Accounting Commons^™

The Risk Associated With The One-Partner Audit Team Scenario: A Preliminary Study, Khalid R. Al-Adeem

Jurnal Akuntansi dan Keuangan Indonesia

An accounting firm may bear the risk associated with the partner supervising the engagement. This study aims to explore the dynamics within the audit engagement to illustrate the potential consequences of the partner's actions and decisions that extend beyond the firm. A synthesis of three theories, namely functional organization theory, the power of lower participants theory, and the third dimension of power theory, reveals the power distribution between the partner leading the audit engagement and other participating auditors. While the functional organization theory and the second and third dimensions of power theory suggest that the lead partner holds more power, …

Information Sharing Between Mutual Funds And Auditors, Ole‐Kristian Hope, Pingui Rao, Yanping Xu, Heng Yue

Research Collection School Of Accountancy

This paper examines whether there is information sharing between mutual funds and their auditors about the auditors’ other listed firm clients. Using data from the Chinese market, we find that mutual funds earn higher profits from trading in firms that share the same auditors. The effects are more pronounced when firms have a more opaque information environment and when the audit partners for the fund and the partners for the listed firm share school ties. The evidence is consistent with information flowing from auditors to mutual funds, providing mutual funds with an information advantage in firms that share the same …

Early Evidence On Critical Audit Matters In Expanded Audit Reports, Maria Koch

Honors Theses and Capstones

No abstract provided.

Technology Based Audit Tools: Implications For Audit Quality, Annie L. Witte

2020

Technology as an exogenous shock has proven to have pervasive effects on auditing firms, practitioners, regulators, and global markets. However, the dynamic nature of technology makes it uniquely challenging to articulate technology’s largescale implications on the auditing profession in recent times. Understanding how current technology has helped shape the contemporary auditing profession is vital to identify points of inflection within the industry (i.e., areas of risk and change), and key to elucidating the future of where the field is going.

The first paper (sole-authored) is a literature review that synthesizes auditing studies across methodologies, including archival, experimental, and qualitative methods. …

Information Sharing Between Mutual Funds And Auditors, Ole-Kristian Hope, Pingui Rao, Yanping Xu, Heng Yue

Research Collection School Of Accountancy

This paper examines whether there is information sharing between mutual funds and their auditors about the auditors’ other listed firm clients. Using detailed hand-collected data from the Chinese market and employing levels, changes, and PSM analyses, we find that mutual funds earn higher profits from trading in firms that share the same auditors. The effects are more pronounced when firms have a more opaque information environment and when the audit partners for the fund and the partners for the listed firm share school ties. The evidence is consistent with information flowing from auditors to mutual funds, providing mutual funds with …

Audit Committee Effectiveness: A Synthesis Of The Empirical Audit Committee Literature, F. Todd Dezoort, Dana R. Hermanson, Deborah S. Archambeault, Scott A. Reed

Deborah Archambeault

The article describes the factors that contribute to audit committee effectiveness. An effective audit committee has qualified members with the authority and resources to protect stakeholder interests by ensuring reliable financial reporting, internal controls, and risk management through its diligent oversight efforts. The determinants of audit committee effectiveness includes the audit committee composition, authority, resources and diligence. The major U.S. stock exchanges require that audit committees be composed of at least three independent, financially literate directors. Team issues also are relevant when considering audit committee composition. The audit committee derives its authority from the full board of directors, federal law …

Going-Concern Opinions: Broadening The Expectations Gap, Michael D. Akers, Meredith A. Maher, Don Giacomino

Michael D. Akers

A rash of high-profile bankruptcies has led to a search for answers. Many hold auditors responsible for not detecting the potential for bankruptcy during the most recent audit. The Weiss Report, a study of several dozen bankrupt companies submitted to the U.S. Senate during its deliberations on the Sarbanes-Oxley Act, found a "broad and massive failure" on the part of auditors to raise "yellow flags" that indicate potential bankruptcy. The authors examined Weiss' methodology and found that, applied to a broader group of companies, Weiss' criteria would have incorrectly predicted bankruptcy for nearly half of the non-bankrupt companies studied. This …

The Effect Of Gender And Parental Role On Auditor's Profesional Career Advancement In A Gender Egalitarian Context: Danish Evidence, Carolyn Windsor

Carolyn Windsor

Gender equality in the workplace is vital to ensure fair access to social, economic and political influence associated with career advancement. International labour studies show women are still concentrated in lower level management positions. The auditing profession is no different with few women attaining partner level. This research investigates whether parental role and gender affects career advancement of professional auditors employed by transnational audit firms in Denmark where institutional family policies encourage gender egalitarianism. A three-way analysis of covariance examines the dependent variable of management at four levels including partner to non-management employee, plus the independent factors of gender, parental …

How Do Regulatory Reforms To Enhamce Audito Independence Work In Practice?, Krista Fiolleau, Kris Hoang, Karim Jamal, Shyam Sunder

Shyam Sunder

No abstract provided.

Engaging Auditors: Field Investigation Of A Courtship, Shyam Sunder

Shyam Sunder

No abstract provided.

The Influence Of Irrelevant Information On Is Auditor Key Risk Factor Predictions, Daniel D. Selby

Accounting Faculty Publications

Can information systems (IS) auditors ignore irrelevant information when they assess key risk factors (KRFs)? Irrelevant information is information that is of little or no value to a specific task or predicted future outcome. When assessing a KRF, IS auditors sift through numerous pieces of information to target items that are relevant to understanding the KRF. Some items encountered by IS auditors may be relevant to understanding the KRF, while other items encountered may be irrelevant. IS auditors should ignore irrelevant information when they assess KRFs.

An example of irrelevant information that an IS auditor may encounter during a financial …

Audit Quality And Accrual Persistence: Evidence From The Pre- And Post-Sarbanes-Oxley Periods, Dennis Chambers, Jeff L. Payne

Faculty and Research Publications

Purpose – The purpose of this paper is two-fold: first, to examine whether the quality of accruals, as measured by accrual persistence, improved in the post-Sarbanes-Oxley (SOX) period, and second, to examine the degree to which SOX-related improvement in accrual persistence varies across companies depending on the degree of their auditor's independence.

Design/methodology/approach – The paper compares accrual persistence in the pre- and post-SOX periods to test the first question. Then, partitioning on relative client importance as a measure of auditor independence, the paper compares the SOX-based improvement for clients of low and high independence audit firms.

Findings – The …

The Impact Of Cultural Environment On Entry-Level Auditors’ Abilities To Perform Analytical Procedures, James F. Sander, Susan B. Hughes, Scott D. Higgs, Charles P. Cullinan

James F. Sander

We focus on the impact of three of Hofstede’s cultural dimensions, power distance, uncertainty avoidance, and individualism, on the results of analytical procedures conducted by entry-level auditors in Mexico and the U.S. Analytical procedures are ideal for this research as they require auditors to use professional judgment and appropriate levels of professional skepticism, abilities related to all three cultural characteristics. We find no other study investigating the impact of culture on the application of auditing procedures similar across the studied cultures. We find cultural characteristics do not affect the participants’ abilities to predict income statement balances, but they may influence …

Auditor Independence: Third Party Hiring And Paying Auditors, Silvia Romero

Department of Accounting and Finance Faculty Scholarship and Creative Works

Purpose – Although the Sarbanes Oxley Act (SOX) has introduced rules to avoid auditor independence impairment, there are still issues that are not sufficiently solved. The purpose of this paper is to discuss the problems of auditor independence that arise by auditors being hired and paid by the auditee, and by SOX requiring rotation of only the lead audit partner. Design/methodology/approach – The paper takes the form of a discussion paper, exploring alternatives to overcome the mentioned issues of independence. Findings – The paper presents an alternative where auditors are hired and paid by an external third party. Besides this …

Engaging Auditors: Field Investigation Of A Courtship, Shyam Sunder

Shyam Sunder

No abstract provided.

An Analysis Of Consensus Among Auditors During Internal Control Evaluations – Australian Evidence, Conor O'Leary, Errol Iselin, Divesh Sharma

Errol Iselin

This study evaluates consensus among Australian auditors in performing internal control evaluations. It extends previous international studies by utilising sufficient cues to enable valid assessment, by including all elements of internal control structure concurrently, and by using appropriate subjects. Ninety-four practicing auditors, representing five firms, evaluated two internal control structures using their current firms' evaluation techniques and a structured model. Results yielded predominantly moderate to high levels of consensus, justifying confidence in the audit profession to act in a self-regulatory manner, as current standards and training appear to be achieving inter-professional agreement.

A Survey Of The Oversight Of External Auditors Through The Lenses Of Audit Committee Chairmen, See Liang Foo, Luck Pia Ng, Kwong Sin Leong, Yang Hoong Pang

Research Collection School Of Accountancy

No abstract provided.

The Impact Of Cultural Environment On Entry-Level Auditors’ Abilities To Perform Analytical Procedures, James F. Sander, Susan B. Hughes, Scott D. Higgs, Charles P. Cullinan

Scholarship and Professional Work - Business

We focus on the impact of three of Hofstede’s cultural dimensions, power distance, uncertainty avoidance, and individualism, on the results of analytical procedures conducted by entry-level auditors in Mexico and the U.S. Analytical procedures are ideal for this research as they require auditors to use professional judgment and appropriate levels of professional skepticism, abilities related to all three cultural characteristics. We find no other study investigating the impact of culture on the application of auditing procedures similar across the studied cultures.

We find cultural characteristics do not affect the participants’ abilities to predict income statement balances, but they may influence …

Sox Section 404 Material Weaknesses Related To Revenue Recognition, Dana R. Hermanson, Daniel M. Ivan, Susan H. Iva

Faculty and Research Publications

The article analyzes disclosures of material weaknesses in internal control after the implementation of U.S. Sarbanes-Oxley Act of 2002 (SOX) 404 and summarizes the efforts of firms to remediate such material weaknesses. According to SOX section 404, management must issue a report on the effectiveness of the internal control of the firm over financial reporting. It notes that a report must be issued by the external auditor expressing an opinion on the effectiveness of internal control over financial reporting.

Disaster Recovery Planning: What Section 404 Audits Reveal, Dana R. Hermanson, Daniel M. Ivancevich, Susan H. Ivancevich

Faculty and Research Publications

This article summarizes U.S. Sarbanes-Oxley Act section 404 internal control reports that reveal material weaknesses due to inadequate disaster recovery planning. According to the authors, Section 404 applies to public companies with over $75 million in public float. They advise that auditors evaluating internal control over financial reporting must consider key information technology-related risks and controls that affect financial reporting, including issues related to disaster recovery planning.

The Fraud Diamond: Considering The Four Elements Of Fraud, David T. Wolfe, Dana R. Hermanson

Faculty and Research Publications

Focuses on the use of the elements of the fraud diamond to prevent and detect accounting fraud. Essential traits for committing fraud; Steps in assessing fraud risk through the use of the fourth element of the diamond; Ways for auditors to prevent potential fraud.

Going-Concern Opinions: Broadening The Expectations Gap, Michael D. Akers, Meredith A. Maher, Don Giacomino

Accounting Faculty Research and Publications

A rash of high-profile bankruptcies has led to a search for answers. Many hold auditors responsible for not detecting the potential for bankruptcy during the most recent audit. The Weiss Report, a study of several dozen bankrupt companies submitted to the U.S. Senate during its deliberations on the Sarbanes-Oxley Act, found a "broad and massive failure" on the part of auditors to raise "yellow flags" that indicate potential bankruptcy. The authors examined Weiss' methodology and found that, applied to a broader group of companies, Weiss' criteria would have incorrectly predicted bankruptcy for nearly half of the non-bankrupt companies studied. This …

The Role Of Bargaining Style In Public Company Audits, Heather M. Hermanson, Kurt S. Schulzke, G. Richard Shell

Faculty and Research Publications

According to prior auditing research, negotiation plans an important role in audit outcomes. General purpose negotiating literature suggests that bargaining styles are an important factor in business negotiations and that bargaining style mismatches between negotiating counter-parties can influence negotiation results. To date, the role of auditors' bargaining-style tendencies in audit negotiations has gone unnoticed in the auditing literature. A study examines the bargaining styles of accountants and managers as measured by the Thomas-Kilmann Conflict Mode Instrument. The results suggest that accountants are predisposed to avoid conflict or accommodate whereas managers are predisposed to collaborate or compete. Recognizing this potential mismatch …

Who Are We Hiring? Characteristics Of Entrants To The Profession, Heather M. Hermanson, Mary C. Hill, Susan H. Ivancevich

Faculty and Research Publications

Presents the results of a survey among auditors hired by a large international accounting firm in the U.S. as of 2002. Demographic characteristics of new hires; Factors important to new hires in selecting their employer; Initial job expectations of new hires.

Appearances Are Important: Outsourced Internal Audit Services And The Perception Of Auditor Independence, Marshall A. Geiger, D. Jordan Lowe, Kurt J. Pany

Accounting Faculty Publications

The appearance of independence is an important facet of the regulation of auditor independence. The authors conducted a research study to gauge how some financial statement users—loan officers—view and make decisions based on loan proposals that present various types of relationships between the applicant, the auditor that performs the external audit, and the auditor that performs the internal audit function (whether performed in-house or outsourced to the hypothetical loan applicant's external auditor).

The results are insightful: The closer the relationship between the external auditor and the audit client, the higher the perception of inappropriateness, and the less likely the loan …

Audit Committee Effectiveness: A Synthesis Of The Empirical Audit Committee Literature, F. Todd Dezoort, Dana R. Hermanson, Deborah S. Archambeault, Scott A. Reed

Faculty and Research Publications

The article describes the factors that contribute to audit committee effectiveness. An effective audit committee has qualified members with the authority and resources to protect stakeholder interests by ensuring reliable financial reporting, internal controls, and risk management through its diligent oversight efforts. The determinants of audit committee effectiveness includes the audit committee composition, authority, resources and diligence. The major U.S. stock exchanges require that audit committees be composed of at least three independent, financially literate directors. Team issues also are relevant when considering audit committee composition. The audit committee derives its authority from the full board of directors, federal law …

Top 10 Audit Deficiencies, Mark S. Beasley, Joseph V. Carcello, Dana R. Hermanson

Faculty and Research Publications

The article focuses on financial statement fraud based on cases wherein the U.S. Securities and Exchange Commission sanctioned auditors for their association with fraudulent financial statements. All of the cases involved public companies, most of which engaged ill fraudulent financial reporting. Only a few engaged in misappropriation of assets or defalcation. The most common problem, alleged in 90% of the cases, was the auditor's failure to gather sufficient evidence. In some instances, this failure was pervasive throughout the engagement while in other instances the allegations were more specific. For example, many of the cases involved inadequate evidence in the areas …

Going-Concern Audit Report Recipients Before And After Sas No. 59, Marshall A. Geiger, Kannan Raghunandan, D. V. Rama

Accounting Faculty Publications

In an attempt to provide information to make an evaluation on whether the requirements under SAS No. 59 have had any significant effect on auditor reporting decisions, a study was conducted that examined companies receiving going-concern modified reports before and after the implementation of SAS No. 59. We wanted to assess whether auditors were issuing going-concern modified reports to clients exhibiting different levels of financial stress and also whether the bankruptcy rate of such companies was different after the adoption of SAS No. 59.

Practice Alert 97-3: Changes In Auditors And Related Topics; Members In Public Accounting Firms, November 1997, American Institute Of Certified Public Accountants. Professional Issues Task Force

Newsletters

No abstract provided.

Finding Auditors Liable For Fraud: What The Jury Heard In The Phar Mor Case, David M. Cottrell, Steven M. Glover

Faculty Publications

The Phar Mor case involved a massive collusive fraud by management. Although there were no claims the auditors participated in the fraud, plaintiffs' attorneys were able to convince the jury that the firm was liable for fraud on the grounds it made representations recklessly with regard to GAAS and GAAP.