Auditing Section Research Summaries Space

A Database of Auditing Research - Building Bridges with Practice

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  • The Auditing Section
    Client Importance, Institutional Improvements, and Audit...
    research summary last edited November 8, 2012 by Judy Cothern, tagged 04.0 Independence and Ethics, 04.02 Impact of Fees on Decisions by Auditors & Management, 12.0 Accountants’ Reports and Reporting, 12.01 Going Concern Decisions, 15.0 International Matters, 15.01 Audit Partner Identification by Name 
    Title:
    Client Importance, Institutional Improvements, and Audit Quality in China: An Office and Individual Auditor Level Analysis
    Practical Implications:

    This study uses engagement-level audit partner data, to analyze whether audit quality is driven by client importance at the office- or partner-level.  Overall, the results contribute to evidence showing that investor protection rules and laws at the country-level are associated with engagement-level audit quality.  This indicates the importance of strong investor protection regulations.  These results may be of interest to shareholders and securities market regulators, especially in developing economies, transitional economies, or economies where such regulations are weak.  Additionally, these results may be of interests to auditors in countries with such economies.  Finally, to the extent that audit firms serve clients with investors that receive varying levels of protection (i.e. public vs. private or a “well-known seasoned issuer”), these results may indicate opportunities for such firms to enhance audit requirements for certain non-public engagements. 

    The results of this study also suggest that audit accountability at the individual level makes auditors more sensitive to the costs of audit failure.  This result may have implications for auditor accountability from a regulatory standpoint, as well as an audit firm policy standpoint.

    Citation:

    Chen, S., S. Y. J. Sun, and D. Wu. 2010. Client Importance, Institutional Improvements, and Audit Quality in China: An Office and Individual Auditor Level Analysis. The Accounting Review 85 (1): 127-158.

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  • The Auditing Section
    The Effects of Experience on Complex Problem Representation...
    research summary last edited May 25, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.04 Going Concern Decisions, 12.0 Accountants’ Reports and Reporting, 12.01 Going Concern Decisions 
    Title:
    The Effects of Experience on Complex Problem Representation and Judgment in Auditing: An Experimental Investigation
    Practical Implications:

    The results of this study have implications for training future professionals.  In the classroom problem-solving techniques that more closely resemble the experienced group can be incorporated to advance professionals to the expert level faster.  Further, a stage approach may be more efficient.  This idea incorporates having two “expert systems”, one to move novices to the intermediate level of knowledge more quickly and another to move intermediates up to the level of experts faster. 

    Citation:

    Lehmann, C.M., and C.S. Norman. 2006. The effects of experience on complex problem representation and judgment in auditing: an experimental investigation. Behavioral Research in Accounting 18 (1): 65-83.

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  • The Auditing Section
    Recent Changes in the Association between Bankruptcies and...
    research summary last edited May 25, 2012 by The Auditing Section, tagged 09.04 Going Concern Decisions, 12.0 Accountants’ Reports and Reporting, 12.01 Going Concern Decisions 
    Title:
    Recent Changes in the Association between Bankruptcies and Prior Audit Opinions
    Practical Implications:

    The evidence from this study can beused to support the perspective that the auditing profession is essentially self-correcting in that it seeks to maintain a positive image and control litigation costs.  This has practical implications for regulators and legislators in that these groups should evaluate the extent of the auditing profession’s changed behavior in the post-December 2001 period before promulgating further detailed, prescriptive regulations.  Specifically, this study implies that there are multiple ways to influence auditor behavior in addition to the traditional means of changing laws and auditing standards, such as litigation, harsh media and congressional pressure.  Another source of pressure on auditor behavior, not included in the article, would be the threat of sanctions on firms and individual partners (which arguably becomes more visible in recent years with the presence of PCAOB). Further, this study has implications for regulators and legislators in that it provides evidence that auditors’ increased conservatism did not result in longer audit delays.

    Citation:

    Geiger, M. A., K.
    Raghunandan, and D. V. Rama.  2005.  Recent Changes in the Association between Bankruptcies and Prior Audit Opinions.  Auditing:
    A Journal of Practice and Theory
    24 (1): 21-35.

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  • The Auditing Section
    Independence Threats, Litigation Risk, and the Auditor’s D...
    research summary last edited May 25, 2012 by The Auditing Section, tagged 04.0 Independence and Ethics, 04.02 Impact of Fees on Decisions by Auditors & Management, 09.0 Auditor Judgment, 09.04 Going Concern Decisions, 12.0 Accountants’ Reports and Reporting, 12.01 Going Concern Decisions 
    Title:
    Independence Threats, Litigation Risk, and the Auditor’s Decision Process
    Practical Implications:

    This study is important for audit firms and audit regulators, as it provides a more complete picture of how threats to auditor independence and litigation risk affect auditor performance. Rather than just focusing on the auditor’s final decision, this study demonstrates that the above incentives affect auditors through their evaluation of information during the decision process. Therefore, firms and regulators may be interested in research that specifically addresses processing biases. This research advocates using decision aids, such as artificial neural networks, to attenuate processing bias. Accountability-inducing controls, like those promoted by audit documentation standards, are unlikely to achieve this goal. Further, reviews conducted by individuals within the same firm are less likely to detect process bias. Review by independent parties, such as an audit committee, would likely be more effective.

    Citation:

    Blay, A.D. 2005. Independence Threats, Litigation Risk, and the Auditor’s Decision Process. Contemporary Accounting Research 22 (4): 759-789.

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