Auditing Section Research Summaries Space

A Database of Auditing Research - Building Bridges with Practice

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  • Jennifer M Mueller-Phillips
    The effect of strategic and operating turnaround initiatives...
    research summary posted October 19, 2015 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.04 Going Concern Decisions, 12.0 Accountants’ Reports and Reporting, 12.01 Going Concern Decisions 
    Title:
    The effect of strategic and operating turnaround initiatives on audit reporting for distressed companies.
    Practical Implications:

    The results on the relations between management turnaround initiatives and going-concern decisions suggest that auditors consider strategic information when making going-concern decisions, and that there is a relationship between auditors’ strategic risk assessment (typically done in a business risk auditing context) and the outcome of the audit (i.e., the opinion). The results further indicate that auditors do not limit their evaluation of mitigating strategic actions to the management plans explicitly suggested in the audit standards. Furthermore, the evidence suggests that auditors are already adopting a long-term view when assessing client viability, which again suggests that the current discussion on expanding the time horizon for going-concern assessment would not affect current practice substantially.

    Citation:

    Bruynseels, L., and M. Willekens. 2012. The effect of strategic and operating turnaround initiatives on audit reporting for distressed companies. Accounting, Organizations & Society 37 (4): 223-241.

  • Jennifer M Mueller-Phillips
    The Effects of Critical Audit Matter Paragraphs and...
    research summary posted February 16, 2017 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.06 Impact of PCAOB, 12.0 Accountants’ Reports and Reporting, 12.05 Changes in Reporting Formats 
    Title:
    The Effects of Critical Audit Matter Paragraphs and Accounting Standard Precision on Auditor Liability
    Practical Implications:

    These results provide new insight into conflicting results in contemporaneous studies that investigate the relationship between CAMS and auditor liability. The results will also be informative to the PCAOB and SEC because they highlight a potential unintended consequence of the proposed audit reporting model and reinforce the importance of the two oversight bodies considering the relationship between their regulatory actions. 

    Citation:

    Gimbar, C., B. Hansen and M. E. Ozlanski. 2016. The Effects of Critical Audit Matter Paragraphs and Accounting Standard Precision on Auditor Liability. The Accounting Review 91 (6): 1629 – 1646.

  • The Auditing Section
    The Effects of Experience on Complex Problem Representation...
    research summary posted May 9, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.04 Going Concern Decisions, 12.0 Accountants’ Reports and Reporting, 12.01 Going Concern Decisions 
    Title:
    The Effects of Experience on Complex Problem Representation and Judgment in Auditing: An Experimental Investigation
    Practical Implications:

    The results of this study have implications for training future professionals.  In the classroom problem-solving techniques that more closely resemble the experienced group can be incorporated to advance professionals to the expert level faster.  Further, a stage approach may be more efficient.  This idea incorporates having two “expert systems”, one to move novices to the intermediate level of knowledge more quickly and another to move intermediates up to the level of experts faster. 

    Citation:

    Lehmann, C.M., and C.S. Norman. 2006. The effects of experience on complex problem representation and judgment in auditing: an experimental investigation. Behavioral Research in Accounting 18 (1): 65-83.

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  • Jennifer M Mueller-Phillips
    The Global Financial Crisis: U.S. Bankruptcies and...
    research summary posted October 22, 2014 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.04 Going Concern Decisions, 12.0 Accountants’ Reports and Reporting, 12.01 Going Concern Decisions 
    Title:
    The Global Financial Crisis: U.S. Bankruptcies and Going-Concern Audit Opinions
    Practical Implications:

    As the PCAOB, SEC and other regulators assess auditors’ reporting decisions in the wake of the GFC, the results of our study provide evidence that the propensity to issue a GCO to a financially stressed and subsequently bankrupt client increased during the GFC. Our results suggest that critics of the auditors’ role during the GFC may have overstated a perceived problem based on relatively few bankruptcies without a prior GCO. At the same time, our results indicate that this increased scrutiny was similar for Big 4 and non-Big 4 auditors, but that it was largely restricted to smaller clients. Auditor going-concern modification decisions remain a complex process that is not fully understood or easily captured.

     

    For more information on this study, please contact Marshall Geiger via email at mgeiger@richmond.edu.

    Citation:

    Geiger, M.A., K. Raghunandan, and W. Riccardi. (2014). The global financial crisis: U.S. bankruptcies and going-concern audit opinions. Accounting Horizons 28 (1): 59-75.

  • Jennifer M Mueller-Phillips
    The Relation between Managerial Ability and Audit Fees and...
    research summary posted June 15, 2016 by Jennifer M Mueller-Phillips, tagged 12.0 Accountants’ Reports and Reporting, 12.01 Going Concern Decisions 
    Title:
    The Relation between Managerial Ability and Audit Fees and Going Concern Opinions
    Practical Implications:

     This research makes two primary contributions. The first is to the literature on audit pricing and going concern opinion by providing empirical evidence that after controlling for firm-level characteristics, managerial characteristics are also associated with audit fees and the propensity of auditors to issue going concern opinions. This evidence is particularly important because there is a paucity of empirical evidence on the relation between managerial characteristics and auditors’ decisions. The second contribution is providing two validation checks on the managerial ability measure developed by Demerjian which is becoming more widely used.

    Citation:

    Krishnan, G.V. and C. Wang. 2015. The Relation between Managerial Ability and Audit Fees and Going Concern. Auditing: A Journal of Practice and Theory 34 (3): 139-160.

  • Jennifer M Mueller-Phillips
    The Relationship between Audit Report Lags and Future...
    research summary posted October 20, 2014 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.01 Budgeting and Audit Time Management, 12.0 Accountants’ Reports and Reporting, 12.03 Restatements 
    Title:
    The Relationship between Audit Report Lags and Future Restatements
    Practical Implications:

    It is important for auditors to understand that extending an audit not only creates the opportunity to collect additional evidence but also increased the time pressure on auditors. Audit firms should consider how to mitigate the time pressure associated with long audit. Further, audit committees should understand the trade-off involved in pressuring the auditors to meet filing deadlines and the effect on audit quality. Finally, regulators should be attentive to the consequences future regulation can have with time pressures on auditors and reduced filing times

     

     

    For more information on this study, please contact Dr. David Hurtt.

    Citation:

    Alan I. Blankley, David N. Hurtt, and Jason E. MacGregor. 2014. The Relationship between Audit Report Lags and Future Restatements. Auditing: A Journal of Practice & Theory 33 (2): 27-57.

  • Jennifer M Mueller-Phillips
    There’s No Place Like Home: The Influence of Home-State G...
    research summary posted July 18, 2016 by Jennifer M Mueller-Phillips, tagged 12.0 Accountants’ Reports and Reporting, 12.01 Going Concern Decisions 
    Title:
    There’s No Place Like Home: The Influence of Home-State Going-Concern Reporting Rates on Going-Concern Opinion Propensity and Accuracy
    Practical Implications:

    The findings of this study indicate that increased home-state GC rates lead to lower GC reporting accuracy for non-Big 4 auditors. This lower GC reporting accuracy imposes economic costs on the client and the auditor, which suggests that prior GC rates may be weighted too heavily in the minds of auditors.

    Citation:

    Blay, A.D., J.R. Moon, and J.S. Paterson. 2016. There’s No Place Like Home: The Influence of Home-State Going-Concern Reporting Rates on Going-Concern Opinion Propensity and Accuracy. Auditing: A Journal of Practice and Theory 35 (2): 23-51. 

  • Jennifer M Mueller-Phillips
    Turnaround Initiatives and Auditors’ Going-Concern J...
    research summary posted November 17, 2014 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 12.0 Accountants’ Reports and Reporting, 12.01 Going Concern Decisions 
    Title:
    Turnaround Initiatives and Auditors’ Going-Concern Judgment: Memory for Audit Evidence
    Practical Implications:

    The results on the relations between management turnaround initiatives and going-concern decision-making show that auditors consider client turnaround initiatives when making going-concern decisions. Specifically, client operating turnaround initiatives (such as cost cutting) have a negative indirect effect on auditors’ going-concern judgment through a decrease in attention to subsequent positive client financial information. This suggest that short-term operating management turnaround initiatives may serve as an “early warning signal” of client distress for auditors which causes them to focus less on positive financial client information in subsequent analysis. 

    For more information on this study, please contact Liesbeth Bruynseels.

    Citation:

    Bruynseels, L., W. R. Knechel and M. Willekens. 2013 Turnaround Initiatives and Auditors' Going-Concern Judgment: Memory for Audit Evidence. Auditing: A Journal of Practice & Theory 32(3): 105-121

  • Jennifer M Mueller-Phillips
    Voluntary Audits and the Cost of Debt Capital for Privately...
    research summary posted July 29, 2015 by Jennifer M Mueller-Phillips, tagged 12.0 Accountants’ Reports and Reporting, 15.0 International Matters 
    Title:
    Voluntary Audits and the Cost of Debt Capital for Privately Held Firms: Korean Evidence.
    Practical Implications:

    Initial audits, changing audit status of a private company from no audit to either voluntary or mandatory audit, lead to a significant reduction in the interest rate on debt. The results show that an external audit is of informational value in the pricing of private debt such as bank loans, presumably. It enhances the credibility of audited financial statements, and thus helps banks and other private lenders overcome information problems related to borrower credit quality.

    Citation:

    Kim, J., Simunic, D. A., Stein, M. T., & Yi, C. H. 2011. Voluntary Audits and the Cost of Debt Capital for Privately Held Firms: Korean Evidence. Contemporary Accounting Research 28 (2): 585-615.

  • Jennifer M Mueller-Phillips
    When the PCAOB Talks, Who Listens? Evidence from Stakeholder...
    research summary posted September 14, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.06 Impact of PCAOB, 11.0 Audit Quality and Quality Control, 11.10 Impact of Quality Reviewers, 11.11 Impact of Firm and External Inspection Programs, 12.0 Accountants’ Reports and Reporting, 12.04 Investigations 
    Title:
    When the PCAOB Talks, Who Listens? Evidence from Stakeholder Reaction to GAAP-Deficient PCAOB Inspection Reports of Small Auditors.
    Practical Implications:

    The authors provide initial empirical evidence that Securities and Exchange Commission (SEC) registrants found GAAP-deficient PCAOB inspection reports to be a useful signal of audit quality for triennially inspected auditors. This evidence indicates that PCAOB inspection reports created heterogeneity in auditor brand name that did not previously exist. Also, this paper is the first to empirically link audit committee characteristics to PCAOB inspection report severity and auditor choice. The authors believe this is an increasingly relevant finding as audit committees have been granted much greater auditor dismissal and hiring authority due to SOX. This study indicates that a PCAOB inspection report may serve as an audit quality signal for auditors of broker-dealers, who were previously exempt from the inspection process. Such a finding has current relevance given the PCAOB has recently sought to expand the inspection program to foreign auditors, such as those based in China whose clients are cross-listed on U.S. security exchanges or are listed due to a reverse merger.

    Citation:

    Abbott, L. J., K. A. Gunny, and T. C. Zhang. 2013. When the PCAOB Talks, Who Listens? Evidence from Stakeholder Reaction to GAAP-Deficient PCAOB Inspection Reports of Small Auditors. Auditing: A Journal of Practice & Theory 32 (2): 1-31.

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