This paper provides a more complete analysis on the concessionary behaviors and planned negotiation tactics of both the auditors and the client management in the same negotiation context. The findings can improve auditor practitioners’ self-awareness in the audit adjustment negotiation process and help them better consider the effect of deadline pressure on negotiations. The result that auditors react differently than the clients under the deadline pressure is particularly useful for auditor practitioners to predict the behavior of their clients and to design effective negotiation trainings.
Bennett, G. B., R. C. Hatfield, and C. Stefaniak. 2015. The Effect of Deadline Pressure on Pre‐Negotiation Positions: A Comparison of Auditors and Client Management. Contemporary Accounting Research 32 (4): 1507–1528.
This study provides further support for the importance of office-specific characteristics on audit and financial reporting outcomes and provides evidence of the benefit of office-specific industry expertise. The study should be of interest to financial reporters and audit firms interested in reducing audit report lag times and to regulators and investors interested in increasing the timeliness of financial reporting information.
Whitworth, J. D., and T. A. Lambert. 2014. Office-Level Characteristics of the Big 4 and Audit Report Timeliness. Auditing: A Journal of Practice & Theory 33 (3): 129-152.
This study contributes to the literature in a number of important ways. First, the authors present evidence that managers still tacitly encourage underreporting by their engagement team, even in a setting without explicit mention of time budgets as a performance metric. Thus, while explicit incentives may have reduced, it appears likely that implicit manager incentives to underreport persist. Second, the results suggest that managers’ tacit encouragement of underreporting is contrary to what the “principals” of the firm appear to want. Further, the authors find a positive association between partners’ beliefs about how likely it is the senior reported all hours worked and their preference for the senior. Third, the agency framework perspective on the phenomenon of underreporting suggests that agency theory can assist researchers, regulators, and practitioners wishing to understand and curb the behavior.
Agoglia, C. P., R. C. Hatfield, and T. A. Lambert. 2015. Audit team time reporting: An agency theory perspective. Accounting, Organizations & Society 44: 1-14.
Although both auditors and fraud specialists added non-standard procedures to the audit program, auditors cut the budgets for some standard procedures, making room in the overall audit budget for non-standard additional procedures. In contrast, fraud specialists added standard procedures, but they were not more effective than those selected by auditors, and also provided less budget room for those procedures. The involvement of fraud specialists in planning an audit engagement where fraud risk is present is likely to lead to additional audit effort and cost, possibly without commensurate benefit. However, considering the potential consequences to the auditor of undiscovered fraud, it may be cost-effective to include additional non-standard procedures in an audit program if they improve the probability of discovering a fraud.
Boritz, J. E., Kochetova-Kozloski, N., & Robinson, L. 2015. Are Fraud Specialists Relatively More Effective than Auditors at Modifying Audit Programs in the Presence of Fraud Risk? Accounting Review 90 (3): 881-915.
The results of this study suggest that public accounting firms that highlight the need for auditors to get creative and think outside the box, and presumably provide incentives for the auditors to do so may be enabling themselves with the potential to provide superior performance in the face of impending time constraints. Given the many forms of time constraints that exist in the auditing profession, thinking outside the box to create a strategic and efficient allocation of time could greatly improve the work of auditors today.
For more information on this study, please contact Kin-Yew Low.
Low, K., and Tan, H. 2011. Does time constraint lead to poorer audit performance? Effects of forewarning of impending time constraints and instructions. Auditing: A Journal of Practice and Theory 30 (4): 173-190.
The distribution of fiscal year-end companies in an auditor’s client portfolio can place significant strains on the resources of a CPA firm. Auditors are cautioned about the damaging effects of workload compression on the auditor-client relationship. Policymakers should consider auditors’ workloads when enacting new rules and regulations.
López, D. M., and G. F. Peters. 2011. Auditor Workload Compression and Busy Season Auditor Switching. Accounting Horizons 25 (2):357-380
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.
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.