Auditing Section Research Summaries Space
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research summary posted May 31, 2016 by Jennifer M Mueller-Phillips, tagged 11.0 Audit Quality and Quality Control, 11.02 Engagement Quality Review – Processes and Effectiveness, 15.0 International Matters, 15.01 Audit Partner Identification by NameTitle:The Association between Audit-Partner Quality and Engagement Quality: Evidence from Financial Report MisstatementsPractical Implications:This study provides useful insights into how audit-partner quality affects engagement-level quality and underscores the importance of audit-partner identification; furthermore, this study could lead to future research which can explore whether audit-partner quality affects the cost of equity and debt capital above and beyond audit-firm and audit-client characteristics with the hopes of deepening the understanding of auditor performance and the market perception of auditor reputation at the audit-partner level.
Citation:Wang, Yanyan, Lisheng Yu, and Yuping Zhao. 2015. The Association between Audit-Partner Quality and Engagement Quality: Evidence from Financial Report Misstatements. Auditing: A Journal of Practice and Theory 34 (3): 81-111.
- research summary posted March 9, 2015 by Jennifer M Mueller-Phillips, tagged 11.0 Audit Quality and Quality Control, 11.02 Engagement Quality Review – Processes and EffectivenessTitle:An Analysis of SEC and PCAOB Enforcement Actions against Engagement Quality ReviewersPractical Implications:
The findings of this study:
- “Provides important implications for practitioners and regulators, and areas for future research for those interested in engagement quality review.” (Summary Page)
- "Shows that EQRs have been sanctioned due to violations of GAAP and GAAS; and that the violations of GAAS involved a lack of due professional care and failure to gather sufficient competent evidence. The analysis of the lack of due professional care showed that EQRs lacked professional skepticism, over-relied on management representations, and abused materiality. Too often, the EQRs were aware of audit quality problems and did little or nothing to correct them.” (pp 16-17).
For more information on this study, please contact William F. Messier, Jr.
Citation:William F. Messier Jr., Thomas M. Kozloski, and Natalia Kochetova-Kozloski (2010) An Analysis of SEC and PCAOB Enforcement Actions against Engagement Quality Reviewers. AUDITING: A Journal of Practice & Theory: November 2010, Vol. 29, No. 2, pp. 233-252.
- research summary posted February 17, 2015 by Jennifer M Mueller-Phillips, tagged 11.0 Audit Quality and Quality Control, 11.02 Engagement Quality Review – Processes and EffectivenessTitle:Review Partners and Engagement Partners: The Interaction Process in Engagement Quality ReviewPractical Implications:
The most efficient and effective resolution of issues arising from engagement quality reviews is direct interaction between the engagement partner and the engagement quality review partner. When both parties go into the interaction with an open mind it can lead to new and innovative solutions. The involvement of other individuals in the firm does not facilitate or expedite the process of resolution. An important takeaway from the results of this questionnaire was that while the respondents indicated that almost half of the examples involved issues that had arisen in previous years, only a small minority of those same issues were considered to have potential ramifications for future years. This lack of symmetry suggests that the temporal connection of the identified issues was underestimated and suggests that this temporal connection is an important factor that should be explicitly considered in engagement quality reviews.
For more information on this study, please contact please contact Craig Emby.
Citation:Emby, C. and M. Favere-Marchesi. 2010. Review partners and engagement partners: The interaction process in engagement quality review. Auditing: A Journal of Practice and Theory 29 (2): 215-232.
- research summary posted October 10, 2013 by Jennifer M Mueller-Phillips, tagged 11.01 Supervision and Review – Effectiveness, 11.02 Engagement Quality Review – Processes and Effectiveness, 11.04 Industry Experience, 11.07 Attempts to Measure Audit Quality, 11.08 Proxies for Audit QualityTitle:Firm versus Partner Measure of Auditor Industry Expertise and Effects on Auditor QualityPractical Implications:
The findings of this study imply that firm level expertise impacts audit quality but has a greater impact in conjunction with office level or partner level expertise. Similarly, concurring auditors have a greater impact on audit quality when their abilities are paired with those of a lead or signing partner. This study implicitly emphasizes the importance in cooperation and the sharing of intellectual resources among partners in Big 4 firms considering that expertise is not homogeneous across a firm. Additionally, this study has implications on what could result if the Public Company Accounting Oversight Board in the United States decided to require an engagement partner’s signature on the audit report.
For more information on this study, please contact Hsin-Yi Chi.
Citation:Chi, H., and C. Chin. Firm versus partner measures of auditor industry expertise and effects on auditor quality. Accounting: A Journal of Practice and Theory 30 (2): 201-229.
research summary posted April 16, 2012 by The Auditing Section, tagged 02.0 Client Acceptance and Continuance, 02.02 Client Risk Assessment, 11.0 Audit Quality and Quality Control, 11.02 Engagement Quality Review – Processes and Effectiveness, 11.11 Impact of Firm and External Inspection ProgramsTitle:Risk Monitoring and Control in Audit Firms: A Research SynthesisPractical Implications:While research on “quality-threatening behaviors” by auditors is difficult to perform due to confidentiality constraints, the available findings suggest that audit firms can make a difference in their incidence and severity through careful attention to policies and procedures for assessing, monitoring and controlling risk of violation of professional standards. While there is likely to be greater resistance to higher quality control standards among smaller firms, research shows that audit quality concerns are greater for smaller firms and that larger firms are currently passing smaller and riskier clients to them. The authors suggest that small accounting firms can adopt strategies, like creating alliances or becoming niche providers of certain audit services, to allow them to meet this challenge.
Citation:Bedard, J.C., D.R. Deis, M.B. Curtis, and J.G. Jenkins. 2008. Risk monitoring and control in audit firms: A research synthesis. Auditing: A Journal of Practice & Theory 27 (1): 187-218.
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- research summary posted April 16, 2012 by The Auditing Section, tagged 05.0 Audit Team Composition, 05.06 Qualifications of Engagement Quality Reviewers, 11.0 Audit Quality and Quality Control, 11.02 Engagement Quality Review – Processes and EffectivenessTitle:Engagement Quality Reviews: A Comparison of Audit Firm PracticesPractical Implications:
Engagement quality review is one quality control mechanism used by public accounting firms to monitor the quality of audit engagements. In this study, the authors analyzed the concurring partner review process by reviewing six firms’ concurring partner review guidance. The authors argue that the analysis of this study provides a base for the PCAOB in setting its standard for engagement quality review.
Citation:Epps, Kathryn K.and W.F. Messier, Jr. 2007. Engagement Quality Reviews: A Comparison of Audit Firm Practices. Auditing: A Journal of Practice & Theory 26 (2): 167-181.
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- 01.0 Standard Setting
- 01.01 Changes in Reporting Formats
- 01.02 Changes in Audit Standards
- 01.03 Impact of New Accounting Pronouncements
- 01.04 Impact of 404
- 01.05 Impact of SOX
- 01.06 Impact of PCAOB
- 01.07 Impact of SEC Actions
- 02.0 Client Acceptance and Continuance
- 02.01 Audit Fee Decisions
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- 02.03 Management Integrity Assessments
- 02.04 Predecessor Auditor Factors
- 02.05 Business Risk Assessment - e.g., industry, IPO, complexity
- 02.06 Resignation Decisions
- 03.0 Auditor Selection and Auditor Changes
- 03.01 Auditor Qualifications
- 03.02 Dismissal Decisions – impact of restatements, disagreements, fees, mergers
- 04.0 Independence and Ethics
- 04.01 Scope of Services
- 04.02 Impact of Fees on Decisions by Auditors & Management
- 04.03 Non-Audit Services
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- 04.07 Audit Firm Rotation
- 04.08 Impact of SEC Rules Changes/SarbOx
- 04.09 Individual & Team Conduct - e.g., premature signoff, underreporting hours
- 05.0 Audit Team Composition
- 05.01 Use of Specialists e.g., financial instruments, actuaries, valuation
- 05.02 Industry Expertise – Firm and Individual
- 05.03 Partner Rotation
- 05.04 Staff Hiring, Turnover and Morale
- 05.05 Diversity of Skill Sets e.g., Tenure and Experience
- 05.06 Qualifications of Engagement Quality Reviewers
- 05.07 Impact of 150-hour requirement
- 05.08 Impact of Office Size
- 05.09 Group Decision-Making
- 05.10 Impact of Diversity - e.g., gender - on Group Decision Making
- 06.0 Risk and Risk Management, Including Fraud Risk
- 06.01 Fraud Risk Assessment
- 06.02 Fraud Risk Models
- 06.03 Failure Risk Models
- 06.04 Management Integrity
- 06.05 Assessing Risk of Material Misstatement
- 06.06 Earnings Management
- 06.07 SAS No. 99 Brainstorming – process
- 06.08 SAS No. 99 Brainstorming – effectiveness
- 06.09 Litigation Risk
- 06.10 Impact of office size
- 07.0 Internal Control
- 07.01 Scope of Testing
- 07.02 Assessing Material Weaknesses
- 07.03 Reporting Material Weaknesses
- 07.04 Assessing Remediation of Weaknesses
- 07.05 Impact of 404 on Fees and Financial Reporting Quality
- 08.0 Auditing Procedures – Nature, Timing and Extent
- 08.01 Substantive Analytical Review – Effectiveness
- 08.02 Sample Selection – use of statistical sampling
- 08.03 Conclusions Based on Samples
- 08.04 Auditors’ Professional Skepticism
- 08.05 Evaluating Accruals/Detection of Abnormal Accruals
- 08.06 Earnings Management – Detection and Response
- 08.07 Interim Testing Procedures – Nature, Timing and Extent
- 08.08 Projecting Interim Testing Conclusions Year End
- 08.09 Impact of Technology on Audit Procedures
- 08.10 Confirmation – Process and Evaluation of Responses
- 08.11 Reliance on Internal Auditors
- 09.0 Auditor Judgment
- 09.01 Audit Scope and Materiality Judgments
- 09.02 Documentation Specificity
- 09.03 Adequacy of Evidence
- 09.04 Going Concern Decisions
- 09.05 Failure Risk Models
- 09.06 Adequacy of Disclosure
- 09.07 GAAP Departures
- 09.08 Evaluation of Errors – Statistical and Non-statistical
- 09.09 Impact of Consultation on Judgments
- 09.10 Prior Dispositions/Biases/Auditor state of mind
- 09.11 Auditor judgment in the workpaper review process
- 09.12 Impact of potential post-audit review - e.g., PCAOB, internal firm inspections
- 09.13 Recognition vs. Disclosure
- 10.0 Engagement Management
- 10.01 Budgeting and Audit Time Management
- 10.02 Materiality and Scope Decisions
- 10.03 Interaction among Team Members
- 10.04 Interactions with Client Management
- 10.05 Interactions with Audit Committee Members
- 10.06 Audit Fees and Fee Negotiations
- 11.0 Audit Quality and Quality Control
- 11.01 Supervision and Review – Effectiveness
- 11.02 Engagement Quality Review – Processes and Effectiveness
- 11.03 Management/Staff Interaction
- 11.04 Industry Experience
- 11.05 Training and General Experience
- 11.06 Working Paper Review – Conduct, Biases and Predispositions
- 11.07 Attempts to Measure Audit Quality
- 11.08 Proxies for Audit Quality
- 11.09 Evaluation of Evidence
- 11.10 Impact of Quality Reviewers
- 11.11 Impact of Firm and External Inspection Programs
- 11.12 Impact of National Office on Auditor Decisions
- 11.13 Partner incentive schemes
- 12.0 Accountants’ Reports and Reporting
- 12.01 Going Concern Decisions
- 12.02 Quarterly Reviews
- 12.03 Restatements
- 12.04 Investigations
- 12.05 Changes in Reporting Formats
- 12.06 Consequences of Adverse 404 Opinions
- 12.07 Attestation Services
- 13.0 Governance
- 13.01 Board/Audit Committee Composition
- 13.02 Board/Financial Experts
- 13.03 Board/Audit Committee Tenure
- 13.04 Board/Audit Committee Compensation
- 13.05 Board/Audit Committee Oversight
- 13.06 Board/Audit Committee Processes
- 13.07 Internal auditor role and involvement in controls and reporting
- 14.0 Corporate Matters
- 14.01 Earnings Management
- 14.02 Corporate Whistle Blowers
- 14.03 Interim Reporting
- 14.04 MD and A Language/Signaling
- 14.05 Earnings Targets and Management Behavior
- 14.06 CFO Tenure and Experience
- 14.07 Executive Compensation
- 14.08 Press Release Language and Signaling
- 14.09 CEO Tenure and Experience
- 14.10 CEO Compensation
- 14.11 Audit Committee Effectiveness
- 15.0 International Matters
- 15.01 Audit Partner Identification by Name
- 15.02 IFRS Changes – Impacts
- 15.03 Audit Partner Rotation
- 15.04 Audit Firm Rotation
- 15.05 Sustainability Services