Auditing Section Research Summaries Space

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  • The Auditing Section
    A Comparison of Auditor and Client Initial Negotiation...
    research summary posted May 4, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind, 10.0 Engagement Management, 10.04 Interactions with Client Management 
    Title:
    A Comparison of Auditor and Client Initial Negotiation Positions and Tactics
    Practical Implications:

    This study provides a more complete examination of auditor-client pre-negotiation decisions and negotiation tactics when confronted with an ambiguous accounting issue.  Because auditors and clients approach conflict resolution and make negotiation decisions in very different ways, the results should be of interest to auditors. 

    Citation:

    Bame-Aldred, C. W. and T. Kida. 2007. A Comparison of Auditor and Client Initial Negotiation Positions and Tactics. Accounting, Organizations, and Society 32 (6): 497-511.

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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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  • 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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  • The Auditing Section
    Academic Instruction as a Determinant of Judgment...
    research summary posted May 7, 2012 by The Auditing Section, tagged 05.0 Audit Team Composition, 05.02 Industry Expertise – Firm and Individual, 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind, 11.0 Audit Quality and Quality Control, 11.05 Training and General Experience 
    Title:
    Academic Instruction as a Determinant of Judgment Performance
    Practical Implications:

    The results of this study are important for audit firms to consider providing decision aids and/or on job training. The results suggest that considerable practical experience is necessary to achieve good judgment performance. In addition, the evidence indicates that auditing firms may wish to concentrate their training earlier to more quickly create a basis for high-quality auditor judgments.

    Citation:

    Wright, William F. 2007.  Academic Instruction as a Determinant of Judgment Performance. Behavioral Research in Accounting 19: 247-259.

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  • The Auditing Section
    Accountability and auditors’ materiality judgments: The e...
    research summary posted May 3, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.01 Audit Scope and Materiality Judgments, 09.02 Documentation Specificity, 09.11 Auditor judgment in the workpaper review process, 10.0 Engagement Management, 10.02 Materiality and Scope Decisions, 10.03 Interaction among Team Members 
    Title:
    Accountability and auditors’ materiality judgments: The effects of differential pressure strength on conservatism, variability, and effort.
    Practical Implications:

    Firms should consider the levels of accountability pressure and situations where they use them and consider how different levels of pressure may impact performance.  Higher levels of accountability pressure may increase effectiveness and increase the likelihood of finding material misstatements. 

    On the other hand, increased effectiveness and time spent due to higher levels of accountability pressure may cause inefficiencies and result in unnecessary effort.  Firms should evaluate the costs and benefits for their situations. 

    The authors note that this study only looks at the effect of accountability pressure from an unknown partner.  In the real world, auditors have accountability pressures from many levels such as other superiors, clients, regulators, and audit committees. 
    Further, the auditor may have assessed things differently if they knew the partner that was performing their review.

    Citation:

    DeZoort, T., P. Harrison, and M. Taylor. 2006.  Accountability and auditors’ materiality judgments: The effects of differential pressure strength on conservatism, variability, and effort.  Accounting, Organizations, and Society 31 (4-5):  373-390. 

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  • The Auditing Section
    An Empirical Examination of a Three-Component Model of...
    research summary posted May 7, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind 
    Title:
    An Empirical Examination of a Three-Component Model of Professional Commitment among Public Accountants
    Practical Implications:

    Professional Commitment has been found to impact work behaviors. Theory indicates the three dimensions of PC can impact these behaviors in varying ways (positive or negative). Firms can influence some precursors to PC including training, organizational culture, requiring employees to complete a professional qualification, and participation in professional organizations.

    Citation:

    Smith, D. and Hall, M. 2008. An Empirical Examination of a Three-Component Model of Professional Commitment among Public Accountants. Behavioral Research in Accounting 20 (1): 75-92.

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  • Jennifer M Mueller-Phillips
    An Examination of the Credence Attributes of an Audit
    research summary posted October 15, 2013 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards, 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind, 11.0 Audit Quality and Quality Control 
    Title:
    An Examination of the Credence Attributes of an Audit
    Practical Implications:

    At its core, the theory proposed by the authors assumes that auditors are economic agents who provide a valuable service and can be expected to behave rationally to maximize their profits. Strategic behaviors such as under-auditing, over-auditing, or overbilling would be unobservable by an auditee in many instances. The possibility of such behaviors has important implications for the level of assurance over financial reports and can potentially affect the efficient allocation of capital resources. One of the goals of this study was to analyze how the credence aspect of audits could influence important policy decisions. Regulation may play a powerful role in mitigating the credence nature of auditing, e.g., PCAOB inspections. However, regulation can be a double-edged sword if it increases the incentive or opportunity for auditors to behave strategically. Therefore, auditors can take the theories and models presented in this study to evaluate their firms for potential profit maximizing biases that may negatively impact audit quality and efficiency. Policy makers could also use these theories and models to evaluate how new auditing policies might influence auditors’ incentives and behaviors.

    For more information on this study, please contact W. Robert Knechel.
     

    Citation:

    Causholli, M., and W. R. Knechel. 2012. An Examination of the Credence Attributes of an Audit. Accounting Horizons 26(4): 631-656.

  • The Auditing Section
    An Examination of the Effects of Auditor Rank on...
    research summary posted April 23, 2012 by The Auditing Section, tagged 05.0 Audit Team Composition, 05.05 Diversity of Skill Sets e.g., Tenure and Experience, 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind, 11.0 Audit Quality and Quality Control, 11.05 Training and General Experience 
    Title:
    An Examination of the Effects of Auditor Rank on Pre-Negotiation Judgments
    Practical Implications:

    This study provides evidence that there were significant differences in the pre-negotiation judgments of partners and managers. Since an outcome of an auditor-client negotiation of a contentious issue may have a significant impact on financial reporting quality, the findings of the study suggest that the using partners in the negotiation process is likely to lead to improved reporting quality. The results have implications for audit firms in allocating manager and partner time to handle negotiation.

    Citation:

    Trotman, K. T., A. M. Wright, and S.Wright. (2009). An Examination of the Effects of Auditor Rank on Pre-Negotiation Judgments. Auditing: A Journal of Practice & Theory 28(1): 191-203

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  • Jennifer M Mueller-Phillips
    An Experimental Examination of Factors That Influence...
    research summary posted September 17, 2015 by Jennifer M Mueller-Phillips, tagged 07.0 Internal Control, 07.02 Assessing Material Weaknesses, 07.03 Reporting Material Weaknesses, 09.0 Auditor Judgment 
    Title:
    An Experimental Examination of Factors That Influence Auditor Assessments of a Deficiency in Internal Control over Financial Reporting.
    Practical Implications:

    The results should be of interest to auditing standard setters who provide guidance on the evaluation of control deficiencies as part of an integrated audit. Further, regulators inspecting public company audits may want to further review settings where control deficiencies were not evaluated as material weaknesses and assess whether the presence/absence of a financial statement misstatement was appropriately considered. The findings provide a more complete understanding of how the factors that auditors encounter during the audit engagement influence their judgment about whether identified deficiencies in ICFR are such that there is a reasonable possibility that a material misstatement of the company’s financial statements will not be prevented or detected on a timely basis (i.e., material weakness).

    Citation:

    Gramling, A. A., E. F. O'Donnell, and S. D. Vandervelde. 2013. An Experimental Examination of Factors That Influence Auditor Assessments of a Deficiency in Internal Control over Financial Reporting. Accounting Horizons 27 (2): 249-269.

  • The Auditing Section
    An Investigation of Auditor Perceptions about Subsequent...
    research summary posted April 13, 2012 by The Auditing Section, tagged 01.0 Standard Setting, 01.07 Impact of SEC Actions, 09.0 Auditor Judgment, 09.03 Adequacy of Evidence 
    Title:
    An Investigation of Auditor Perceptions about Subsequent Events and Factors That Influence This Audit Task
    Practical Implications:

    Auditors should recognize that an implicit tradeoff exists between the availability of subsequent event evidence and timelier reporting.  However, the net effect is not well understood because prior research has only focused on quantifying the benefits of timely reporting, not the costs associated with obtaining less subsequent event evidence.  The low evidence discovery rate reported by participants suggests that the current audit methodology might suffer from inefficiencies.  Further research should establish relative frequency information to help auditors generate hypotheses and guide audit planning.

     

    Citation:

    Janvrin, D. J. and C. G. Jeffrey. 2007. An Investigation of Auditor Perceptions about Subsequent Events and Factors That Influence This Audit Task.  Accounting Horizons 21 (3):  295-312

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