Auditing Section Research Summaries Space

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  • Jennifer M Mueller-Phillips
    The Effect of Change in the Reporting Threshold and Type of...
    research summary posted November 5, 2014 by Jennifer M Mueller-Phillips, tagged 07.0 Internal Control, 07.02 Assessing Material Weaknesses 
    Title:
    The Effect of Change in the Reporting Threshold and Type of Control Deficiency on Equity Analysts’ Evaluation of the Reliability of Future Financial Statements
    Practical Implications:

    Taken together, the findings suggest that the change to the “reasonably possible” regime has made an account specific material weakness more consequential in evaluating the reliability of the future financial statements but has no effect on the evaluation of entity level material weaknesses. Even though the phrase “more than remote” necessarily includes “reasonably possible”, equity analysts interpret the former term as significantly less likely than the latter term. Standard setters, audit firms and other stakeholders should take this behavioral phenomenon into account when setting, implementing or evaluating standards that use such reporting thresholds.

     

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

    Citation:

    Asare, S. and A. Wright. 2012. The Effect of Change in the Reporting Threshold and Type of Control Deficiency on Equity Analysts’ Evaluation of the Reliability of Future Financial Statements. Auditing: A Journal of Practice & Theory (May): 1-17.  

  • Jennifer M Mueller-Phillips
    Detection and Severity Classifications of Sarbanes-Oxley...
    research summary posted October 24, 2013 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.04 Impact of 404, 07.0 Internal Control, 07.02 Assessing Material Weaknesses, 07.04 Assessing Remediation of Weaknesses 
    Title:
    Detection and Severity Classifications of Sarbanes-Oxley Section 404 Internal Control Deficiencies
    Practical Implications:

    The results of this study support the value of auditor involvement at two stages of the ICFR assessment process (detection and classification), and contribute to understanding of factors associated with client and auditor performance in both stages. The study also provides direct evidence on the “yield” of detection methods used by auditors. This issue is at the heart of the debate on the value of auditor involvement in assessing and testing internal controls. Lastly, the findings of this study imply that the recent exemption of Section 404(b) for smaller U.S. public companies could result in failure to fully realize potential improvements in financial reporting quality in that sector of the market.

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

    Citation:

    Bedard, J. C. and L. Graham. 2011. Detection and Severity Classifications of Sarbanes-Oxley Section 404 Internal Control Deficiencies.  The Accounting Review 86 (3):  825-855. 

  • Jennifer M Mueller-Phillips
    The Failure to Remediate Previously Disclosed Material...
    research summary posted June 22, 2013 by Jennifer M Mueller-Phillips, tagged 07.0 Internal Control, 07.02 Assessing Material Weaknesses, 07.04 Assessing Remediation of Weaknesses 
    Title:
    The Failure to Remediate Previously Disclosed Material Weaknesses in Internal Controls
    Practical Implications:

    These findings are particularly important for CPA firms doing consulting. By better understanding the cost associated with failure to remediate, firms can better negotiate fees and demonstrate the value they add in helping firms to remediate material weaknesses.

    Citation:

    Hammersley, J.S., L.A. Myers and J. Zhou. 2012. The Failure to Remediate Previously Disclosed Material Weaknesses in Internal Controls. Auditing: A Journal of Practice and Theory. (31) 2: 73–111.

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  • The Auditing Section
    The Effect of Documentation Structure and Task-Specific...
    research summary posted May 7, 2012 by The Auditing Section, tagged 07.0 Internal Control, 07.02 Assessing Material Weaknesses, 09.0 Auditor Judgment, 09.02 Documentation Specificity 
    Title:
    The Effect of Documentation Structure and Task-Specific Experience on Auditors’ Ability to Identify Control Weaknesses
    Practical Implications:

    The authors find that experienced component reviewers react differently to their preparers’ assessments/documentation than their counterparts in the supporting or balanced documentation conditions. Implicit results of the study also indicate that audit firms should consider how workpaper documentation is structured when assessing control weaknesses.

    Citation:

    Agoglia, C. P., Beaudoin, C., and Tsakumis, G. T. 2009. The Effect of Documentation Structure and Task-Specific Experience on Auditors’ Ability to Identify Control Weaknesses. Behavioral Research in Accounting 21(1): 1-17.

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  • The Auditing Section
    The Effects of Cognitive Style and Feedback Type on...
    research summary posted May 7, 2012 by The Auditing Section, tagged 07.0 Internal Control, 07.02 Assessing Material Weaknesses, 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind 
    Title:
    The Effects of Cognitive Style and Feedback Type on Performance in an Internal Control Task
    Practical Implications:

    The results of this study are important for auditors for two reasons. First, ICQ design is an important determinant of beginning auditors’ success at detecting relevant audit information. While it is impractical to design search-aids containing prompts for all possible auditee cues, this study underscores the importance of ensuring that the ICQ design is as comprehensive as possible. Second, in designing training programs, audit firms should provide both outcome feedback and cognitive style feedback to maximize auditor learning.

    Citation:

    Bryant, S., Murthy, U., and Wheeler, P. 2009. The effects of cognitive style and feedback type on performance in an internal control task. Behavioral Research in Accounting 21 (1): 37-58.

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  • The Auditing Section
    Reducing Management’s Influence on Auditors’ Judgments: An...
    research summary posted May 7, 2012 by The Auditing Section, tagged 07.0 Internal Control, 07.02 Assessing Material Weaknesses, 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind 
    Title:
    Reducing Management’s Influence on Auditors’ Judgments: An Experimental Investigation of SOX 404 Assessments
    Practical Implications:

    The results of this study are important for audit firms to consider in planning, implementing, and documenting their assessment of internal controls.  Findings suggest that auditors are influenced by knowing management’s classification of the ICFR issue before making their assessment. The authors suggest this “knowledge bias” impairs independence and could also reduce audit effectiveness, impact tests of controls, and the reliance of others’ work (i.e., internal auditors).  There are additional implications for other parts of the audit (e.g., auditing estimates) where the audit client presents information that may bias an “independent assessment” of the account(s) being audited. However, as findings in this study suggest, requiring auditors to consider and explicitly document the potential impact the deficiency may have on the financial statements may reduce the impact of such knowledge biases.

    Citation:

    Earley, C. E., Hoffman, V.B., and J. R. Joe. 2008. Reducing Management’s Influence on Auditors’ Judgments: An Experimental Investigation of SOX 404 Assessments. The Accounting Review 83 (6) 1461-1485

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