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  • Jennifer M Mueller-Phillips
    Board Independence and Internal Control Weakness: Evidence...
    research summary posted June 22, 2017 by Jennifer M Mueller-Phillips, tagged 01.04 Impact of 404, 07.03 Reporting Material Weaknesses, 13.01 Board/Audit Committee Composition 
    Title:
    Board Independence and Internal Control Weakness: Evidence from SOX 404 Disclosures
    Practical Implications:

    This study examines the effects on internal control weaknesses associated with an independent board of directors. A benefit of having an independent board is the timely remediation of ICWs. This is of high importance because the quicker a material weakness is resolved, the sooner a company can return to normal operations. Another contribution of this study is the discovery of implications regarding Auditing Standard No. 5. The standard changed internal control evaluation to become more holistic and less detailed. This provides the board of directors less tangible information on the status of internal controls.

    Citation:

    Chen, Yangyang, Robert. W. Kechel., V. B. Marisetty, C. Truong, and M. Veeraraghavan.2017. Board Independence and Internal Control Weakness: Evidence from SOX 404 Disclosures. Auditing, A Journal of Practice and Theory 36(21): 45-62.

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  • Jennifer M Mueller-Phillips
    The Effect of Auditing Standard No. 5 on Audit Report Lags.
    research summary posted September 21, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards, 01.04 Impact of 404, 01.05 Impact of SOX, 01.06 Impact of PCAOB, 12.0 Accountants’ Reports and Reporting, 12.06 Consequences of Adverse 404 Opinions 
    Title:
    The Effect of Auditing Standard No. 5 on Audit Report Lags.
    Practical Implications:

    The findings support the regulators’ contention that the new top-down, risk-based approach under AS5 makes the audit process timelier and efficient by decreasing audit report lags and facilitating firms’ efforts to meet the reporting deadline set by the SEC, especially when the firms have an effective internal control system. However, the firms with material internal control problems that persist either at the company level or at the accounts/transaction level continue to experience larger reporting lags in the post-AS5 years compared with the clean SOX 404 firms. The results are generally consistent with auditors focusing more on critical risk areas associated with ineffective internal controls and applying principle-oriented top-down, risk-based audit procedures to minimize risk, which requires increased audit efforts and longer audit time to accomplish their work properly.

    Citation:

    Mitra, S., H. Song, and J. S. Yang. 2015. The Effect of Auditing Standard No. 5 on Audit Report Lags. Accounting Horizons 29 (3): 507-527.

  • Jennifer M Mueller-Phillips
    Home Country Investor Protection, Ownership Structure and...
    research summary posted July 29, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.04 Impact of 404, 01.05 Impact of SOX, 07.0 Internal Control, 07.05 Impact of 404 on Fees and Financial Reporting Quality 
    Title:
    Home Country Investor Protection, Ownership Structure and Cross-Listed Firms’ Compliance with SOX-Mandated Internal Control Disclosures.
    Practical Implications:

    The results carry important implications for regulators, investors, and researchers. The findings suggest both firm-level corporate governance and home country investor protection still matter in explaining the disclosure behavior of cross-listed firms. Hence, it may be warranted for U.S. securities regulators to devote more resources to monitoring the financial disclosure quality of CONTROL_WEDGE firms from weak investor protection countries. The results suggest that U.S. investors should pay closer attention to the financial disclosure quality of cross-listed firms, especially CONTROL_WEDGE firms from weak investor protection countries. This is important because the recent accounting frauds involving cross-listed firms suggest that U.S. investors might not have paid sufficient attention to the disclosure quality, and as a result suffered significant economic losses after the revelation of the accounting frauds.

    Citation:

    Gong, G., Ke, B., & Yu, Y. 2013. Home Country Investor Protection, Ownership Structure and Cross-Listed Firms' Compliance with SOX-Mandated Internal Control Deficiency Disclosures. Contemporary Accounting Research 30 (4): 1490-1523. 

  • Jennifer M Mueller-Phillips
    The Interactive Effects of Internal Control Audits and...
    research summary posted July 28, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.04 Impact of 404, 01.05 Impact of SOX, 07.0 Internal Control, 07.05 Impact of 404 on Fees and Financial Reporting Quality 
    Title:
    The Interactive Effects of Internal Control Audits and Manager Legal Liability on Managers' Internal Controls Decisions, Investor Confidence, and Market Prices.
    Practical Implications:

    The results demonstrate a demand for IC audits such that, even in the presence of increased manager liability, the IC audit incrementally motivates managers to spend on improving IC and to provide more consistent and accurate ICFR disclosures. Unlike managers, investors react as though manager liability and IC audits are substitutes. This finding has implications for policymakers as it demonstrates the need to consider the possible differing effects of regulation on managers and investors. Moreover, with respect to regulatory actions to simultaneously implement both manager liability and an IC audit, the results suggest that both mechanisms may not be necessary to improve investors’ confidence and in turn market prices.

    Citation:

    Wu, Y., & Tuttle, B. 2014. The Interactive Effects of Internal Control Audits and Manager Legal Liability on Managers' Internal Controls Decisions, Investor Confidence, and Market Prices. Contemporary Accounting Research 31 (2): 444-468.

  • Jennifer M Mueller-Phillips
    The Impact of Internal Audit Function Quality and...
    research summary posted July 24, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.04 Impact of 404, 08.0 Auditing Procedures – Nature, Timing and Extent, 08.11 Reliance on Internal Auditors, 11.0 Audit Quality and Quality Control 
    Title:
    The Impact of Internal Audit Function Quality and Contribution on Audit Delay.
    Practical Implications:

    This research should be of interest to regulators who are concerned with the timeliness of financial reports, practitioners who are responsible for preparing and auditing financial statements, and standard setters who provide auditing guidance. In particular, the findings indicate that firms’ decisions regarding the structure of the IAF and their role in the financial statement audit can significantly affect audit completion times. Reducing audit delay from current levels back to pre- SOX 404 levels could potentially reverse the decline in the reliability of earnings announcements. The results are useful to external auditors in determining whether and how IAF work can be incorporated into the financial statement audit. This study also provides support for recent PCAOB guidance contending that external auditors can improve audit efficiency by making more extensive use of work performed by others.

    Citation:

     Pizzini, M., Lin, S., & Ziegenfuss, D. E. 2015. The Impact of Internal Audit Function Quality and Contribution on Audit Delay. Auditing: A Journal Of Practice & Theory 34 (1): 25-58.

  • Jennifer M Mueller-Phillips
    Balancing the Costs and Benefits of Auditing and Financial...
    research summary posted March 30, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards, 01.03 Impact of New Accounting Pronouncements, 01.04 Impact of 404 
    Title:
    Balancing the Costs and Benefits of Auditing and Financial Reporting Regulation Post-SOX, Part I: Perspectives from the Nexus at the SEC
    Practical Implications:

    The results of this study are important because they illuminate the impact of new accounting rules on standard setters and companies abiding by these rules (in this case, the specific context was the implementation process related to SOX Section 404). The study suggests that a number of steps are required in order to perfect the guidance. It is important to understand the meaning and intentions behind authoritative literature in order to follow it. The observations suggest that the process for implementing new guidance has room for change, yet has evolved over time to increase effectiveness. The findings are specific to the implementation for assessment and auditing of internal controls for public companies.

    For more information on this study, please contact Zoe-Vonna Palmrose (zv.palmrose@marshall.usc.edu).

    Citation:

    Palmrose, Z.-V. 2010. Balancing the Costs and Benefits of Auditing and Financial Reporting Regulation Post-SOX, Part I: Perspectives from the Nexus at the SEC. Accounting Horizons 24 (2):313-326.

  • Jennifer M Mueller-Phillips
    Section 404 Compliance and Financial Reporting Quality
    research summary posted March 9, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.04 Impact of 404, 12.0 Accountants’ Reports and Reporting 
    Title:
    Section 404 Compliance and Financial Reporting Quality
    Practical Implications:

    As is asserted in its summary, “this study provides evidence that the S404 compliance effort reduces the likelihood of issuing materially misstated financial statements, and suggests that S404 regulation is meeting its objective of improving the quality of financial reports.”

    For more information on this study, please contact Albert L. Nagy

    Citation:

    Albert L. Nagy (2010) Section 404 Compliance and Financial Reporting Quality. Accounting Horizons: September 2010, Vol. 24, No. 3, pp. 441-454.

  • Jennifer M Mueller-Phillips
    The Influence of Auditor and Client Section 404 Processes on...
    research summary posted October 22, 2014 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.04 Impact of 404, 07.0 Internal Control, 07.04 Assessing Remediation of Weaknesses 
    Title:
    The Influence of Auditor and Client Section 404 Processes on Remediation of Internal Control Deficiencies at All Levels of Severity
    Practical Implications:

    Overall, this study suggests that remediation of detected ICFR problems prior to the balance sheet date is one benefit of Section 404 activity to stakeholders. This study’s finding of lower remediation of auditor-discovered ICDs implies that client personnel missed the control flaw in their own Section 404(a) process, so may lack the expertise to remediate the problem. This calls into question the current policy of relying on Section 404(a) alone for non-accelerated filer (most public companies). Further, this study’s results on client processes imply that the most important factors affecting remediation are not who directly manages the process, but rather the client’s organization of the process in making an early start and coordinating the effort with IT personnel.

    For more information on this study, please contact Jean C. Bedard.

    Citation:

    Graham, L., and J.C. Bedard. 2013. The Influence of Auditor and Client Section 404 Processes on Remediation of Internal Control Deficiencies at All Levels of Severity. Auditing: A Journal of Practice & Theory 32(4): 45-69

  • Jennifer M Mueller-Phillips
    Auditors’ Internal Controls over Financial Reporting D...
    research summary posted December 1, 2014 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.04 Impact of 404, 07.0 Internal Control, 07.01 Scope of Testing 
    Title:
    Auditors’ Internal Controls over Financial Reporting Decisions: Analysis, Synthesis, and Research Directions
    Practical Implications:

    In the planning phase, the PCAOB and key stakeholders should consider developing an ICOFR audit risk model to serve as a conceptual planning and evaluative model. Audit firms should pay attention to aligning auditors’ skill sets to their task assignments and employ other mechanisms that encourage consultations.

    Scoping decisions remain underexplored. Nevertheless, anecdotal evidence suggests that auditors may be cognitively wired to scope some types of ELCs but not others. Firms may consider the interactions between auditors and client personnel that explain the tendency for auditors to evaluate only the ELCs scoped by the client.

    Audit firms should pay special attention to how audit teams design testing plans to test ELCs that are not easily tested by attribute sampling methods (e.g., management philosophy and operating style). This is necessary to address concerns by PCAOB inspections that some auditors identified ELCs that appeared to be designed to operate with a high degree of precision, but failed to obtain sufficient audit evidence of their operating effectiveness.

    In the evaluation phase, firms should consider mechanisms that can help auditors “imagine what could go wrong where nothing wrong has happened.” Examples of such mechanisms include restructuring the task (e.g., documentation, decomposition of the task, or requirements to list what could go wrong). In the reporting phase, firms should consider having a requirement to specifically require auditors to consider the needs of a prudent official. This requirement may be a countervailing check on their detection and disclosure incentives.

    For more information on this study, please contact Stephen K. Asare.

    Citation:

    Asare, S. A., B. C. Fitzgerald, L. E. Graham, J. R. Joe, E. M. Negangard, and C. J. Wolfe. 2013. Auditors’ Internal Controls over Financial Reporting Decisions: Analysis, Synthesis, and Research Directions. Auditing: A Journal of Practice and Theory 32 (sp1): 131-166.

  • Jennifer M Mueller-Phillips
    PCAOB Inspection Consequences, Processes, and Inspection...
    research summary posted October 22, 2014 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.04 Impact of 404, 01.05 Impact of SOX 
    Title:
    PCAOB Inspection Consequences, Processes, and Inspection Team Performance: Perspectives of Triennially Inspected Firms
    Practical Implications:

    The results of this study are important to practitioners, regulators, legislators, academicians, and other market participants as many aspects of SOX and PCAOB inspections have been criticized. Oversight bodies have modified SOX in response to concerns of oversight groups (Advisory Committee on Smaller Public Companies). Researchers and practitioners have called for research to study the impact of SOX on audit quality and the public interest. The Government Accountability Office (GAO), required by SOX to study the potential effects of further mandates, chose to wait several years to monitor and evaluate the effectiveness of SOX and the PCAOB on auditor independence and audit quality before proposing any further modifications (GAO 2004). We interpret our findings as suggesting the efficacy of PCAOB inspections may be enhanced by focusing on potential unintended consequences and inspection process modifications rather than on inspectors’ qualifications and actions.

     

    For more information on this study, please contact Brian Daugherty at University of Wisconsin-Milwaukee.

    Citation:

    Daugherty, B., and W. Tervo. 2010. PCAOB Inspection Consequences, Processes, and Inspection Team Performance: Perspectives of Triennially Inspected Firms. Accounting Horizons 24 (2):189-219.

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