These findings have implications for both practice and future research. For example, the PCAOB has raised questions about (1) the thoroughness with which engagement managers and partners review audit documentation, and (2) the extent to which their attention to engagements reflects audit-related risks. Further, the IFAC has acknowledged that reviewers in today’s audit environment have alternative ways in which to conduct their reviews, and prior research suggests that the choice of review format has implications for audit. The results presented here advance the understanding of the factors that influence this choice. The findings provide insight to firms, regulators, and inspectors regarding the impact of workload pressure and misstatement risk on how audit managers and partners conduct their reviews. These issues are increasingly relevant given recent changes to the regulatory environment.

Agoglia, C. P., J. F. Brazel, R. C. Hatfield, and S. B. Jackson. 2010. How Do Audit Workpaper Reviewers Cope with the Conflicting Pressures of Detecting Misstatements and Balancing Client Workloads? Auditing: A Journal of Practice & Theory 29 (2): 27-43.

http://www.auditingresearchsummaries.org

This study informs the debates on costs and benefits of audit partner rotation. The results support concerns of the audit profession that audit partner rotation may impair the quality of audited financial information in the initial years of a new partner’s engagement with a client. This impairment appears to be more pronounced for larger clients and clients of non-Big 4 audit firms. Furthermore, the persistence of these quality consequences for non-Big 4 audit firms raises questions about the resource capacity of such firms to cope with imposing regulations. Given that partner rotation has both monetary and social costs, perhaps the decision to shorten partner engagement with a client from seven to five years is not in the best interests of auditors and investors. Ultimately, the costs of an audit will be passed onto investors, and as the study suggests, more frequent rotation may mean more periods of lower financial statement quality in the initial years of a partner’s engagement with a client. Additionally, the study’s city-level industry specialist and office size results suggest industry specialists and larger audit firm offices may have more capacity to absorb and manage partner rotation effects than non-specialists and smaller offices. Such findings support the audit profession’s concern over resource challenges brought on by more stringent partner rotation requirements. 

For more information on this study, please contact Paul Tanyi.

Litt, B., D. S. Sharma, T. Simpson and P. N. Tanyi. 2014. Audit Partner Rotation and Financial Reporting Quality. Auditing: A Journal of Practice and Theory 33 (3): 59-86

http://www.auditingresearchsummaries.org

The findings of this article have implications important to both accounting firms and auditors. If pertinent behavioral skills can be learned, auditors could increase their level of performance by engaging in training to enhance those skills. CPA firms could benefit from identifying characteristics that lead to higher job performance by making those characteristics a focus in the process of hiring personnel. Existing firm employees could emphasize their understanding of the importance of taking a more comprehensive view of the auditing profession and CPA firms could emphasize hiring employees that exemplify a balance of task-oriented aspects, personality aspects, and a willingness to extend standardized tasks to ensure high auditor performance.

For more information on this study, please contact Constance A. McKnight.
 

McKnight, C.A., and W.F. Wright. 2011. Characteristics of relatively high-performance auditors. Auditing: A Journal of Practice and Theory 30 (1): 191-206.

http://www.auditingresearchsummaries.org

This study suggest that supervisors can not only influence their subordinates’ judgment by intervening in subordinates’ judgment process(es), but can also increase their own biases by intervening. In doing so, their increased biases impact the final decisions regarding the audit testwork. Findings suggest that auditors are not aware of this increase in supervisors’ biases, and, thus are not consciously taking steps to mitigate this effect (e.g., avoiding early interventions). Authors suggest training or policy changes that could lower the risk of additional bias. This could be done by making auditors aware of consequences of intervening in subordinates’ judgments. Policies and/or planning could take additional steps to reduce the amount of superiors’ early interventions as much as possible.

Peecher, M. E., Piercey, M. D., Rich, J. S., and R. M. Tubbs. 2010. The Effects of a Supervisor’s Active Intervention in Subordinates’ Judgments, Directional Goals, and Perceived Technical Knowledge Advantage on Audit Team Judgments. The Accounting Review 85 (5):  1763-1786.