, 11.0 Audit Quality and Quality Control, 11.09 Evaluation of Evidence 
    Title:
    The Auditors’ Approach to Subsequent Events: Insights from the Academic Literature
    Practical Implications:

    A concern noted by the authors is the inherent complexity associated with the search for and evaluation of SEs arising from the seemingly boundless universe of potential SEs and the continuous nature of the search. Auditors’ SE procedures may be more effective if the universe of SE possibilities was better understood. One way to understand this universe is to identify undiscovered or incorrectly resolved SEs. Doing this might make these issues more salient to auditors and mitigate judgment biases in the search and evaluation of SEs. Further, auditors would be better equipped to consider potential SEs earlier in the audit if the consideration of potential SEs were incorporated into the risk assessment process during audit planning. This ensures that SE risks are given more detailed attention in the audit program.

    For more information on this study, please contact Janne Chung.

    Citation:

    Chung, J. O. Y., C. Cullinan, M. Frank, J. Long, J. Mueller, and D. O’Reilly. 2013. The Auditors’ Approach to Subsequent Events: Insights from the Academic Literature. Auditing: A Journal of Practice and Theory 32 (Supplement 1): 167-207.

  • Jennifer M Mueller-Phillips
    The Audit of Fair Values and Other Estimates: The Effects of...
    research summary posted November 10, 2014 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.09 Impact of Consultation on Judgments, 09.11 Auditor judgment in the workpaper review process 
    Title:
    The Audit of Fair Values and Other Estimates: The Effects of Underlying Environmental, Task, and Auditor-Specific Factors
    Practical Implications:

    The paper gives practitioners, policy makers, and researchers a framework for considering audit of FVOEs. In considering environmental, task, and auditor-specific factors that individually and interactively affect auditors’ judgments, one may better analyze observed practice deficiencies and contribute to practitioners’ and regulators’ understanding of their likely causes and potential remedies.

    The framework is also valuable in identifying and evaluating the merit of future research topics. Central to the goal of developing research that will improve audits of FVOEs is the deliberate consideration of important interactions among the environmental, task, and person-specific factors involved in the development and audit of FVOEs. Identifying the important interactions among these factors allows researchers to better design studies that evaluate ways to improve the quality of audited FVOEs. Conducting practice-relevant research within the three-factor framework will help researchers, practitioners, and regulators better communicate their perspectives on issues surrounding audits of FVOEs.

    For more information on this study, please contact Gregory E. Sierra.

    Citation:

    Bratten, B., L. M. Gaynor, L. McDaniel, N. R. Montague & G. E. Sierra. 2013. The audit of fair values and other estimates: The effects of underlying environmental, task, and auditor-specific factors. Auditing: A Journal of Practice and Theory 32(Supplement 1): 7-44.

  • The Auditing Section
    Analysis of Diagnostic Tasks in Accounting Research Using...
    research summary posted May 9, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.11 Auditor judgment in the workpaper review process 
    Title:
    Analysis of Diagnostic Tasks in Accounting Research Using Signal Detection Theory
    Practical Implications:

    The results of this study provide insights into the decision-making process of auditors.  It suggests that accountants’ decisions may reflect an unconscious bias based on the potential cost or impact of the decision. The study provides information regarding  assignment of workpaper review responsibilities.  Managers have greater accuracy than seniors in detecting conceptual errors, but are equally accurate in detecting mechanical errors. 

    The study also provides information regarding the efficacy of audit committees.  Auditors are better able to discriminate between bankrupt and nonbankrupt companies when the audit committee consists of independent directors. 

    Citation:

    Ramsay, R. J. and R. M. Tubbs. 2005. Analysis of diagnostic tasks in accounting research using signal detection theory. Behavioral Research in Accounting 17 (1): 149-173.

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  • The Auditing Section
    Effects of Discussion of Audit Reviews on Auditors’ M...
    research summary posted May 9, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.11 Auditor judgment in the workpaper review process, 11.0 Audit Quality and Quality Control, 11.06 Working Paper Review – Conduct, Biases and Predispositions 
    Title:
    Effects of Discussion of Audit Reviews on Auditors’ Motivation and Performance
    Practical Implications:

    The results of this study are useful for understanding the conditions under which a discussion accompanied review is worthwhile and when it is ineffective. The results of this study imply that different review processes may be better for evaluating auditor performance at different experience levels. This finding is in line with prior literature that finds that different feedback methods may be required at different levels of experience to achieve increased performance. The results of this study suggest that firms should consider  implementing discussion as a part of the review process for inexperienced auditors but not for more experienced auditors.  

    Citation:

    Miller, C.L., D. B. Fedor and R. J. Ramsay. 2006. Effects of Discussion of Audit Reviews on Auditors’ Motivation and Performance. Behavioral Research in Accounting 18: 135-146.

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  • The Auditing Section
    The Effects of Client and Preparer Risk Factors on Workpaper...
    research summary posted May 9, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.11 Auditor judgment in the workpaper review process, 11.0 Audit Quality and Quality Control, 11.06 Working Paper Review – Conduct, Biases and Predispositions 
    Title:
    The Effects of Client and Preparer Risk Factors on Workpaper Review Effectiveness
    Practical Implications:

    The results suggest that although preparer risk is not a driver of review effort, it nevertheless can affect accuracy when client risk is high. The results of this study are useful for understanding how client risk and preparer risk interact to influence workpaper review effort and accuracy. Overall, it appears that reviewers expect highly competent preparers to identify and correct errors. Accordingly, reviewers tend to rely on the work of a competent preparer and allow low preparer risk to compensate for high client risk. The authors note that although this is an efficient strategy, it can adversely affect the reviewer’s effectiveness by reducing the accuracy with which they identify errors.

    Citation:

    Asare, S. K., C. M. Haynes and J. G. Jenkins. 2007. The Effects of Client and Preparer Risk Factors on Workpaper Review Effectiveness. Behavioral Research in Accounting 19 (1): 1-17.

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  • The Auditing Section
    Effects of Supervisor Power on Preparers’ Responses to A...
    research summary posted May 7, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.11 Auditor judgment in the workpaper review process, 11.0 Audit Quality and Quality Control, 11.06 Working Paper Review – Conduct, Biases and Predispositions 
    Title:
    Effects of Supervisor Power on Preparers’ Responses to Audit Review: A Field Study
    Practical Implications:

    The results of this study are important for firms to consider as they show that preparer’s perceptions of reviewers impact the preparer’s response to review notes. Audit firms should try to help their supervisors understand what they can do to exude more referent or expert power and less coercive power. Further, firms should allow subordinates to provide feedback to supervisors in order for them to understand how they are being perceived so they can take the necessary steps to alter the perception. 

    Citation:

    Fedor, D. B. and Ramsay, R. J. 2007. Effects of Supervisor Power on Preparers' Responses to Audit Review: A Field Study. Behavioral Research in Accounting 19 (1): 91-105.

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