Auditing Section Research Summaries Space

A Database of Auditing Research - Building Bridges with Practice

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  • The Auditing Section
    A Model and Literature Review of Professional Skepticism in...
    research summary posted April 23, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind 
    Title:
    A Model and Literature Review of Professional Skepticism in Auditing
    Practical Implications:

    Professional skepticism is an integral component of auditing and audit quality, as evidenced by standards such as SAS 1 and SAS 109.  Regulators often refer to professional skepticism as something that was missing when audit failures occur.  Thus, understanding what factors influence auditors’ levels of professional skepticism is important.  The author contends that this study facilitates an understanding of how audit firms can influence professional skepticism in practice via changes in such practices as hiring, training, performance appraisal, review, decision aids, incentives, and changes in tasks and institutions. 

    Citation:

    Nelson, M. W. 2009. A Model and Literature Review of Professional Skepticism in Auditing.  Auditing: A Journal of Practice & Theory 28 (2): 1-34.

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  • Jennifer M Mueller-Phillips
    A Perspective on the PCAOB - Past and Future.
    research summary posted July 21, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.05 Impact of SOX, 01.06 Impact of PCAOB 
    Title:
    A Perspective on the PCAOB - Past and Future.
    Practical Implications:

    The quality of the firm performing the audit is important but must be viewed through the perspective of a specific engagement team and a specific set of circumstances. Information supplied by the PCAOB is one component of the evaluation of the likelihood that an engagement team will perform a quality audit and of specific areas of audit practice where deficiencies have been identified. In the end, however, issues of independence, auditor rotation, industry competence, attention to the work, and all the other important aspects of audit quality must be monitored by the audit committee at the engagement level in the context of the specific engagement.

    Citation:

    Wedemeyer, P. D. 2014. A Perspective on the PCAOBPast and Future. Accounting Horizons 28 (4): 937-947.

  • Jennifer M Mueller-Phillips
    A Post-SOX Examination of Factors Associated with the Size...
    research summary posted October 31, 2013 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.05 Impact of SOX, 05.0 Audit Team Composition, 05.04 Staff Hiring, Turnover and Morale, 13.0 Governance, 13.01 Board/Audit Committee Composition 
    Title:
    A Post-SOX Examination of Factors Associated with the Size of Internal Audit Functions
    Practical Implications:

    This study provides insights that should be useful for CAEs and boards of directors (or audit committees) in discussions related to (1) internal audit philosophy regarding its potential contributions to an organization, (2) alternative staffing models, (3) resource allocation, and (4) embracement of audit technology. The study could also help guide external auditors’ evaluation of client internal audit functions. The authors find that the mission of internal audit functions differs from organization to organization. Additionally, the results suggest that internal audit functions used for leadership development purposes (i.e., a rotational staffing strategy) are larger, presumably because the staff have less experience and staff are rotating in and out of the department more frequently. Finally, these findings help illustrate the importance of internal audit proving that it is ‘‘value added’’ to the organization. Management and audit committees are often looking for more than financial statement compliance, and those internal audit functions that have responded to these greater needs are rewarded with more resources, likely because they are perceived to deliver more value.

    For more information on this study, please contact Karla Johnstone.
     

    Citation:

    Anderson, U. L., M. H. Christ, K. M. Johnstone, and L. E. Rittenberg. 2012. A Post-SOX Examination of Factors Associated with the Size of Internal Audit Functions. Accounting Horizons 26(2): 167-191

  • Jennifer M Mueller-Phillips
    A Reexamination of Audit Fees for Initial Audit Engagements...
    research summary posted December 3, 2014 by Jennifer M Mueller-Phillips, tagged 02.0 Client Acceptance and Continuance, 02.01 Audit Fee Decisions, 03.0 Auditor Selection and Auditor Changes, 03.02 Dismissal Decisions – impact of restatements, disagreements, fees, mergers, 04.0 Independence and Ethics 
    Title:
    A Reexamination of Audit Fees for Initial Audit Engagements in the Post-SOX Period
    Practical Implications:

    The results of the study strongly suggest that initial-year audit discounts are quite common and substantial in the post-SOX period. Although the existence of lowballing seems to be a threat to independence, at least in appearance, the existing research on lowballing provides mixed results on its impact on audit quality. The findings will likely be of interest to the PCAOB as it searches for ways to bolster auditor independence and other regulators because many, including the GAO, believe that without non-audit service fees, auditors are less likely to offer ‘‘loss-leader’’ fees for audits.

    For more information on this study, please contact Rosemond Desir.

    Citation:

    Desir, R., J. R. Casterella, and J. Kokina. 2014. A Reexamination of Audit Fees for Initial Audit Engagements in the Post-SOX Period. Auditing: A Journal of Practice & Theory 33 (2):  59-78

  • The Auditing Section
    A Reexamination of Behavior in Experimental Audit Markets:...
    research summary posted May 4, 2012 by The Auditing Section, tagged 04.0 Independence and Ethics, 04.02 Impact of Fees on Decisions by Auditors & Management, 04.04 Moral Development and Individual Ethics Decisions 
    Title:
    A Reexamination of Behavior in Experimental Audit Markets: The Effects of Moral Reasoning and Economic Incentives on Auditor Reporting and Fees
    Practical Implications:

    These findings suggest that auditors with lower moral reasoning scores (i.e., who tend to cooperate with close allies, but tend to be less cooperative with other parties) might in some cases better adhere to the profession’s duties.  Auditors with higher moral reasoning scores (i.e., who tend to view norms and rules as flexible and interpret them depending on a situation) are more likely to depart from auditing conventions and cooperate with others to their mutual benefit.  There have been similar findings, i.e. contrary to what we might expect in relation to moral reasoning, in other research settings.

    Citation:

    Schatzberg, J. W., G. R. Sevcik, B. P. Shapiro, L. Thorne, and R. S. O. Wallace. 2005. A reexamination of behavior in experimental audit markets: The effects of moral reasoning and economic incentives on auditor reporting and fees. Contemporary Accounting Research 22 (1): 229-264.

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  • The Auditing Section
    A Review and Integration of Empirical Research on...
    research summary posted April 13, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.01 Audit Scope and Materiality Judgments, 10.0 Engagement Management, 10.02 Materiality and Scope Decisions 
    Title:
    A Review and Integration of Empirical Research on Materiality: Two Decades Later
    Practical Implications:

    The results of the studies documented in this review suggest that there is a great deal of variability in the approaches taken by firms for establishing materiality. Such differences in materiality methods can affect both the effectiveness and efficiency of audits. For example, if firms differ in how they allocate materiality to financial statement accounts, then the scope of the work could differ across audits with similar characteristics. Auditors also appear to differ in terms of the factors they consider for determining the materiality of internal control weaknesses, suggesting that auditors may need more structured criteria to make materiality judgments about internal control weaknesses. Materiality judgments are influenced by authoritative guidance, suggesting that standard setters and audit firms have the ability to influence auditors’ materiality judgments by providing auditors with specific guidance.

    Citation:

    Messier, Jr., W.F., N. Martinov-Bennie, and A. Eilifsen. 2005. A review and integration of empirical research on materiality: Two decades later. Auditing: A Journal of Practice and Theory 24 (2): 153-187.

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  • Jennifer M Mueller-Phillips
    A Review and Model of Auditor Judgments in Fraud-Related...
    research summary posted October 22, 2013 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.01 Fraud Risk Assessment, 06.02 Fraud Risk Models 
    Title:
    A Review and Model of Auditor Judgments in Fraud-Related Planning Tasks
    Practical Implications:

    The primary implication of the model based on the literature is that simply because auditors may assess fraud risk at a higher level due to the presence of risk factors, it does not necessarily mean that planned audit procedures designed to address these risks will be effective.  Although being aware of fraud risk is necessary to respond appropriately, being aware of only general risk factors makes it difficult for auditors to formulate possible fraud schemes that a client may perpetrate.  As a result, audit plans designed to respond to general fraud risks tend to increase the extent of testing, but do not alter the nature of the testing in a way that would be more likely to catch fraud.  If auditors identify specific situational cues and are able to generate a plausible fraud scheme as a result, more effective tests that alter the nature of the procedures can be identified and carried out.  Therefore, knowledge of fraud risks via experience or training, particularly for risks specific to a client or industry, will help to allow generation of plausible fraud schemes and the design of effective tests.

    For more information on this study, please contact Jacqueline Hammersley.
     

    Citation:

    Hammersley, J. S. 2011. A Review and Model of Auditor Judgments in Fraud-Related Planning Tasks. Auditing: A Journal of Practice & Theory 30 (4), 101-128.

  • Jennifer M Mueller-Phillips
    A Risk Model to Opine on Internal Control.
    research summary posted October 19, 2015 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.02 Fraud Risk Models, 06.05 Assessing Risk of Material Misstatement, 07.0 Internal Control, 07.02 Assessing Material Weaknesses, 07.03 Reporting Material Weaknesses 
    Title:
    A Risk Model to Opine on Internal Control.
    Practical Implications:

    The auditor needs a different model for audits of internal control. The auditor needs to apply two different models in an integrated audit, the original model for the opinion on the financial statements and a different model for the opinion on internal controls.

    The author believes standard setters should sponsor research on an appropriate risk model for audits of internal control. Even before the research is completed, the standards could be enhanced in the following ways:
    • indicate that the original audit risk model is intended for use only in financial statement audits, not internal control audits;
    • write standards that consistently use risk terminology and are clear as to which risk they are discussing; and
    • provide guidance on the use of models in integrated audits.

    Citation:

    Akresh, A. D. 2010. A Risk Model to Opine on Internal Control. Accounting Horizons 24 (1): 65-78.

  • Jennifer M Mueller-Phillips
    A Summary of Research and Enforcement Release Evidence on...
    research summary posted March 31, 2016 by Jennifer M Mueller-Phillips, tagged 08.0 Auditing Procedures – Nature, Timing and Extent, 08.10 Confirmation – Process and Evaluation of Responses 
    Title:
    A Summary of Research and Enforcement Release Evidence on Confirmation Use and Effectiveness.
    Practical Implications:

    The review of AAERs identified failure to authenticate responses, collusion between auditee management and customers, and concealed side agreements and special terms as specific problem areas. These findings have several implications for standard setters, practitioners, and academic researchers. First is a need to improve response rates, as well as authenticate responses. Technology, perhaps involving third-party intermediaries, can help address these issues. Second, depending on the circumstances and identified risks, auditors may need to confirm the existence of side agreements and special terms. Auditors may also need to consider the possibility of collusion in their testing strategies. In addition, confirmation requirements may need to be extended to other accounts, at least in some circumstances.

    Citation:

    Caster, P., R. J. Elder, and D. J. Janvrin. 2008. A Summary of Research and Enforcement Release Evidence on Confirmation Use and Effectiveness. Auditing: A Journal of Practice & Theory 27 (2): 253-279.

  • Jennifer M Mueller-Phillips
    A Summary of Research on External Auditor Reliance on the...
    research summary posted February 16, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.05 Impact of SOX, 07.0 Internal Control 
    Title:
    A Summary of Research on External Auditor Reliance on the Internal Audit Function
    Practical Implications:

    Regulators should draft regulations and oversee the profession in such a way that reflects an understanding of the complex environment in which practitioners are making reliance decisions. Standard setters, both domestic and international can learn from the cultural and jurisdictional nuances of different countries, which will facilitate appropriate internal audit reliance as corporations continue to have multi-national presences. Practitioners can benefit from the study by utilizing the review to improve upon their reliance decision frameworks.

    For more information on this study, please contact Chad Stefaniak.

    Citation:

    Bame-Aldred, C. W., D. M. Brandon, W. F. Messier, Jr., L. E. Rittenberg, and C. M. Stefaniak. 2013. A Summary of Research on External Auditor Reliance on the Internal Audit Function. Auditing: A Journal of Practice and Theory 32 (Supplement 1): 251-286

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