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  • Jennifer M Mueller-Phillips
    Are Juries More Likely to Second-Guess Auditors Under...
    research summary posted August 31, 2016 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.09 Litigation Risk, 12.0 Accountants’ Reports and Reporting, 12.04 Investigations, 15.0 International Matters, 15.02 IFRS Changes – Impacts 
    Title:
    Are Juries More Likely to Second-Guess Auditors Under Imprecise Accounting Standards?
    Practical Implications:

     The results of this study have implications for regulatory agencies and standard-setting bodies. As regulators contemplate whether to mandate IFRS and standard setters determine the level of implementation guidance for new standards, the litigation consequences of standard precision are an important consideration. Further, these results highlight the importance of regulators developing ways for jurors to evaluate audit judgments under imprecise standards, especially in industries and areas without precise industry reporting norms. Prior discussion on this issue has focused on how professional judgment frameworks are necessary to protect auditors and their clients from second guessing. This study suggests that judgments frameworks, if effective, may help protect auditors who make conservative judgments and also help hold auditors accountable for overly aggressive judgments.

    Citation:

     Kadous, K., and M. Mercer. 2016. Are Juries More Likely to Second-Guess Auditors Under Imprecise Accounting Standards? Auditing: A Journal of Practice and Theory 35 (2): 101-117.

  • Jennifer M Mueller-Phillips
    How Much Does IFRS Cost? IFRS Adoption and Audit Fees.
    research summary posted September 14, 2015 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.06 Audit Fees and Fee Negotiations, 15.0 International Matters, 15.02 IFRS Changes – Impacts 
    Title:
    How Much Does IFRS Cost? IFRS Adoption and Audit Fees.
    Practical Implications:

    The authors document and quantify audit fees as a significant cost associated with mandatory adoption of IFRS. The empirical results concerning small firms also inform discussions on the appropriateness of mandated IFRS regulations for small to mid-sized entities. Given the emphasis of auditing in the proposed roadmap for U.S. convergence to IFRS, the results will be of particular importance to U.S. firms, auditors, and regulators. On a broader level, the authors document variation in the costs of IFRS adoption that provides insight into the significant variation in the net benefit observed in previous studies. For instance, the authors find evidence that certain IFRS requirements have higher compliance costs than others, which explains the significant heterogeneity in compliance costs during the adoption of IFRS. 

    Citation:

    De George, E. T., C. B. Ferguson, and N. A. Spear. 2013. How Much Does IFRS Cost? IFRS Adoption and Audit Fees. Accounting Review 88 (2): 429-462.

  • Jennifer M Mueller-Phillips
    The Impact of Principles-Based versus Rules-Based Accounting...
    research summary posted July 20, 2015 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.03 Adequacy of Evidence, 15.0 International Matters, 15.02 IFRS Changes – Impacts 
    Title:
    The Impact of Principles-Based versus Rules-Based Accounting Standards on Auditors' Motivations and Evidence Demands.
    Practical Implications:

    The heightened epistemic motivation induced by principles-based accounting standards then ultimately increases auditors’ demands for audit evidence. Thus, the results suggest the important influence of accounting standards on auditors’ motivations and consequent program planning decisions. The findings provide valuable information to regulators in their evaluation of how or whether to move forward with potential IFRS adoption or convergence of U.S. GAAP with IFRS. In a principles environment, audit firms must take measures to guard against this potential bias, e.g., review of proposed audit programs and results of tests.

    Citation:

    Peytcheva, M., Wright, A. M., & Majoor, B. 2014. The Impact of Principles-Based versus Rules-Based Accounting Standards on Auditors' Motivations and Evidence Demands. Behavioral Research In Accounting 26 (2): 51-72.

  • Jennifer M Mueller-Phillips
    How Does the Strength of the Financial Regulatory Regime...
    research summary posted November 26, 2014 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 15.0 International Matters, 15.02 IFRS Changes – Impacts 
    Title:
    How Does the Strength of the Financial Regulatory Regime Influence Auditors’ Judgments to Constrain Aggressive Reporting in a Principles-Based Versus Rules-Based Accounting Environment?
    Practical Implications:

    From a public policy perspective, the results indicate that auditors’ judgments under principles-based standards, regardless of the strength of the financial regulatory regime, lead to more conservative reporting when compared to rules-based standards coupled with a stronger financial regulatory regime, which is how the U.S. environment is often characterized. The results also provide insights to regulators who are concerned about the implementation of IFRS across different countries with varying regulatory standards.

    For more information on this study, please contact Jeffrey R. Cohen.

    Citation:

    Cohen, J. R., G. Krishnamoorthy, M. Peytcheva, and A. M. Wright. 2013. How does the strength of the financial regulatory regime influence auditors' judgments to constrain aggressive reporting in a principles-based versus rules-based accounting environment? Accounting Horizons 27 (3): 579-601.

  • Jennifer M Mueller-Phillips
    The Impact of Mandatory IFRS Adoption on Audit Fees: Theory...
    research summary posted November 25, 2014 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.06 Audit Fees and Fee Negotiations, 15.0 International Matters, 15.02 IFRS Changes – Impacts 
    Title:
    The Impact of Mandatory IFRS Adoption on Audit Fees: Theory and Evidence
    Practical Implications:

    This study should be of interest to regulators and policy makers. IFRS adoption influences audit complexity and financial reporting quality, which have countervailing effects on audit fees. On the one hand, IFRS are generally believed to be superior to local accounting standards; hence the adoption of IFRS potentially improves financial reporting quality. This reduces audit risk and thus audit fees. On the other hand, IFRS are comprehensive, fair-value oriented, and principles-based. Using them generally requires accountants and auditors to make more complex estimates and use greater professional judgment. In other words, IFRS adoption increases the complexity of audits, which can increase audit fees. Our results suggest that, on average, the effect of audit complexity dominates the effect of improvement in financial reporting quality, leading to an overall increase in audit fees in the post-IFRS period. Moreover, our cross-country analysis sheds light on how the institutional features of different countries, including legal environments and characteristics of pre-IFRS domestic accounting standards, affect the audit fee increase associated with IFRS adoption.

    For more information on this study, please contact Xiaohong Liu.

    Citation:

    Kim, J.-B., X. Liu, and L. Zheng. 2012. The impact of mandatory IFRS adoption on audit fees: Theory and evidence. The Accounting Review 87 (6): 2061-2094.

  • Jennifer M Mueller-Phillips
    Preparers’ Perceptions of the Costs and Benefits of IFRS: E...
    research summary posted November 12, 2014 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 15.0 International Matters, 15.02 IFRS Changes – Impacts 
    Title:
    Preparers’ Perceptions of the Costs and Benefits of IFRS: Evidence from Australia’s Implementation Experience
    Practical Implications:

    Respondents tended to be quite negative about IFRS, with responses conveying a strong sense of IFRS being more trouble than it was worth.  It is possible that these preparers were biased by the immediacy of the problems involved and the relative remoteness of the benefits of IFRS. It may be that preparers’ perceptions of IFRS have become more positive as the new system has bedded down and the postulated benefits realized, but we cannot tell from our data. However, the findings do provide insights about the kinds of concerns that may arise on the implementation of IFRS, from a preparers’ perspective, and so are likely to be relevant to any country taking on the IFRS challenge in the future.

     

    For more information on this study, please contact Richard D. Morris.

    Citation:

    Morris, R. D., S. J. Gray, J. Pickering, and S. Aisbitt. 2014. Preparers' Perceptions of the Costs and Benefits of IFRS: Evidence from Australia's Implementation Experience. Accounting Horizons 28 (1): 141-173.

  • Jennifer M Mueller-Phillips
    The Influence of Process Accountability and Accounting...1
    research summary last edited October 22, 2014 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 15.0 International Matters, 15.02 IFRS Changes – Impacts 
    Title:
    The Influence of Process Accountability and Accounting Standard Type on Auditor Usage of a Status Quo Heuristic
    Practical Implications:

    The results of this study are important for both audit firms and regulators to consider as standards change to become more principles-based (or as firms move towards using IFRS). The evidence indicates that auditors will sometimes fixate on the prior year accounting treatment, even if the applicable accounting standard has changed, and/or there are changes in the scenario. However, this bias towards maintaining the status quo can be mitigated by holding auditors accountable for their decision making process, particularly through a partner asking about the auditors’ decision making process.

     

    For more information on this study, please contact Scott Vandervelde.

    Citation:

    Messier, Jr., W. F., L. A. Quick, and S. D. Vandervelde. 2014. The influence of process accountability and accounting standard type on auditor usage of a status quo heuristic. Accounting, Organizations and Society 39 (1): 59-74

    Recent Comments (1 of 1)

  • Jennifer M Mueller-Phillips
    Does Mandatory IFRS Adoption Improve the Information...
    research summary posted April 17, 2014 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards, 15.0 International Matters, 15.02 IFRS Changes – Impacts 
    Title:
    Does Mandatory IFRS Adoption Improve the Information Environment?
    Practical Implications:

    The results of this study have important implications for the debate on the globalization of accounting standards and for regulators that are considering a transition towards IFRS. Although the effects of IFRS adoption are not homogenous for all firms, the adoption of one set of accounting standards is likely to generate both information and comparability effects and improve the quality of information intermediation in capital markets.

    For more information on this study, please contact Joanne Horton.
     

    Citation:

    Horton, J., G. Serafeim, and I. Serafeim. 2013. Does Mandatory IFRS Adoption Improve the Information Environment? Contemporary Accounting Research 30 (1).

  • Jennifer M Mueller-Phillips
    Rules-Based Accounting Standards and Litigation
    research summary posted September 26, 2013 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.09 Litigation Risk, 12.0 Accountants’ Reports and Reporting, 12.05 Changes in Reporting Formats, 15.0 International Matters, 15.02 IFRS Changes – Impacts 
    Title:
    Rules-Based Accounting Standards and Litigation
    Practical Implications:

    This study exploits variation in U.S. accounting standards to study the effect of rules-based standards on litigation. It provides evidence of an association between rules-based accounting standards and a lower incidence of securities class action litigation. This evidence informs the debate about switching from a more rules-based U.S. GAAP to a more principles based IFRS.


    For more information on this study, please contact John McInnis.
     

    Citation:

    Donelson, D., J. McInnis, and R. Mergenthaler. 2012. Rules-Based Accounting Standards and Litigation. The Accounting Review 87 (4): 1247-1279.

  • Jennifer M Mueller-Phillips
    Can Reporting Norms Create a Safe Harbor? Jury Verdicts...
    research summary last edited September 19, 2013 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.09 Litigation Risk, 15.0 International Matters, 15.02 IFRS Changes – Impacts 
    Title:
    Can Reporting Norms Create a Safe Harbor? Jury Verdicts against Auditors under Precise and Imprecise Accounting Standards
    Practical Implications:

    The results of this study are important for audit firms to prepare for the adoption of IFRS and/or less precise standards under U.S. GAAP. The results indicate that a move to less precise standards will not necessarily result in more verdicts against auditors. There is only one condition in which an imprecise standard leads juries to return more verdicts against the auditor: when the client’s reporting complies with the precise standard and is inconsistent with the industry reporting norm. The results suggest that auditors can reduce this liability by ensuring that their client’s reporting is consistent with industry reporting norm.

    For more information on this study, please contact Kathryn Kadous.
     

    Citation:

    Kadous, K., and M. Mercer. 2012. Can Reporting Norms Create a Safe Harbor? Jury Verdicts against Auditors under Precise and Imprecise Accounting Standards. The Accounting Review 87 (2):565-587.

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