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 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.  

  • 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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  • 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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  • Jennifer M Mueller-Phillips
    The Quality of Internal Control over Financial Reporting in...
    research summary posted July 27, 2015 by Jennifer M Mueller-Phillips, tagged 07.0 Internal Control, 07.02 Assessing Material Weaknesses, 07.03 Reporting Material Weaknesses 
    Title:
    The Quality of Internal Control over Financial Reporting in Family Firms.
    Practical Implications:

    Family owners are motivated to maintain weaker internal controls in order to extract private benefits. The greater likelihood of material weaknesses is driven by family firms with dual-class shares. The study increases the understanding of the association between family firm status and the quality of internal controls over financial reporting. It also contributes to the extant literature on family firms by providing further insight into the mechanisms through which family firms can exert undue influence on internal control over financial reporting.

    Citation:

    Bardhan, I., Lin, S., & Wu, S. L. 2015. The Quality of Internal Control over Financial Reporting in Family Firms. Accounting Horizons 29 (1): 41-60.

  • Jennifer M Mueller-Phillips
    The Role of the Internal Audit Function in the Disclosure of...
    research summary posted March 4, 2015 by Jennifer M Mueller-Phillips, tagged 07.0 Internal Control, 07.02 Assessing Material Weaknesses, 07.03 Reporting Material Weaknesses, 07.04 Assessing Remediation of Weaknesses 
    Title:
    The Role of the Internal Audit Function in the Disclosure of Material Weaknesses
    Practical Implications:

    Results indicate that the education level of IAF staff and the extent to which the IAF incorporates quality assurance techniques into fieldwork, audits activities related to financial reporting, and monitors the remediation of previously identified control problems are negatively associated with MW disclosures.

    The timing of Section 404 work and the nature of follow-up monitoring suggest that these aspects of IAF quality help prevent the existence of MWs. The IAF practices of grading audit engagements and coordinating with external auditors are both positively associated with MW disclosures. The positive relations suggest that these activities increase the effectiveness of Section 404 compliance processes and thereby increase the likelihood that extant MWs will be detected and disclosed. Together, this study’s results have important implications for managers responsible for determining IAF staffing and the structure of IAF activities, external auditors who perform Section 404 work, and standard-setters who provide Section 404 guidance. Moreover, the evidence that the IAF affects the financial reporting process lends support to the requirement that NYSE-listed companies maintain an internal audit function

    For more information on this study, please contact Shu Lin.

    Citation:

    Lin, S., M. Pizzini, M. Vargus, and I. R. Bardhan. 2011. The Role of the Internal Audit Function in the Disclosure of Material Weaknesses. The Accounting Review 86 (1): 287-323. 

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