Auditing Section Research Summaries Space

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  • Jennifer M Mueller-Phillips
    Worlds of Assurance.
    research summary posted October 19, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 04.0 Independence and Ethics 
    Title:
    Worlds of Assurance.
    Practical Implications:

    It is difficult for the authors to constrain the boundaries of what one can learn from a contrastive and in-depth study of this portfolio of papers for developing new theoretical insights and testable conjectures pertaining to both today’s and tomorrow’s accountant-auditors. For that reason, the authors are confident readers will share their desire to thank the authors of the main papers as well as the authors of the commentaries for their thoughtful analyses.

    Citation:

    Chapman, C, and M. E. Peecher. 2011. Worlds of Assurance. Accounting, Organizations & Society 36 (4/5): 267-268.

    Keywords:
    auditing, assurance providers, independence, professional judgement
    Purpose of the Study:

    The three main articles and the commentaries that comprise this special section of the journal help to momentarily divorce concepts of auditing and assurance from financial statement accounting. In doing so the reader may learn lessons via analogy and counterfactual reasoning through studying how they manifest in other substantive domains. By directing the attention elsewhere, these articles and commentaries simultaneously help the reader contemplate a range of ways that assurance and auditing are likely to evolve over time within so-called accounting domains, only some of which appear to resemble the domain of financial statement accounting.

    Design/Method/ Approach:

    This article is an editorial.

    Findings:

    Readers of this section are invited to collectively consider significant attributes of assurance providers, such as their independence and professional judgment skills. This portfolio of articles also helps to focus attention on attributes of the context in which assurance providers operate, and, on which the demand for assurance endogenously arises in the global economy. The reader learns that across assurance and audit domains, assurance professionals themselves can bring context to help interpret evidence amassed in any one audit.

    Category:
    Independence & Ethics, Standard Setting
  • The Auditing Section
    “Order Effects” Revisited: The Importance of Chronology
    research summary posted April 13, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.04 Going Concern Decisions 
    Title:
    “Order Effects” Revisited: The Importance of Chronology
    Practical Implications:

    The results of this study are important for auditors to consider when making going concern assessments as well as other audit judgments.  Specifically, auditors should consider the importance of establishing the chronological order of audit evidence to avoid presentation order effects inappropriately influencing their judgments

    Citation:

    Favere-Marchesi, M. 2006. “Order Effects” Revisited: The Importance of Chronology. Auditing: A Journal of Practice and Theory
    25 (1): 69-83.

    Keywords:
    going concern, chronology, temporal order, presentation order, order effects, trend effect
    Purpose of the Study:

    Going-concern assessments are an important part of the audit process because inaccurate going-concern assessments may have severe economic consequences for both auditors and clients.  However, prior research shows that the presentation order of audit evidence unduly influences auditors’ going concern assessments leading to larger differences of opinion among auditors reviewing the same evidence, albeit in a different order.  This is important because audit evidence is not always uncovered in chronological order. No prior research study has attempted to separate the presentation order of evidence from the chronological order of evidence.  This paper addresses these concerns by investigating whether the chronological trends in the evidence (trend effects) overcome influences of the order of presentation (order effects).

    Design/Method/ Approach:

    The research evidence was collected prior to March 2004.  The author uses a sample of audit partners and senior managers from the six largest audit firms in the United States to complete a simulated task involving a going concern assessment for a manufacturer and marketer of teleconference hardware and software.  Participants made going concern assessments after reading background material and after reviewing each of four pieces of positive and negative audit evidence related to the going concern decision.  The author varied the presentation order of the negative and positive evidence as well as the chronological order of the evidence such that in some cases the presentation and chronological order matched in others a mismatch occurred.  The author also utilized two presentation orders with undated evidence.

    Findings:
    • The author finds that auditors display the same recency effects when presented with undated evidence as when presented with evidence in chronological order, suggesting that auditors infer chronological order from the order of presentation.  
    • When the presentation order of evidence is inconsistent with the chronological order, chronological trend effects substantially reduce presentation order effects.  This implies that auditors appropriately place more weight on chronological trends in a client’s viability than on mere presentation order of evidence.
    Category:
    Auditor Judgment
    Sub-category:
    Going Concern Decisions, Going Concern Decisions
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  • Jennifer M Mueller-Phillips
    “Twisting words”? A study of the construction and rec...
    research summary posted July 27, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards 
    Title:
    “Twisting words”? A study of the construction and reconstruction of reliability in financial reporting standard-setting.
    Practical Implications:

    First, the authors present a long-term case study of the development of the idea of reliability in accounting literature and standard-setting which adds to histories of conceptual thinking in financial reporting. Hence, by following the decision-making of the standard setting bodies regarding the qualitative characteristics of their framework, this paper contributes to the scarce empirical literature on actual processes of standard-setting in accounting.

    Citation:

    Erb, C., & Pelger, C. (2015). “Twisting words”? A study of the construction and reconstruction of reliability in financial reporting standard-setting. Accounting, Organizations & Society 40: 13-40.

    Keywords:
    standard setting, reliability, representational faithfulness
    Purpose of the Study:

    Qualitative characteristics serve to operationalize the objective of financial reporting and aim at shaping accounting discourses of standard-setters and their constituents. In the recent revision of their conceptual frameworks, the IASB and FASB decided to replace reliability”, arguably one of the most important properties of accounting, with ‘”representational faithfulness”. Although the boards considered the move to representational faithfulness to be a change in terms rather than in substance, simply reflecting a better terminology of the boards’ understanding, the boards’ constituents were heavily opposed to this alteration. The aim of the present paper is to shed light on the boards’ decision through a historical analysis of how reliability appeared in standard-setting and by tracing its abandonment in detail. In this paper the authors show that the construction and reconstruction of reliability followed from the standard-setters’ aim to extend the boundaries of appropriate financial reporting by changing conceptual language.

    Design/Method/ Approach:

    For this historical study, the authors examined official pronouncements, studies and other publications by professional institutions (AICPA) and research committees (AAA) in the US. They also carried out a thorough manual search of accounting journals for articles and other contributions concerning qualitative characteristics. The latter task was independently performed by both authors. The journals examined were Journal of Accountancy [19601985], Journal of Accounting Research [19631980] and The Accounting Review [19601980], the leading professional and academic accounting journals during that time. In total, the authors identified 36 relevant articles, seven monographs, two contributions from a collected edition and one statement from an institution formally in charge of standard-setting.

    Findings:

    Reliability was constructed in stand setters’ previous frameworks as a compromise between the traditional (evolutionary) practitioner idea embodied in the concept of verifiability and more recent academic notions of faithful representation. As constituents continuously ignored the faithful representation part of reliability and repeatedly used their understanding along the lines of verifiability to dismiss fair value accounting, the standard-setters reconstructed reliability to establish a single focus on faithful representation. However, the standard-setters’ attempt to alter traditional practical understandings by using ever higher levels of abstraction led to very different views among constituents and board members about what “faithful representation” means and what it implies. Hence, the standard-setters ‘construction and reconstruction of “reliability” against traditional understandings of verifiability by employing ever higher (more academic) levels of abstraction appears to be a permanently failing project.

    More specifically, the authors reveal that some board and staff members pressed the change towards faithful representation to eliminate a major hindrance to the expansion of fair value accounting. These actors’ ultimate success was due to confusion amongst and indifference by other board members as well as the strong position of the staff in pushing the change. The intensive public consultation carried out by the boards paradoxically served to decouple the standard-setters’ world from everyday accounting practice.

    Category:
    Standard Setting
    Sub-category:
    Changes in Audit Standards
  • Jennifer M Mueller-Phillips
    “When You Make Manager, We Put A Big Mountain In Front Of Y...
    research summary posted October 31, 2013 by Jennifer M Mueller-Phillips, tagged 05.0 Audit Team Composition, 05.04 Staff Hiring, Turnover and Morale, 10.0 Engagement Management, 10.03 Interaction among Team Members, 10.04 Interactions with Client Management 
    Title:
    “When You Make Manager, We Put A Big Mountain In Front Of You”: An Ethnography Of Managers In A Big 4 Accounting Firm
    Practical Implications:

    This study points out the paradox that managers find themselves in as they struggle to manage relationships with staff, partners, and clients while simultaneously engaging in non-client productive activities in order to gain notoriety in the firm and impress the partners. The “mountain” referred to in the title of this article represents the different and unpredictable obstacles that managers must overcome in order to reach the other side of their career; partnership.

    For more information on this study, please contact Martin Kornberger.
     

    Citation:

    Kornberger, M., L. Justensen, and J. Mourtsen.2011. When you make manager, we put a big mountain in front of you: an ethnography of managers in a big 4 accounting firm. Accounting, Organizations and Society 36 (8): 514-533.

    Purpose of the Study:

    The “missing link” between trainee accountants and their senior employees, i.e. partners is the manager. This article suggests that becoming a manager is a rite of passage with two main effects:

    • Destabilization of the manager’s previous identity.
    • Shaping of the new identity as a manager through a set of new practices.

    The authors address the important, yet under-researched, role of the manager through an ethnographic analysis of their fundamental transition from junior trainees to potential partners in the context of a Big 4 Firm. This analysis outlines how managers in a complex network balance being an efficient client manager while also being a good team and time manager; additionally, how managers generate visibility to develop a “fame agenda” is addressed.

    Design/Method/ Approach:

    The authors collaborated with a Big 4 Firm to gather the data.  The data consisted of four sources of empirical materials. First, the Big 4 Firm’s website, newsletters, and other publicly accessible materials were analyzed along with confidential internal documents including employee satisfaction surveys, performance reports, change management surveys, exit surveys, and employment statistics. Second, the research team performed un-obtrusive on site observation including participating in meetings, planning sessions, client site visits, and other internal gatherings. Third, they conducted semi-structured interviews with 17 employees from different divisions of the organization and included partners, managers, and directors. Fourth, researchers shadowed 7 organizational members, managers and directors, for one working day each. The empirical research for this study was conducted between January 2005 and September 2006. However, a second round of interviews with senior executives was conducted from mid- 2009 until May 2010. An ethnographic approach was deemed the most appropriate method to allow researchers to focus on real data from many sources.

    Findings:
    • Managers must manage relationships with junior staff which involves acting as a mentor, a supervisor, a nurturer, and also as a person responsible for reviewing work and providing feedback.
    • Managing client relationships is another key role for a manager. This role involves adjusting behavior towards the client according to the hierarchical position of the client representative as well as handling relationships with global and local clients differently. Relationships with higher ranked representatives and with local clients are more nurtured because of the increased influence that these clients have when deciding to keep the Big 4 Firm as the auditor. Additionally, managers have to find a way to use clients as a vehicle for self-promotion.
    • Managers also have to be able to manage partner relationships. Managers must begin to show interests in different aspects of the firm to impress the partners who are ultimately responsible for the future of the managers. Managers must be able to handle the uncertainty that comes with a partner that can override any and all of a manager’s decisions.
    • However, one of the most important things that managers must be able to do has no technical relevance at all; it is to become visible to the firm. Managers must find time to get involved with firm initiatives in order to essentially gain popularity and increase their chances for promotion. This is referred to in the article as developing a “fame agenda”.
       
    Category:
    Audit Team Composition, Engagement Management
    Sub-category:
    Interaction among Team Members, Interactions with Client Management, Staff Hiring - Turnover & Morale

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