Auditing Section Research Summaries Space

A Database of Auditing Research - Building Bridges with Practice

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  • Jennifer M Mueller-Phillips
    How Do Regulatory Reforms to Enhance Auditor Independence...
    research summary posted July 29, 2015 by Jennifer M Mueller-Phillips, tagged 04.0 Independence and Ethics, 04.02 Impact of Fees on Decisions by Auditors & Management, 04.07 Audit Firm Rotation, 14.0 Corporate Matters, 14.11 Audit Committee Effectiveness 
    Title:
    How Do Regulatory Reforms to Enhance Auditor Independence Work in Practice?
    Practical Implications:

    This study sheds light on what underlies decision making in the imperative audit committee responsibility of auditor appointment: nuanced interactions and power asymmetry among management, the audit committee, and auditors. The auditors viewed the CFO as the client and tailored the proposal accordingly. The audit committee will not be effective unless both auditors and audit committee members fundamentally change their mindsets about their respective roles in relation to client management. As large public companies employ multiple Big 4 firm, the viability of severing existing relationships to bring in a truly independent auditor mindset through audit firm rotation is questionable.

    Citation:

    Fiolleau, K., Hoang, K., Jamal, K., & Sunder, S. 2013. How Do Regulatory Reforms to Enhance Auditor Independence Work in Practice? Contemporary Accounting Research 30 (3): 864-890.

  • Jennifer M Mueller-Phillips
    Audit Committee Director-Auditor Interlocking and...
    research summary posted March 2, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.05 Impact of SOX, 13.0 Governance, 13.02 Board/Financial Experts, 14.0 Corporate Matters, 14.11 Audit Committee Effectiveness 
    Title:
    Audit Committee Director-Auditor Interlocking and Perceptions of Earnings Quality
    Practical Implications:

    This study is important to provide an insight into the personal relationships and familiarity between audit committee directors and external auditors in terms of auditor independence. Furthermore, our examination of AC director-auditor interlocking provides a more complete basis for understanding the effectiveness of corporate governance in guarding earnings quality. The results not only support the view that AC director-auditor interlocking positively affects investors’ perception of earnings quality, but also support the regulatory requirement that audit committees include at least one financial expert.

    For more information on this study, please contact Jeng-Fang Chen.

    Citation:

    Chen, J.-F., Y.-Y. Chou, R.-R. Duh, and Y.-C. Lin. 2014. Audit committee director-auditor interlocking and perceptions of earnings quality. Auditing: A Journal of Practice and Theory 33 (4): 41-70

  • Jennifer M Mueller-Phillips
    Who’s Really in Charge? Audit Committee versus CFO Power a...
    research summary posted March 1, 2015 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.06 Audit Fees and Fee Negotiations, 14.0 Corporate Matters, 14.11 Audit Committee Effectiveness 
    Title:
    Who’s Really in Charge? Audit Committee versus CFO Power and Audit Fees
    Practical Implications:

    The results demonstrate the importance of, and tension between, CFO and audit committee power in audit fee negotiations. Our findings suggest CFOs often continue to exert significant influence over audit fees even though contractual responsibility for compensating external auditors resides with the audit committee. These results highlight the importance for auditors to identify the more powerful party when negotiating audit fees with their clients.

    In addition, this study has significant implications for investors who believe current regulations separate management from audit fee negotiations. These regulations may give investors a false sense of security if they assume the audit committee always limits managerial influence during audit fee negotiations.

    For more information on this study, please contact Elaine Mauldin.

    Citation:

    Beck, M. J. and E. Mauldin, 2014. Who’s really in charge? Audit committee versus CFO power and audit fees. The Accounting Review 89 (6): 2057-2085.

  • Jennifer M Mueller-Phillips
    Correlates of Co-Sourcing/Outsourcing of Internal Audit...
    research summary posted February 20, 2015 by Jennifer M Mueller-Phillips, tagged 13.0 Governance, 13.07 Internal auditor role and involvement in controls and reporting, 14.0 Corporate Matters, 14.11 Audit Committee Effectiveness 
    Title:
    Correlates of Co-Sourcing/Outsourcing of Internal Audit Activities
    Practical Implications:

    The primary result that audit committee involvement is significantly and positively associated with “outsourcing” is an important finding that suggests a need for management to pay close attention to the role that audit committee plays in “outsourcing” internal audit activities. The significance of value-added-activities, missing-skill-set, and audit-staff-vacancies on “outsourcing” also require management attention because collectively these three variables indicate trade-offs between acquiring the expertise in-house or “outsourcing” to external service providers.

    For more information on this study, please contact Mohammad Abdolmohammadi

    Citation:

    Abdolmohammadi, M. 2013. Correlates of Co-Sourcing/Outsourcing of Internal Audit Activities. Auditing: A Journal of Practice and Theory 32(3): 69-85.

  • Jennifer M Mueller-Phillips
    Chief Audit Executives Assessment of Internal Auditors’ P...
    research summary posted February 17, 2015 by Jennifer M Mueller-Phillips, tagged 13.0 Governance, 13.07 Internal auditor role and involvement in controls and reporting, 14.0 Corporate Matters, 14.11 Audit Committee Effectiveness 
    Title:
    Chief Audit Executives Assessment of Internal Auditors’ Performance Attributes by Professional Rank and Cultural Cluster
    Practical Implications:

    These results suggest that a generic profile for internal auditors, regardless of industry, may be in order. However, for a small minority of the attributes for which industry may have effects, industry-specific guidance may be appropriate. This conclusion suggests future studies of industry-specific effects for the purpose of developing industry-specific guidance. The IIA’s (2009) Internal Auditor Competency Framework has no industry-specific guidance, and it has indicated that such information will be added when available.

    An interesting finding in the study is that attributes such as financial analysis, research skills, and statistical sampling that have theoretical appeal to the practice of internal auditing were not selected by the CAEs as most important attributes. This result may be an artifact of limiting the selection of the attributes to the top five from each category of behavioral, technical, and competencies. The differences may also be due to the effects of culture.

    For more information on this study, please contact Mohammad J. Abdolmohammadi

    Citation:

    Abdolmohammadi, M.J. 2012. Chief Audit Executives Assessment of Internal Auditors’ Performance Attributes by Professional Rank and Cultural Cluster. Behavioral Research in Accounting 24(1): 1-23.

  • Jennifer M Mueller-Phillips
    Voluntary Adoption of More Stringent Governance Policy on...
    research summary posted November 12, 2014 by Jennifer M Mueller-Phillips, tagged 13.0 Governance, 13.01 Board/Audit Committee Composition, 14.0 Corporate Matters, 14.11 Audit Committee Effectiveness 
    Title:
    Voluntary Adoption of More Stringent Governance Policy on Audit Committees: Theory and Empirical Evidence
    Practical Implications:

    The findings in this study have important policy and practical implications. First, the study provides empirical evidence that firms have incentives to adopt more stringent governance mechanisms voluntarily if doing so is beneficial. The OSC Policy to exempt smaller issues is both effective and efficient in that it encourages the voluntary adoption and it avoids imposing unnecessary compliance costs associated with a one-size-fits-all mandatory compliance policy. Second, the findings in this study provide strong evidence that adopting more stringent audit committees can generate tangible economic benefits in the form of increased firm valuation, lower cost of capital, and improved investment efficiency. It appears that managers in some TSX listed firms may have overlooked these benefits and did not adopt the more stringent audit committee voluntarily before the mandatory adoption date. Finally, the findings in this study provide corroborating evidence that fully independent and financially literature audit committees are more effective than the less stringent ones in monitoring firm investments and in enhancing the quality of accounting information, as implied in our findings. Investors and policy makers should advocate the adoption of more stringent audit committees.

    For more information on this study, please contact either Feng Chen or Yue Li.

    Citation:

    Chen, F., and Y. Li. 2013. Voluntary Adoption of More Stringent Governance Policy on Audit Committees: Theory and Empirical Evidence. The Accounting Review 88 (6): 1939-1969.

  • Jennifer M Mueller-Phillips
    The Role of Firm Status in Appointments of Accounting...
    research summary posted June 7, 2014 by Jennifer M Mueller-Phillips, tagged 04.0 Independence and Ethics, 04.08 Impact of SEC Rules Changes/SarbOx, 13.0 Governance, 13.02 Board/Financial Experts, 14.0 Corporate Matters, 14.11 Audit Committee Effectiveness 
    Title:
    The Role of Firm Status in Appointments of Accounting Financial Experts to Audit Committees
    Practical Implications:

    The primary contribution of this study is finding that status-related concerns can prevent firms from appointing AFEs to their boards. This result has clear implications for regulators, as firms without AFEs are more likely to encounter accounting reporting problems. Specifically, recent regulation changes by the SEC to introduce a more broad definition of “financial expert” may damage the improvement of financial reporting that was intended by SOX. This research is consistent with previous findings that directors’ concerns for firm status and their own welfare can negatively affect accounting reporting quality. 

    Citation:

    Erkens, D. H., and S. E. Bonner. 2013. The Role of Firm Status in Appointments of Accounting Financial Experts to Audit Committees. The Accounting Review 88 (1): 107–136.

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  • Jennifer M Mueller-Phillips
    The Effectiveness of SOX Regulation: An Interview Study of...
    research summary posted April 15, 2014 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.05 Impact of SOX, 07.0 Internal Control, 07.05 Impact of 404 on Fees and Financial Reporting Quality, 14.0 Corporate Matters, 14.11 Audit Committee Effectiveness 
    Title:
    The Effectiveness of SOX Regulation: An Interview Study of Corporate Directors
    Practical Implications:

    A large majority of the directors interviewed for the purpose of this study maintained that, costs aside, SOX had positively impacted the quality of financial reporting. This can be supported by the decline in major frauds since the passage of the Act. On the downside, several directors also noted that SOX had negatively impacted corporate risk taking. Overall, corporate directors were by and large supportive of the SOX regulation. This conclusion runs counter to the typical opposition that corporate America has to any additional regulation.

    For more information on this study, please contact Jeffrey R. Cohen.
     

    Citation:

    Cohen, J. R., C. Hayes, G. Krishnamoorthy, G. S. Monroe, and A. M. Wright. 2013. The Effectiveness of SOX Regulation: An Interview Study of Corporate Directors. Behavioral Research in Accounting 25 (1).

  • The Auditing Section
    The Effects of Trust and Management Incentives on Audit...
    research summary posted May 7, 2012 by The Auditing Section, tagged 13.0 Governance, 13.05 Board/Audit Committee Oversight, 14.0 Corporate Matters, 14.11 Audit Committee Effectiveness 
    Title:
    The Effects of Trust and Management Incentives on Audit Committee Judgments
    Practical Implications:

    The results of this study suggest that the judgments of more trusting audit committee members are largely insensitive to indicators of management’s incentives to manage earnings. It appears that high levels of dispositional trust among members of the board of directors can have serious consequences, and high trust is common among audit committee members.  To overcome this possible concern, boards of directors and audit committees may consider training audit committee members to recognize the relationships between incentives and the likelihood of management deception in order to improve audit committee judgment. 

    Citation:

    Rose, A.M., J.M. Rose, and M. Dibben. 2010. The effects of trust and management incentives on audit committee judgments. Behavioral Research in Accounting 22(2): 87-103.

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  • The Auditing Section
    On the Constitution of Audit Committee Effectiveness
    research summary posted May 3, 2012 by The Auditing Section, tagged 13.0 Governance, 13.06 Board/Audit Committee Processes, 14.0 Corporate Matters, 14.11 Audit Committee Effectiveness 
    Title:
    On the Constitution of Audit Committee Effectiveness
    Practical Implications:

    The results of this study are important for regulators when considering corporate governance processes and governance disclosures.  This study also provides insight into the importance of small events surrounding audit committee meetings, such as members’ style of questioning and insistence on managers swiftly adopting corrective measures to solve problems highlighted in internal audit reports.  The results provide insights into the process with which audit committee attendees define their effectiveness.  The results call into question the effectiveness of recent regulatory attempts to strengthen formal disclosures.

    Citation:

    Gendron,Y., and J. Bédard. 2006. On the constitution of audit committee effectiveness. Accounting, Organizations and Society 31(3):
    211-239.

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