Auditing Section Research Summaries Space

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  • The Auditing Section
    Mandatory Audit Partner Rotation, Audit Quality, and Market...6
    research summary posted May 7, 2012 by The Auditing Section, tagged 04.0 Independence and Ethics, 04.07 Audit Firm Rotation, 15.0 International Matters, 15.03 Audit Partner Rotation 
    Title:
    Mandatory Audit Partner Rotation, Audit Quality, and Market Perception: Evidence from Taiwan and Discussion of “Mandatory Audit Partner Rotation, Audit Quality, and Market Perception: Evidence from Taiwan”
    Practical Implications:

    The adoption of mandatory partner rotation in many countries suggests that regulators believe that the benefits of rotation outweigh the costs and thus a policy of mandatory rotation enhances audit quality. The results of this study provide initial evidence of the effects of mandatory partner rotation on audit quality. Contrary to regulators’ beliefs, the findings do not support the assumption that audit partner rotation will lead to audit quality increases. One caveat to these findings is whether the findings will generalize to other countries with different regulatory and legal regimes.

    Citation:

    Chi, W., H. Huang, Y. Liao, and H. Xie. 2009. Mandatory audit partner rotation, audit quality, and market perception: Evidence from Taiwan. Contemporary Accounting Research 26 (2): 359-391. 

    Bamber, E.M., and L.S. Bamber. 2009. Discussion of “Mandatory audit partner rotation, audit quality, and market perception: Evidence from Taiwan”. Contemporary Accounting Research 26 (2): 393-402.

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  • Jennifer M Mueller-Phillips
    The Influence of Process Accountability and Accounting...1
    research summary posted October 22, 2014 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 15.0 International Matters, 15.02 IFRS Changes – Impacts 
    Title:
    The Influence of Process Accountability and Accounting Standard Type on Auditor Usage of a Status Quo Heuristic
    Practical Implications:

    The results of this study are important for both audit firms and regulators to consider as standards change to become more principles-based (or as firms move towards using IFRS). The evidence indicates that auditors will sometimes fixate on the prior year accounting treatment, even if the applicable accounting standard has changed, and/or there are changes in the scenario. However, this bias towards maintaining the status quo can be mitigated by holding auditors accountable for their decision making process, particularly through a partner asking about the auditors’ decision making process.

     

    For more information on this study, please contact Scott Vandervelde.

    Citation:

    Messier, Jr., W. F., L. A. Quick, and S. D. Vandervelde. 2014. The influence of process accountability and accounting standard type on auditor usage of a status quo heuristic. Accounting, Organizations and Society 39 (1): 59-74

  • Jennifer M Mueller-Phillips
    The Effect of Joint Auditor Pair Composition on Audit...
    research summary posted June 26, 2017 by Jennifer M Mueller-Phillips, tagged 05.0 Audit Team Composition, 11.07 Attempts to Measure Audit Quality, 15.0 International Matters 
    Title:
    The Effect of Joint Auditor Pair Composition on Audit Quality: Evidence from Impairment Tests
    Practical Implications:

    Regulators are constantly trying to find ways to improve audit quality. The findings in this paper are useful to policymakers in understanding the benefits of a joint audit. It is also useful to companies and investors who are interested in what audit pairs provide a superior audit. 

    Citation:

    Lobo, Gerald J., L. Paugam, D. Zhang, and J. Francois Casta. 2017. “The Effect of Joint Auditor Pair Composition on Audit Quality: Evidence from Impairment Tests”. Contemporary Accounting Research 34.1 (2017): 118.

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  • Jennifer M Mueller-Phillips
    Audit Fee Differential, Audit Effort, and Litigation Risk:...
    research summary posted June 26, 2017 by Jennifer M Mueller-Phillips, tagged 02.01 Audit Fee Decisions, 15.0 International Matters 
    Title:
    Audit Fee Differential, Audit Effort, and Litigation Risk: An Examination of ADR Firms
    Practical Implications:

    There are numerous factors that go into a firm’s decision to cross-list on foreign stock exchanges. One factor firms should consider regarding entrance into the U.S. stock exchange is an increase in audit fees. The evidence from this study indicates this increase can be traced back to costs from the legal environment and increased audit effort. 

    Citation:

    Bronson, Scott N., A. Ghosh, and C. E. Hogan. 2017. “Audit Fee Differential, Audit Effort, and Litigation risk: An Examination of ADR Firms”. Contemporary Accounting Research 34.1 (2017): 83.

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  • Jennifer M Mueller-Phillips
    Corporate Sustainability Reporting and Stakeholder Concerns:...
    research summary posted June 22, 2017 by Jennifer M Mueller-Phillips, tagged 14.0 Corporate Matters, 15.0 International Matters, 15.05 Sustainability Services 
    Title:
    Corporate Sustainability Reporting and Stakeholder Concerns: Is There a Disconnect?
    Practical Implications:

    Sustainability is important to the accounting industry. Accountants have a responsibility to help integrate sustainability into areas such as budgets, resource allocations, and capital expenditure decisions. The evidence from this study indicates what CS activities consumer find important. Management can use this information in developing their business strategies related to CS. 

    Citation:

    Bradford, Marianne, J. B. Earp, D. S. Showalter, and P. F. Williams. 2017. “Corporate Sustainability Reporting and Stakeholder Concerns: Is There a Disconnect?”. Accounting Horizons. 31 (1): 83-102.

  • Jennifer M Mueller-Phillips
    Costs and Benefits of Requiring an Engagement Partner...
    research summary posted April 19, 2017 by Jennifer M Mueller-Phillips, tagged 11.0 Audit Quality and Quality Control, 11.05 Training and General Experience, 15.0 International Matters, 15.01 Audit Partner Identification by Name 
    Title:
    Costs and Benefits of Requiring an Engagement Partner Signature: Recent Experience in the United Kingdom
    Practical Implications:

    Requiring engagement partners to sign their names to audit reports appears to result in increased audit quality, earnings informativeness, and audit fees, suggesting that the signature requirement emphasizes personal accountability for engagement partners. Requiring the identification of engagement partners in audit reports would likely have similar effects. Thus, there are both costs and benefits that the PCAOB should consider in making its decision regarding partner identification.

    For more information on this study, please contact Chan Li: chanli@katz.pitt.edu.

    Citation:

    Carcello, J. V. and C. Li. 2013. Costs and benefits of requiring an engagement partner signature: Recent experience in the United Kingdom. The Accounting Review 88 (5): 1511-1546.

  • Jennifer M Mueller-Phillips
    Auditor-Client Compatibility and Audit Firm Selection
    research summary posted February 27, 2017 by Jennifer M Mueller-Phillips, tagged 11.0 Audit Quality and Quality Control, 15.0 International Matters, 15.04 Audit Firm Rotation 
    Title:
    Auditor-Client Compatibility and Audit Firm Selection
    Practical Implications:

     The authors’ results may be of interest to policy makers for two important reasons. First, regulatory discussions on mandatory audit firm rotation could have implications for the cost and quality of auditing if a client is forced to switch from a compatible auditor to one that is less compatible. Second, proposals to expand the auditor’s reporting responsibilities might mitigate the loss of audit quality when similarity arises in unaudited disclosures.

    Citation:

     Brown, S. V. and W. R. Knechel. 2016. Auditor-Client Compatibility and Audit Firm Selection. Journal of Accounting Research 54 (3): 725-775.

  • Jennifer M Mueller-Phillips
    Do Audit Clients Successfully Engage in Opinion Shopping?...
    research summary posted October 12, 2016 by Jennifer M Mueller-Phillips, tagged 15.0 International Matters, 15.01 Audit Partner Identification by Name, 15.03 Audit Partner Rotation 
    Title:
    Do Audit Clients Successfully Engage in Opinion Shopping? Partner-Level Evidence
    Practical Implications:

     These findings should be of interest to policy makers in China because, among other implications, the results suggest that Chinese regulators should pay attention to the switching of audit partners before they reach tenure limit for mandatory rotation. Partner-level opinion shopping could be more difficult to detect in markets in which the identity of the engagement partner is not disclosed, and it may therefore be prevalent in those markets, such as the United States.

    Citation:

     Chen, F., A. Peng, S. Xue, Z. Yang, and F. Ye. 2016. Do Audit Clients Successfully Engage in Opinion Shopping? Partner-Level Evidence. Journal of Accounting Research 54 (1): 79-112.

  • Jennifer M Mueller-Phillips
    Are Juries More Likely to Second-Guess Auditors Under...
    research summary posted August 31, 2016 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.09 Litigation Risk, 12.0 Accountants’ Reports and Reporting, 12.04 Investigations, 15.0 International Matters, 15.02 IFRS Changes – Impacts 
    Title:
    Are Juries More Likely to Second-Guess Auditors Under Imprecise Accounting Standards?
    Practical Implications:

     The results of this study have implications for regulatory agencies and standard-setting bodies. As regulators contemplate whether to mandate IFRS and standard setters determine the level of implementation guidance for new standards, the litigation consequences of standard precision are an important consideration. Further, these results highlight the importance of regulators developing ways for jurors to evaluate audit judgments under imprecise standards, especially in industries and areas without precise industry reporting norms. Prior discussion on this issue has focused on how professional judgment frameworks are necessary to protect auditors and their clients from second guessing. This study suggests that judgments frameworks, if effective, may help protect auditors who make conservative judgments and also help hold auditors accountable for overly aggressive judgments.

    Citation:

     Kadous, K., and M. Mercer. 2016. Are Juries More Likely to Second-Guess Auditors Under Imprecise Accounting Standards? Auditing: A Journal of Practice and Theory 35 (2): 101-117.

  • Jennifer M Mueller-Phillips
    Cross-Country Evidence on the Importance of Auditor Choice...
    research summary posted August 30, 2016 by Jennifer M Mueller-Phillips, tagged 11.0 Audit Quality and Quality Control, 15.0 International Matters 
    Title:
    Cross-Country Evidence on the Importance of Auditor Choice to Corporate Debt Maturity
    Practical Implications:

     This paper provides new evidence on how higher-audit quality benefit companies in debt contracting. Specifically, the authors show that Big 4 audit clients enjoy a longer debt maturity than non-Big 4 clients. This audit quality effect on debt maturity exists worldwide but varies with each country’s legal institutions governing property rights and creditor rights. This paper helps to resolve the mix views in prior literature on the role of Big 4 auditors and stresses the importance of considering legal institutions in analyzing the link between auditor choice and economic outcomes.

    Citation:

     Ghoul, S. E., O. Guedhami, J. A. Pittman, and S. Rizeanu. 2016. Cross-Country Evidence on the Importance of Auditor Choice to Corporate Debt Maturity. Contemporary Accounting Research 33 (2): 718–751.

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