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research summary posted February 20, 2017 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards, 06.0 Risk and Risk Management, Including Fraud Risk, 06.01 Fraud Risk Assessment, 06.07 SAS No. 99 Brainstorming – process, 08.0 Auditing Procedures – Nature, Timing and Extent, 08.04 Auditors’ Professional Skepticism, 10.0 Engagement Management, 10.03 Interaction among Team Members in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:A Field Survey of Contemporary Brainstorming PracticesPractical Implications:Understanding that auditors allocate greater resources to fraud brainstorming when engagement risk is significant fosters brainstorming of a superior caliber corresponds to stronger regulatory compliance. Auditors report that engagement teams are holding fraud brainstorming sessions earlier in the audit, document more detailed risk assessments, plan more specific procedures, and retain more documentation. These characteristics contribute to adequately addressing increased PCAOB regulatory scrutiny. Additionally, brainstorming sessions are highly regarded when they occur in a face-to-face fashion and are attended by multiple levels of firm personnel—whether that is “core” or “non-core” professionals. Fraud brainstorming sessions are executed less mechanically (as determined by PCAOB inspectors) by using fewer checklists and increase the amount of time auditors prepare for brainstorming sessions.
Citation:Dennis, S. A., and K. M. Johnstone. 2016. A Field Survey of Contemporary Brainstorming Practices. Accounting Horizons 30 (4): 449–472.
- research summary posted October 15, 2013 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards, 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind, 11.0 Audit Quality and Quality Control in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:An Examination of the Credence Attributes of an AuditPractical Implications:
At its core, the theory proposed by the authors assumes that auditors are economic agents who provide a valuable service and can be expected to behave rationally to maximize their profits. Strategic behaviors such as under-auditing, over-auditing, or overbilling would be unobservable by an auditee in many instances. The possibility of such behaviors has important implications for the level of assurance over financial reports and can potentially affect the efficient allocation of capital resources. One of the goals of this study was to analyze how the credence aspect of audits could influence important policy decisions. Regulation may play a powerful role in mitigating the credence nature of auditing, e.g., PCAOB inspections. However, regulation can be a double-edged sword if it increases the incentive or opportunity for auditors to behave strategically. Therefore, auditors can take the theories and models presented in this study to evaluate their firms for potential profit maximizing biases that may negatively impact audit quality and efficiency. Policy makers could also use these theories and models to evaluate how new auditing policies might influence auditors’ incentives and behaviors.
For more information on this study, please contact W. Robert Knechel.
Citation:Causholli, M., and W. R. Knechel. 2012. An Examination of the Credence Attributes of an Audit. Accounting Horizons 26(4): 631-656.
- research summary posted March 4, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:An Inductive Typology of Auditing ResearchPractical Implications:
This study has certain limitations that could be tackled in future research: in particular, the sample is based on published articles from 25 journals, therefore neglecting other journals and “grey literature”. However, this inductive typology could be further applied to present a structured framework of auditing research, and to analyze trends and emerging issues in comparative and/or longitudinal studies, research reports, and the like. Future investigations of the way research themes emerge and evolve should certainly contribute to a better understanding of auditing research.
For more information on this study, please contact Cedric Lesage.
Citation:Lesage, C. and H. Wechtler. 2011. An Inductive Typology of Auditing Research. Contemporary Accounting Research 29 (2): 487-504.
- research summary posted May 28, 2014 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards, 05.0 Audit Team Composition, 05.03 Partner Rotation in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:Audit Partner Tenure and Cost of Equity CapitalPractical Implications:
Prior research suggests that the length of auditor-client relationship affects audit quality, and, therefore, the integrity and information risk associated with a clients’ financial reporting. This study attempts to examine the effects of audit engagement partner tenure and rotation on investors’ perceptions. The results of this study raise important questions for future research. It is not known to what extent investors or analysts are aware of the audit partner’s identity or pay attention to audit partner tenure. If investors or analysts do not consider partner tenure, future research may identify omitted variables that have the same nonlinear relationship with the ex ante cost of capital that we observe for non-Big 4 audit partner tenure.
Citation:Azizkhani, M., G. S. Monroe, and G. Shailer. 2013. Audit Partner Tenure and Cost of Equity Capital. Auditing 32 (1).
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- research summary posted March 30, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards, 01.03 Impact of New Accounting Pronouncements, 01.04 Impact of 404 in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:Balancing the Costs and Benefits of Auditing and Financial Reporting Regulation Post-SOX, Part I: Perspectives from the Nexus at the SECPractical Implications:
The results of this study are important because they illuminate the impact of new accounting rules on standard setters and companies abiding by these rules (in this case, the specific context was the implementation process related to SOX Section 404). The study suggests that a number of steps are required in order to perfect the guidance. It is important to understand the meaning and intentions behind authoritative literature in order to follow it. The observations suggest that the process for implementing new guidance has room for change, yet has evolved over time to increase effectiveness. The findings are specific to the implementation for assessment and auditing of internal controls for public companies.
For more information on this study, please contact Zoe-Vonna Palmrose (zv.palmrose@marshall.usc.edu).
Citation:Palmrose, Z.-V. 2010. Balancing the Costs and Benefits of Auditing and Financial Reporting Regulation Post-SOX, Part I: Perspectives from the Nexus at the SEC. Accounting Horizons 24 (2):313-326.
- research summary posted September 21, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.01 Changes in Reporting Formats, 01.02 Changes in Audit Standards, 08.0 Auditing Procedures – Nature, Timing and Extent, 08.09 Impact of Technology on Audit Procedures, 09.0 Auditor Judgment in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:Big Data in Accounting: An Overview.Practical Implications:
The availability of Big Data will precipitate substantive changes in accounting education, research, and practice. In education, in particular accounting and auditing, the use of Big Data will increase the statistical and IT content in curricula, probably breaking the current set of limitations represented in the CPA exam. Research in the more traditional fields in accounting, such as capital markets research, will benefit from dimensional increases in data availability and will be conditional on improvements of the researcher’s skill sets in areas such as modeling, statistics, and text mining. Practice, in particular internal audit departments, will be the leading facilitator of accounting Big Data usage, while attempting to keep abreast or in sync with the developments in corporate data utilization in fields like marketing, supply chain, and customer services.
Citation:Vasarhelyi, M. A., A. Kogan, and B. M. Tuttle. 2015. Big Data in Accounting: An Overview. Accounting Horizons 29 (2): 381-396.
- research summary posted September 21, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:Commentaries on Big Data's Importance for Accounting and Auditing.Practical Implications:
This set of commentaries presents a strong challenge to the accounting and auditing profession. Perhaps the greatest risk is the slow pace of adjustment of auditors and accountants to the new realities of Big Data/business analytics, which most accounting firms today would agree is absolutely essential to managing and maintaining competitive advantage. Academics, as educators, certainly must revamp their accounting and auditing curricula to provide the necessary skills for Big Data in the accounting and auditing profession. Researchers, too, have a responsibility to analyze Big Data datasets and to generate results that would better understand the contribution of Big Data for operations and decision making, and how the benefits of Big Data might flow to firm managers, company stakeholders, and the public at large.
Citation:Griffin, P. A., and A. M. Wright. 2015. Commentaries on Big Data's Importance for Accounting and Auditing. Accounting Horizons 29 (2): 377-379.
- research summary posted September 21, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.01 Changes in Reporting Formats, 01.02 Changes in Audit Standards, 10.0 Engagement Management, 10.02 Materiality and Scope Decisions in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:Consequences of Big Data and Formalization on Accounting and Auditing Standards.Practical Implications:
In light of cost reductions in data generation, storage, retrieval, and transmission, the inherent compromises within the paper paradigm are of little benefit. Users are entitled to more in-depth, granular values that they can manipulate, drilling down and up for more or less detail where needed. Financial reporting standards that govern presentation and arbitrary aggregation must likewise give way to rules regarding the limits and frequency of data transmission, as well as the quality of those data.
Audit standards must change as well. Error detection and risk quantification are no longer sufficient targets, but must be seen as small components of an audit of broader scope. The deep analysis of tremendous volumes of data and potentially thousands of exception reports necessitates a different paradigm of reporting and assurance. The role of auditing standards, far from being diminished in the face of increasing automation, must shift from governing sampling procedures to embracing the broader, deeper data availability and analysis of the modern era in an effort to create a better, more thorough audit.
Citation:Krahel, J. P., and W. R. Titera. 2015. Consequences of Big Data and Formalization on Accounting and Auditing Standards. Accounting Horizons 29 (2): 409-422.
- research summary posted April 19, 2017 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:Current Practices and Challenges in Auditing Fair Value Measurements and Complex Estimates: Implications for Auditing Standards and the AcademyPractical Implications:
This study provides a more in-depth understanding of current audit practices related to auditors’ use of substantive approaches outlined in AS 2502. These results provide several important new insights, including more clearly distinguishing between auditors’ use of pricing services and valuation specialists and factors that drive this decision, as well as provide additional insights regarding differences in the use of valuation specialists for financial and nonfinancial FVMs. Finally, the results shed new light on whether audit challenges differ for financial versus nonfinancial FVMs.
Citation:Glover, S. M., M. H. Taylor, and Y. Wu. 2017. Current Practices and Challenges in Auditing Fair Value Measurements and Complex Estimates: Implications for Auditing Standards and the Academy. Auditing: A Journal of Practice and Theory 36 (1): 63 – 84.
- research summary posted January 20, 2016 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards, 01.03 Impact of New Accounting Pronouncements, 05.0 Audit Team Composition, 05.05 Diversity of Skill Sets e.g., Tenure and Experience, 12.0 Accountants’ Reports and Reporting, 12.01 Going Concern Decisions, 15.0 International Matters, 15.01 Audit Partner Identification by Name in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:Discussion of “Does the Identity of Engagement Partners Matter? An Analysis of Audit Partner Reporting Decisions”.Practical Implications:
This discussion emphasizes significant caution when interpreting the results of the study. Mainly, it is unclear if results of the study can generalize to the broader public company market in the US. Furthermore, if the results are misinterpreted (i.e., individual auditors are not systematically aggressive but, instead, high quality auditors are systematically assigned the riskiest clients) then regulation requiring audit partner identification could actually have overall negative effects on overall audit quality.
Citation:Kinney, W.R. 2015. Discussion of “Does the Identity of Engagement Partners Matter? An Analysis of Audit Partner Reporting Decisions”. Contemporary Accounting Research 32 (4):1479-1488.