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research summary posted November 10, 2014 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.06 Impact of PCAOB, 09.0 Auditor Judgment, 09.04 Going Concern Decisions in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:Are PCAOB-Identified Audit Deficiencies Associated with a Change in Reporting Decisions of Triennially Inspected Audit Firms?Practical Implications:Our findings seem to support statements made by the PCAOB regarding the usefulness of the inspection process in changing audit firm behavior.
The change in GC reporting decisions that we find suggests either (1) an increased conservatism following a PCAOB inspection, of the audit firm on important reporting issues, and/or (2) an increased level of competence brought to the reporting decision.
It is important to note that we find no change in the accuracy of the GC opinions, as measured by the future bankruptcy (or not) for clients that received a GC opinion.
For more information on this study, please contact Jayanthi Krishnan.
Citation:Gramling, A.A., J. Krishnan and Y. Zhang. 2011. Are PCAOB-Identified Audit Deficiencies Associated with a Change in Reporting Decisions of Triennially Inspected Audit Firms? Auditing: A Journal of Practice and Theory 30 (3): 59-79.
- research summary posted October 22, 2014 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.04 Going Concern Decisions, 12.0 Accountants’ Reports and Reporting, 12.01 Going Concern Decisions in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:The Global Financial Crisis: U.S. Bankruptcies and Going-Concern Audit OpinionsPractical Implications:
As the PCAOB, SEC and other regulators assess auditors’ reporting decisions in the wake of the GFC, the results of our study provide evidence that the propensity to issue a GCO to a financially stressed and subsequently bankrupt client increased during the GFC. Our results suggest that critics of the auditors’ role during the GFC may have overstated a perceived problem based on relatively few bankruptcies without a prior GCO. At the same time, our results indicate that this increased scrutiny was similar for Big 4 and non-Big 4 auditors, but that it was largely restricted to smaller clients. Auditor going-concern modification decisions remain a complex process that is not fully understood or easily captured.
For more information on this study, please contact Marshall Geiger via email at mgeiger@richmond.edu.
Citation:Geiger, M.A., K. Raghunandan, and W. Riccardi. (2014). The global financial crisis: U.S. bankruptcies and going-concern audit opinions. Accounting Horizons 28 (1): 59-75.
- research summary posted April 17, 2014 by Jennifer M Mueller-Phillips, tagged 02.0 Client Acceptance and Continuance, 02.01 Audit Fee Decisions, 04.0 Independence and Ethics, 04.02 Impact of Fees on Decisions by Auditors & Management, 09.0 Auditor Judgment, 09.04 Going Concern Decisions in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:Auditor Fees and Auditor Independence: Evidence from Going Concern Reporting DecisionsPractical Implications:
The finding of this study suggest that concerns over the relation between auditor fees and the possible impairment of auditor independence, as reflected in going concern modification decisions, are supported in the more recent years for highly distressed clients. The relationship between auditor fees and impairment of auditor independence with respect to auditor decision-making has long been a concern of many regulators in the accounting industry. This research may inform both audit firms and standard setters with respect to specific types of engagements and the judgments or behaviors most likely to be affected.
For more information on this study, please contact Allen D. Blay.
Citation:Blay, A. D., and M. A. Geiger. 2013. Auditor Fees and Auditor Independence: Evidence from Going Concern Reporting Decisions. Contemporary Accounting Research 30 (2).
- research summary posted April 17, 2014 by Jennifer M Mueller-Phillips, tagged 02.0 Client Acceptance and Continuance, 02.05 Business Risk Assessment - e.g., industry, IPO, complexity, 08.0 Auditing Procedures – Nature, Timing and Extent, 08.04 Auditors’ Professional Skepticism, 09.0 Auditor Judgment, 09.04 Going Concern Decisions in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:How Do Auditors Behave During Periods of Market Euphoria? The Case of Internet IPOsPractical Implications:
Due to the potential for future market bubbles, the findings of this study may be of interest to audit regulators and standard setters. These finding suggest mixed conclusions regarding the Big 5’s behavior during periods of market euphoria. The presence of going concern opinions varies inversely with variables that represent client viability and auditor self-interest. Evidence that points to a decrease in the predictive value of Big 5 opinions signed during the Internet IPO bubble may also have consequences for investors.
For more information on this study, please contact Andrew J. Leone.
Citation:Leone, A. J., S. Rice, J. P. Weber, and M. Willenborg. 2013. How Do Auditors Behave During Periods of Market Euphoria? The Case of Internet IPOs. Contemporary Accounting Research 30 (1).
- research summary posted October 10, 2013 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.04 Going Concern Decisions, 12.0 Accountants’ Reports and Reporting, 12.01 Going Concern Decisions in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:The Auditor’s Going- Concern Opinion as a Communication of RiskPractical Implications:
The results of this study have very important implications to auditors of publicly traded firms whose audit reports are available to the general public. Auditors should always keep in mind that their opinion has great importance to the market’s perception of their client. The effects that issuing a going-concern modified audit opinion can have on the market perception of a firm’s value, as evidenced by the different market perceptions for similarly financially distressed firms when one had a going-concern modified report and one did not, are grave enough to warrant significant consideration by auditor’s deciding whether or not the going-concern modified opinion is necessary.
For more information on this study, please contact Allen D. Blay.
Citation:Blay, A.D., M.A. Geiger, and D.S. North. 2011. The auditor’s going- concern opinion as a communication of risk. Auditing: A Journal of Practice and Theory 30 (2): 77-102.
- research summary posted October 10, 2013 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.04 Going Concern Decisions, 11.0 Audit Quality and Quality Control, 11.04 Industry Experience in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:Auditor Differentiation, Mitigating Management Actions, and Audit-Reporting Accuracy for Distressed FirmsPractical Implications:
SAS No. 59 requires auditors to evaluate the adequacy and feasibility of management’s plans to mitigate financial distress. The results of this study show that industry specialization improves auditors’ ability to more accurately evaluate management’s initiatives and the likelihood of going-concern issues. Though BRA methodology was not shown to improve reporting accuracy, the implementation of the methodology was limited to only two firms at the time of the study. This study suggests the importance of auditor specialization in improving reporting accuracy which can impact the approach audit clients take in obtaining an auditor.
For more information on this study, please contact Liesbeth Bruynseels.
Citation:Bruynseels, L., W.R. Knechel, and M. Willekens. 2011. Auditor differentiation, mitigating management actions, and audit-reporting accuracy for distressed firms. Auditing: A Journal of Practice & Theory 30 (1): 1-20.
- research summary posted September 19, 2013 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.04 Going Concern Decisions, 11.0 Audit Quality and Quality Control, 11.09 Evaluation of Evidence in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:To What Extent are Auditors’ Attitudes toward the Evidence Influenced by the Self-Fulfilling Prophecy?Practical Implications:
This study is important to regulators, standard setters, users of financial information and the auditing professions as it relates to the going concern evaluation and biases in auditor judgment. If auditors are motivated to achieve a desired result to ensure that a client continues, then the negative perception of the going concern opinion and the public’s expectation gap of what a going concern means will remain. As such, the profession needs to evaluate whether the self-fulfilling prophecy exists and ways to address the lack of knowledge surrounding the going concern opinion.
For more information on this study, please contact Andres Guiril.
Citation:Guiral, A., Ruiz, E. and W. Rodgers. 2011. To What Extent are Auditors’ Attitudes toward the Evidence Influenced by the Self-Fulfilling Prophecy? Auditing: A Journal of Practice and Theory 30 (1): 173-190.
research summary posted April 13, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.04 Going Concern Decisions in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:“Order Effects” Revisited: The Importance of ChronologyPractical Implications:The results of this study are important for auditors to consider when making going concern assessments as well as other audit judgments. Specifically, auditors should consider the importance of establishing the chronological order of audit evidence to avoid presentation order effects inappropriately influencing their judgments
Citation:Favere-Marchesi, M. 2006. “Order Effects” Revisited: The Importance of Chronology. Auditing: A Journal of Practice and Theory
25 (1): 69-83.Home:
- research summary posted May 9, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.04 Going Concern Decisions, 12.0 Accountants’ Reports and Reporting, 12.01 Going Concern Decisions in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:The Effects of Experience on Complex Problem Representation and Judgment in Auditing: An Experimental InvestigationPractical Implications:
The results of this study have implications for training future professionals. In the classroom problem-solving techniques that more closely resemble the experienced group can be incorporated to advance professionals to the expert level faster. Further, a stage approach may be more efficient. This idea incorporates having two “expert systems”, one to move novices to the intermediate level of knowledge more quickly and another to move intermediates up to the level of experts faster.
Citation:Lehmann, C.M., and C.S. Norman. 2006. The effects of experience on complex problem representation and judgment in auditing: an experimental investigation. Behavioral Research in Accounting 18 (1): 65-83.
Home: - research summary posted April 13, 2012 by The Auditing Section, tagged 09.04 Going Concern Decisions, 12.0 Accountants’ Reports and Reporting, 12.01 Going Concern Decisions in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:Recent Changes in the Association between Bankruptcies and Prior Audit OpinionsPractical Implications:
The evidence from this study can beused to support the perspective that the auditing profession is essentially self-correcting in that it seeks to maintain a positive image and control litigation costs. This has practical implications for regulators and legislators in that these groups should evaluate the extent of the auditing profession’s changed behavior in the post-December 2001 period before promulgating further detailed, prescriptive regulations. Specifically, this study implies that there are multiple ways to influence auditor behavior in addition to the traditional means of changing laws and auditing standards, such as litigation, harsh media and congressional pressure. Another source of pressure on auditor behavior, not included in the article, would be the threat of sanctions on firms and individual partners (which arguably becomes more visible in recent years with the presence of PCAOB). Further, this study has implications for regulators and legislators in that it provides evidence that auditors’ increased conservatism did not result in longer audit delays.
Citation:Geiger, M. A., K.
Raghunandan, and D. V. Rama. 2005. Recent Changes in the Association between Bankruptcies and Prior Audit Opinions. Auditing:
A Journal of Practice and Theory 24 (1): 21-35.Home: