Auditing Section Research Summaries Space

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  • Jennifer M Mueller-Phillips
    Field Data on Accounting Error Rates and Audit Sampling
    research summary posted February 19, 2015 by Jennifer M Mueller-Phillips, tagged 08.0 Auditing Procedures – Nature, Timing and Extent, 08.02 Sample Selection – use of statistical sampling, 08.04 Auditors’ Professional Skepticism, 09.0 Auditor Judgment, 09.08 Evaluation of Errors – Statistical and Non-statistical 
    Title:
    Field Data on Accounting Error Rates and Audit Sampling
    Practical Implications:

    This study provides several important practice implications. First, prior research on audit sampling that relied on the assumption of relatively large error rates may not provide useful guidance for post-SOX audit sampling populations. Second, auditing educators, regulators, and standard setters benefit from an updated understanding of how auditors apply audit sampling guidance in auditing standards when using audit sampling in the field. For example, knowing the relatively high compliance (compared with prior periods) with requirements in auditing standards should impact the way audit sampling is taught in universities and firm trainings, how peer and federal inspectors address audit sampling issues, as well as the need for further clarity of auditing standards. Auditors also benefit as they consider the sampling techniques and input assumptions that will produce the most effective and efficient sampling plans. Specifically, an important implication of our study is related to the impact of standardized sampling templates. The firm in this study mandated the use of such templates, which contributed to levels of explicit consideration of error projection, sufficiency of sample sizes, and of sampling risk in planning and evaluating sample testing.

    For more information on this study, please contact Steve Glover.

    Citation:

    Durney, M., R. J. Elder, and S. M. Glover. 2014. Field data on accounting error rates and audit sampling. Auditing: A Journal of Practice and Theory 33 (2): 79-110

  • Jennifer M Mueller-Phillips
    Audit Sampling Research: A Synthesis and Implications for...
    research summary posted December 1, 2014 by Jennifer M Mueller-Phillips, tagged 08.0 Auditing Procedures – Nature, Timing and Extent, 08.02 Sample Selection – use of statistical sampling, 08.03 Conclusions Based on Samples, 09.0 Auditor Judgment, 09.08 Evaluation of Errors – Statistical and Non-statistical 
    Title:
    Audit Sampling Research: A Synthesis and Implications for Future Research
    Practical Implications:

    Although little research evidence exists on the effectiveness of audit sampling, auditors should consider the effectiveness of audit sampling compared to other sources of evidence, and the use of statistical compared to nonstatistical sampling for both tests of controls and tests of details to develop the most effective and efficient sampling plans. Auditors that use nonstatistical sampling techniques should evaluate procedures to determine whether sample sizes and evaluation of results are comparable to sample sizes and conclusions reached using statistical methods. Auditors also often fail to project sample misstatements and explicitly consider sampling risk; auditor performance in the evaluation of samples is enhanced with the use of standardized sampling templates.

    For more information on this study, please contact Randy Elder, rjelder@syr.edu.

    Citation:

    Elder, R. J., A. D. Akresh, S. M. Glover, J. L. Higgs, and J. Liljegren.  2013. Audit sampling research: A synthesis and implications for future research. Auditing: A Journal of Practice & Theory 32 (Supplement 1): 99-129

  • Jennifer M Mueller-Phillips
    The Impact of Client and Misstatement Characteristics on The...
    research summary posted November 12, 2014 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.08 Evaluation of Errors – Statistical and Non-statistical 
    Title:
    The Impact of Client and Misstatement Characteristics on The Disposition of Proposed Audit Adjustments
    Practical Implications:

    The findings suggest that the frequency of waived audit adjustments dramatically declined right after accounting scandals and passage of the Sarbanes-Oxley Act, suggesting the regulatory environment led to changes in auditor-client resolution of proposed adjustments. Further, repeat adjustments are often waived, perhaps because this sets a precedent making it difficult to withstand client objections.  Finally, auditors are more likely to waive reclassification entries than those impacting income, suggesting an implicit belief that these types of adjustments are less important to users even though reclassifications could impact various widely used ratios.

    For more information on this study, please contact Jennifer Joe.

    Citation:

    Joe, J., Wright, A., and S. Wright. 2011. The Impact of Changes in the Reporting Environment and Client and Misstatement Characteristics on the Disposition of Proposed Audit Adjustments. Auditing: A Journal of Practice & Theory (May): 103-124.

  • The Auditing Section
    Priming/Reaction-Time Evidence of the Structure of...
    research summary posted May 2, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.08 Evaluation of Errors – Statistical and Non-statistical 
    Title:
    Priming/Reaction-Time Evidence of the Structure of Auditors’ Knowledge of Financial Statement Errors
    Practical Implications:

    The study has implications for audit planning and practice that are not specifically discussed in the paper.  First, the study provides some support for a seemingly obvious position that seniors/managers are more efficient in identifying financial statement errors than audit staff.  Second, the study shows that when auditors are given time to freely sort errors (e.g., when the errors have already been identified in the audit), they prefer to classify the errors by audit objective.  This finding is somewhat counterintuitive, given that auditors’ knowledge is primarily structured around transaction cycles.  The authors suggest that this finding may be attributed to auditors thinking about the causes of errors when sorting through errors, which would correspond more directly to audit objectives than to transaction cycles.    

    Citation:

    Coyne, M. P., S. F. Biggs, and J. S. Rich. 2010. Priming/Reaction-Time Evidence of the Structure of Auditors’ Knowledge of Financial Statement Errors. Auditing: A Journal of Practice and Theory 29(1):99-123.

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  • The Auditing Section
    Auditors’ Decisions on Audit Differences that Affect S...
    research summary posted April 16, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.01 Audit Scope and Materiality Judgments, 09.08 Evaluation of Errors – Statistical and Non-statistical, 10.0 Engagement Management, 10.02 Materiality and Scope Decisions 
    Title:
    Auditors’ Decisions on Audit Differences that Affect Significant Earnings Thresholds
    Practical Implications:

    The results of this study are important for auditors to consider when making materiality judgments.  The evidence indicates that auditors are more likely to overlook the qualitative importance of adjustments that affect a client’s ability to meet or beat analysts’ forecasts.  Furthermore, findings suggest that auditors are more lenient with subjective audit differences.  The study suggests that providing auditors with guidance on qualitative materiality may improve materiality judgments, but it does not completely alleviate the differences among the earnings benchmarks. 

    Citation:

    Ng, T.B. 2007. Auditors’ Decisions on Audit Differences that Affect Significant Earnings Thresholds. Auditing: A Journal of Practice and Theory 26 (1): 71-89.

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