Auditing Section Research Summaries Space
A Database of Auditing Research - Building Bridges with Practice
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research summary posted May 7, 2012 by The Auditing Section, tagged 05.0 Audit Team Composition, 05.02 Industry Expertise – Firm and Individual, 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind, 11.0 Audit Quality and Quality Control, 11.05 Training and General ExperienceTitle:Academic Instruction as a Determinant of Judgment PerformancePractical Implications:The results of this study are important for audit firms to consider providing decision aids and/or on job training. The results suggest that considerable practical experience is necessary to achieve good judgment performance. In addition, the evidence indicates that auditing firms may wish to concentrate their training earlier to more quickly create a basis for high-quality auditor judgments.
Citation:Wright, William F. 2007. Academic Instruction as a Determinant of Judgment Performance. Behavioral Research in Accounting 19: 247-259.
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research summary posted July 30, 2015 by Jennifer M Mueller-Phillips, tagged 04.0 Independence and Ethics, 11.0 Audit Quality and Quality Control, 11.05 Training and General ExperienceTitle:Aggregate Quasi Rents and Auditor Independence: Evidence from Audit Firm Mergers in China.Practical Implications:The findings of this study have policy implications for regulators in China and other emerging economies with regard to administering the auditing profession and improving the corporate governance of public companies by fostering auditor independence. One policy implication of this finding is that simply increasing audit firm size fails to enhance auditor independence. The experience of mature markets suggests that, in addition to public regulatory enforcement, other mechanisms, such as private litigation against auditors and improved disclosures on audit services, are helpful in ensuring a well-functioning audit market.
Citation:Chan, K. H., and Wu, D. 2011. Aggregate Quasi Rents and Auditor Independence: Evidence from Audit Firm Mergers in China. Contemporary Accounting Research 28 (1): 175-213.
- research summary posted April 23, 2012 by The Auditing Section, tagged 05.0 Audit Team Composition, 05.05 Diversity of Skill Sets e.g., Tenure and Experience, 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind, 11.0 Audit Quality and Quality Control, 11.05 Training and General ExperienceTitle:An Examination of the Effects of Auditor Rank on Pre-Negotiation JudgmentsPractical Implications:
This study provides evidence that there were significant differences in the pre-negotiation judgments of partners and managers. Since an outcome of an auditor-client negotiation of a contentious issue may have a significant impact on financial reporting quality, the findings of the study suggest that the using partners in the negotiation process is likely to lead to improved reporting quality. The results have implications for audit firms in allocating manager and partner time to handle negotiation.
Citation:Trotman, K. T., A. M. Wright, and S.Wright. (2009). An Examination of the Effects of Auditor Rank on Pre-Negotiation Judgments. Auditing: A Journal of Practice & Theory 28(1): 191-203
Home: - research summary posted October 22, 2014 by Jennifer M Mueller-Phillips, tagged 11.0 Audit Quality and Quality Control, 11.05 Training and General ExperienceTitle:Auditors’ Overconfidence in Predicting the Technical Knowledge of Superiors and SubordinatesPractical Implications:
In this study, we show that both subordinates and superiors are overconfident in predicting other auditor’ knowledge and that this overconfidence effect interacts with task difficulty. Inaccuracy in assessing the technical knowledge of other specific auditors has the potential to degrade audit quality. Likewise, incorrect assessments of the technical knowledge of groups of auditors may distort the audit firms understanding of training needs of auditors. More accurate and objective assessments of interpersonal knowledge of other auditors are needed to enhance audit quality.
For more information on this study, please contact Hun-Tong Tan.
Citation:Han, J., K. Jamal, and H-T. Tan. 2011. Auditors’ overconfidence in predicting the technical knowledge of superiors and subordinates. Auditing: A Journal of Practice & Theory 30(1): 101-119.
- 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 EvidenceTitle: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.
- research summary posted September 19, 2013 by Jennifer M Mueller-Phillips, tagged 05.0 Audit Team Composition, 05.05 Diversity of Skill Sets e.g., Tenure and Experience, 11.0 Audit Quality and Quality Control, 11.05 Training and General ExperienceTitle:Characteristics of Relatively High-Performance AuditorsPractical Implications:
Auditors who are higher-performing perceive technical knowledge and abilities, client interaction skills, and professional attitudes/behaviors as being important. Prioritizing training in these areas or recruiting new auditors who prioritize these areas may have a beneficial impact to firms. In addition, these auditors rely less on standard audit procedures and perceive that their role can influence the outcome of the audit. Therefore, it may be helpful for firms to emphasize the importance of using standard audit procedures only as a guideline for the audit, as overreliance on these procedures could lead to a lack of professional skepticism. Evaluating prospective hires in terms of their locus of control could also indicate their willingness to be more comfortable in ill-structured tasks and exert more effort on audit tasks.
For more information on this study, please contact Constance McKnight.
Citation:McKnight, C. A. and W. F. Wright. 2011. Characteristics of relatively high-performance auditors. Auditing: A Journal of Practice and Theory 30 (1): 191-206.
- research summary posted April 19, 2017 by Jennifer M Mueller-Phillips, tagged 11.0 Audit Quality and Quality Control, 11.05 Training and General Experience, 15.0 International Matters, 15.01 Audit Partner Identification by NameTitle:Costs and Benefits of Requiring an Engagement Partner Signature: Recent Experience in the United KingdomPractical Implications:
Requiring engagement partners to sign their names to audit reports appears to result in increased audit quality, earnings informativeness, and audit fees, suggesting that the signature requirement emphasizes personal accountability for engagement partners. Requiring the identification of engagement partners in audit reports would likely have similar effects. Thus, there are both costs and benefits that the PCAOB should consider in making its decision regarding partner identification.
For more information on this study, please contact Chan Li: chanli@katz.pitt.edu.
Citation:Carcello, J. V. and C. Li. 2013. Costs and benefits of requiring an engagement partner signature: Recent experience in the United Kingdom. The Accounting Review 88 (5): 1511-1546.
- research summary posted May 31, 2016 by Jennifer M Mueller-Phillips, tagged 11.0 Audit Quality and Quality Control, 11.05 Training and General Experience, 11.07 Attempts to Measure Audit QualityTitle:Do Industry-Specialist Auditors Influence Stock Price Crash Risk?Practical Implications:
This study shows that industry specialists reduce a specific type of risk, stock price crash risk, which has become increasingly important following the Enron scandal and the recent financial market crisis. It also shows that the effects of opacity and conservatism on crash risk are moderated by auditor quality, furthering the emerging literature on the determinants of crash risk.
Citation:Robin, J. Ashok and Hao Zhang. 2015. Do industry-specialist auditors influence stock price crash risk? Auditing: A Journal of Practice and Theory 34 (3): 47-79.
- research summary posted November 5, 2014 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.04 Interactions with Client Management, 11.0 Audit Quality and Quality Control, 11.05 Training and General ExperienceTitle:Do Manages Intend to Use the Same Negotiation Strategies as Partners?Practical Implications:
The findings of this study are important for audit firms to consider when resolving financial reporting issues with client management. The overall pattern of our results illustrates that audit managers and audit partners intend to use different negotiation strategies and, therefore, substituting managers for partners in order to increase audit efficiency may in some contexts undermine audit effectiveness. Indeed, concern is warranted based on these results that suggest that a manager’s intended strategy entering negotiations with client management may be, pending context, substantially different and more client-outcome-oriented than the partners’ intended strategy would be. This could be worrisome for audit partners if they are not aware of negotiations that managers are undertaking on their own while out in the field. From a practice perspective, partners need to be aware of circumstances where managers negotiate with client management, since the tactics employed and potentially the outcomes obtained by the manager may be different than if the partner had been involved. Thus, based on our findings, audit partners may be the more effective negotiators and, thus, will have better negotiated outcomes than less experienced managers.
For more information on this study, please contact Susan McCracken.
Citation:McCracken, S., S.E. Salterio, and R.N. Schmidt. 2011. Do managers intend to use the same negotiation strategies as partners? Behavioral Research in Accounting 23 (1): 131-160.
- research summary posted September 19, 2013 by Jennifer M Mueller-Phillips, tagged 08.0 Auditing Procedures – Nature, Timing and Extent, 08.01 Substantive Analytical Review – Effectiveness, 11.0 Audit Quality and Quality Control, 11.05 Training and General ExperienceTitle:How a Systems Perspective Improves Knowledge Acquisition and Performance in Analytical ProceduresPractical Implications:
This experiment provides evidence that training in a systems perspective could help auditors analyze complex relationships between accounting data. This could be used to set appropriate analytics expectations and, more importantly, provide a credible way to determine whether management’s representations are well-grounded or not. This method also appears to require less mental effort to implement, since it moves the complicated relationship structure out of memory and onto a model. Given the added complexity of many estimates in today’s companies, systematic methods of processing information like a systems perspective may help to simplify the analysis of the estimates.
For more information on this study, please contact Billy Brewster.
Citation:Brewster, B. E. 2011. How a systems perspective improves knowledge acquisition and performance in analytical procedures. The Accounting Review 86 (3), 915-943.
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- 01.0 Standard Setting
- 01.01 Changes in Reporting Formats
- 01.02 Changes in Audit Standards
- 01.03 Impact of New Accounting Pronouncements
- 01.04 Impact of 404
- 01.05 Impact of SOX
- 01.06 Impact of PCAOB
- 01.07 Impact of SEC Actions
- 02.0 Client Acceptance and Continuance
- 02.01 Audit Fee Decisions
- 02.02 Client Risk Assessment
- 02.03 Management Integrity Assessments
- 02.04 Predecessor Auditor Factors
- 02.05 Business Risk Assessment - e.g., industry, IPO, complexity
- 02.06 Resignation Decisions
- 03.0 Auditor Selection and Auditor Changes
- 03.01 Auditor Qualifications
- 03.02 Dismissal Decisions – impact of restatements, disagreements, fees, mergers
- 04.0 Independence and Ethics
- 04.01 Scope of Services
- 04.02 Impact of Fees on Decisions by Auditors & Management
- 04.03 Non-Audit Services
- 04.04 Moral Development and Individual Ethics Decisions
- 04.05 Ethics and Consultation
- 04.06 Reporting Ethics Breaches – Self & Others
- 04.07 Audit Firm Rotation
- 04.08 Impact of SEC Rules Changes/SarbOx
- 04.09 Individual & Team Conduct - e.g., premature signoff, underreporting hours
- 05.0 Audit Team Composition
- 05.01 Use of Specialists e.g., financial instruments, actuaries, valuation
- 05.02 Industry Expertise – Firm and Individual
- 05.03 Partner Rotation
- 05.04 Staff Hiring, Turnover and Morale
- 05.05 Diversity of Skill Sets e.g., Tenure and Experience
- 05.06 Qualifications of Engagement Quality Reviewers
- 05.07 Impact of 150-hour requirement
- 05.08 Impact of Office Size
- 05.09 Group Decision-Making
- 05.10 Impact of Diversity - e.g., gender - on Group Decision Making
- 06.0 Risk and Risk Management, Including Fraud Risk
- 06.01 Fraud Risk Assessment
- 06.02 Fraud Risk Models
- 06.03 Failure Risk Models
- 06.04 Management Integrity
- 06.05 Assessing Risk of Material Misstatement
- 06.06 Earnings Management
- 06.07 SAS No. 99 Brainstorming – process
- 06.08 SAS No. 99 Brainstorming – effectiveness
- 06.09 Litigation Risk
- 06.10 Impact of office size
- 07.0 Internal Control
- 07.01 Scope of Testing
- 07.02 Assessing Material Weaknesses
- 07.03 Reporting Material Weaknesses
- 07.04 Assessing Remediation of Weaknesses
- 07.05 Impact of 404 on Fees and Financial Reporting Quality
- 08.0 Auditing Procedures – Nature, Timing and Extent
- 08.01 Substantive Analytical Review – Effectiveness
- 08.02 Sample Selection – use of statistical sampling
- 08.03 Conclusions Based on Samples
- 08.04 Auditors’ Professional Skepticism
- 08.05 Evaluating Accruals/Detection of Abnormal Accruals
- 08.06 Earnings Management – Detection and Response
- 08.07 Interim Testing Procedures – Nature, Timing and Extent
- 08.08 Projecting Interim Testing Conclusions Year End
- 08.09 Impact of Technology on Audit Procedures
- 08.10 Confirmation – Process and Evaluation of Responses
- 08.11 Reliance on Internal Auditors
- 09.0 Auditor Judgment
- 09.01 Audit Scope and Materiality Judgments
- 09.02 Documentation Specificity
- 09.03 Adequacy of Evidence
- 09.04 Going Concern Decisions
- 09.05 Failure Risk Models
- 09.06 Adequacy of Disclosure
- 09.07 GAAP Departures
- 09.08 Evaluation of Errors – Statistical and Non-statistical
- 09.09 Impact of Consultation on Judgments
- 09.10 Prior Dispositions/Biases/Auditor state of mind
- 09.11 Auditor judgment in the workpaper review process
- 09.12 Impact of potential post-audit review - e.g., PCAOB, internal firm inspections
- 09.13 Recognition vs. Disclosure
- 10.0 Engagement Management
- 10.01 Budgeting and Audit Time Management
- 10.02 Materiality and Scope Decisions
- 10.03 Interaction among Team Members
- 10.04 Interactions with Client Management
- 10.05 Interactions with Audit Committee Members
- 10.06 Audit Fees and Fee Negotiations
- 11.0 Audit Quality and Quality Control
- 11.01 Supervision and Review – Effectiveness
- 11.02 Engagement Quality Review – Processes and Effectiveness
- 11.03 Management/Staff Interaction
- 11.04 Industry Experience
- 11.05 Training and General Experience
- 11.06 Working Paper Review – Conduct, Biases and Predispositions
- 11.07 Attempts to Measure Audit Quality
- 11.08 Proxies for Audit Quality
- 11.09 Evaluation of Evidence
- 11.10 Impact of Quality Reviewers
- 11.11 Impact of Firm and External Inspection Programs
- 11.12 Impact of National Office on Auditor Decisions
- 11.13 Partner incentive schemes
- 12.0 Accountants’ Reports and Reporting
- 12.01 Going Concern Decisions
- 12.02 Quarterly Reviews
- 12.03 Restatements
- 12.04 Investigations
- 12.05 Changes in Reporting Formats
- 12.06 Consequences of Adverse 404 Opinions
- 12.07 Attestation Services
- 13.0 Governance
- 13.01 Board/Audit Committee Composition
- 13.02 Board/Financial Experts
- 13.03 Board/Audit Committee Tenure
- 13.04 Board/Audit Committee Compensation
- 13.05 Board/Audit Committee Oversight
- 13.06 Board/Audit Committee Processes
- 13.07 Internal auditor role and involvement in controls and reporting
- 14.0 Corporate Matters
- 14.01 Earnings Management
- 14.02 Corporate Whistle Blowers
- 14.03 Interim Reporting
- 14.04 MD and A Language/Signaling
- 14.05 Earnings Targets and Management Behavior
- 14.06 CFO Tenure and Experience
- 14.07 Executive Compensation
- 14.08 Press Release Language and Signaling
- 14.09 CEO Tenure and Experience
- 14.10 CEO Compensation
- 14.11 Audit Committee Effectiveness
- 15.0 International Matters
- 15.01 Audit Partner Identification by Name
- 15.02 IFRS Changes – Impacts
- 15.03 Audit Partner Rotation
- 15.04 Audit Firm Rotation
- 15.05 Sustainability Services