Auditing Section Research Summaries Space

A Database of Auditing Research - Building Bridges with Practice

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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).

  • Jennifer M Mueller-Phillips
    The effects of disclosure type and audit committee expertise...
    research summary posted October 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, 14.05 Earnings Targets and Management Behavior, 14.11 Audit Committee Effectiveness 
    Title:
    The effects of disclosure type and audit committee expertise on Chief Audit Executives’ tolerance for financial misstatements.
    Practical Implications:

    The results suggest that internal auditors contribute to decreased reliability of disclosed amounts. It appears that the incentives of external auditors and internal auditors are closely aligned on this issue. In general, both of these parties seem to feel less responsibility for disclosed, relative to recognized amounts. The results indicate that financial reporting location has significant effects on internal auditors’ decisions to correct misstatements. Specifically, internal auditors are more willing to waive disclosed misstatements relative to recognized misstatements. Contrary to expectations, the results do not indicate that increased audit committee expertise and associated increases in audit committee members’ perceived powers cause internal auditors to be less willing to waive misstatements.

    Citation:

    Norman, C. S., J. M. Rose, and I. S. Suh. 2011. The effects of disclosure type and audit committee expertise on Chief Audit Executives’ tolerance for financial misstatements. Accounting, Organizations & Society 36 (2): 102-108.

  • 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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  • Jennifer M Mueller-Phillips
    The Efficacy of Shareholder Voting in Staggered and...
    research summary posted July 18, 2016 by Jennifer M Mueller-Phillips, tagged 13.0 Governance, 13.05 Board/Audit Committee Oversight, 14.0 Corporate Matters, 14.11 Audit Committee Effectiveness 
    Title:
    The Efficacy of Shareholder Voting in Staggered and Non-Staggered Boards: The Case of Audit Committee Elections
    Practical Implications:

     This study contributes to the accounting landscape in many different ways. First, the results suggest that, through voting and differentiating between AC and non-AC directors, shareholders can influence the AC’s oversight over financial reporting. Second, the study complements previous research on similar topics by showing that dissatisfaction with AC members is also associated with subsequent turnover of accounting financial experts and that low auditor ratification and AC votes are both associated with a reduction in auditor-provided tax services. Finally, the results show that going forward all studies examining the efficacy of shareholder votes should separately consider staggered and non-staggered boards.

    Citation:

     Gal-Or, R., Hoitash, R., and Hoitash U. 2016. The Efficacy of Shareholder Voting in Staggered and Non-Staggered Boards: The Case of Audit Committee Elections. Auditing: A Journal of Practice and Theory 35 (2): 73-95.

  • Jennifer M Mueller-Phillips
    The influence of director stock ownership and board...
    research summary posted September 16, 2015 by Jennifer M Mueller-Phillips, tagged 13.0 Governance, 13.04 Board/Audit Committee Compensation, 14.0 Corporate Matters, 14.01 Earnings Management, 14.11 Audit Committee Effectiveness 
    Title:
    The influence of director stock ownership and board discussion transparency on financial reporting quality.
    Practical Implications:

    Understanding why stock ownership can bias directors’ objectivity, and examining how board discussion transparency can yield differential effects for stock-owning and non-stock-owning directors makes it possible to anticipate the effects of increased board transparency on earnings management and directors’ decisions. The notion of increased board discussion transparency is valid in the current environment in which shareholders are pushing for “constituency board seats” because information leaks surrounding board discussions likely will result when constituent directors report back to their shareholder groups. Hence, if controversial boardroom discussions are eventually divulged to the public, the findings suggest that directors’ judgments and decisions will be influenced by knowledge of increased board transparency.

    Citation:

    Rose, J. M., C. R. Mazza, C. S. Norman, and A. M. Rose. 2013. The influence of director stock ownership and board discussion transparency on financial reporting quality. Accounting, Organizations & Society 38 (5): 397-405.

  • Jennifer M Mueller-Phillips
    The Interplay of Management Incentives and Audit Committee...
    research summary posted November 15, 2016 by Jennifer M Mueller-Phillips, tagged 13.0 Governance, 13.05 Board/Audit Committee Oversight, 14.0 Corporate Matters, 14.11 Audit Committee Effectiveness 
    Title:
    The Interplay of Management Incentives and Audit Committee Communication on Auditor Judgment
    Practical Implications:

    This study indicates that increasing the frequency of informal communication between the audit committee and the audit team can positively impact reporting quality, but auditors need to be sensitized to how management may exhibit undue influence and its potential to undermine audit committee effectiveness. From a practical standpoint, this study indicates that failing to consider specific expectations communicated by the audit committee can have severe consequences.

    Citation:

    Brown, J. O. and V. K. Popova. 2016. The Interplay of Management Incentives and Audit Committee Communication on Auditor Judgment.  Behavioral Research in Accounting 28 (1): 27-40.

  • 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
    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
    When Do Ineffective Audit Committee Members Experience...
    research summary posted August 30, 2016 by Jennifer M Mueller-Phillips, tagged 13.0 Governance, 13.03 Board/Audit Committee Tenure, 13.05 Board/Audit Committee Oversight, 14.0 Corporate Matters, 14.11 Audit Committee Effectiveness 
    Title:
    When Do Ineffective Audit Committee Members Experience Turnover?
    Practical Implications:

     Preserving an image of effective monitoring can be just as important as preserving effective monitoring itself. AC-member ineffectiveness due to financial reporting increases the likelihood of AC turnover for both the AC-members who served during the events precipitating the financial reporting failure as well as the “tainted” AC-members (even if they were not serving as AC-members when the events precipitating the financial reporting failure occurred). This result shows that shareholders may take bold and visible actions to “clean house” when such financial reporting failures are revealed. Regarding individual characteristics, under normal circumstances characteristics of an AC-member’s potential ineffectiveness such as multiple board commitments may actually be seen as desirable by shareholders perhaps signaling the quality of the AC-member. However, when shareholder dissent increases these individual characteristics of an AC-member’s potential ineffectiveness increases the likelihood of turnover for that particular AC-members but does not “taint” the other AC-members. That is, characteristics once viewed as slightly positive for specific AC-members become negatives when shareholder dissent increases.

    Citation:

     Kachelmeier, S. J., S. J. Rasmussen, and J. J. Schmidt. 2016. When Do Ineffective Audit Committee Members Experience Turnover?. Contemporary Accounting Review 33 (1): 228-260.

  • 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.

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