The Business Risk Audit Approach and Audit Production Efficiency

Abacus ◽  
2019 ◽  
Vol 55 (4) ◽  
pp. 734-782
Author(s):  
Michael De Martinis ◽  
Keith Houghton
Keyword(s):  
Production Efficiency ◽  
Business Risk ◽  
Audit Production ◽  
Audit Approach

Československá Obchodní Banka, a.s.: Applying Business Risk Audit Techniques in an Emerging Market Economy

2002 ◽  
Vol 17 (3) ◽  
pp. 289-313 ◽  
Author(s):  
Brian Ballou ◽  
W. Robert Knechel
Keyword(s):  
Business Process ◽  
Emerging Market ◽  
Communist Country ◽  
Business Risk ◽  
Accounting Firms ◽  
Business Setting ◽  
Audit Approach ◽  
Available Information ◽  
The Impact

The case involves Československá Obchodní Banka, a.s. (ČSOB or “the bank”), which was the third largest bank in the Czech Republic in 1997 when the case initially takes place. The case is based on publicly available information relating to ČSOB at a time when the bank was emerging from the state-owned environment of the former Communist country of Czechoslovakia. You will serve in the role of an auditor who is trying understand how to assess the fairness of financial information related to one business process of the entity, based, in part, on the effectiveness of the bank in carrying out its strategy and, in part, on the performance of the business process. This case is designed to provide you with an opportunity to apply important aspects of a business risk audit approach similar to what is utilized to some extent by all major international accounting firms (e.g., Lemon et al. 2000; the Joint Working Group [JWG] Report 2000) in a unique business setting. The requirements of the case also involve assessing the impact on the audit of the bank from privatization by a foreign investor.

scholarly journals A discussion of auditor-client co-production of the audit and the effect on production efficiency

2016 ◽  
Vol 90 (9) ◽  
pp. 348-351
Author(s):  
Systse Duiverman ◽  
Christine Nolder
Keyword(s):  
Financial Reporting ◽  
Production Efficiency ◽  
Audit Quality ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Big 4 ◽  
Audit Efficiency ◽  
Efficiency And Effectiveness ◽  
Audit Production ◽  
Audit Effectiveness

This article provides a reflection on the paper and presentation during the FAR Conference of 9 and 10 May 2016 of “Auditor-client co-production of the audit and the effect on production efficiency” by Gaeremynck, Willekens, and Knechel (GWK). The authors examine the effect of auditor-client co-production on the efficiency of an audit, a topic relevant to the whole audit-client financial reporting and assurance supply chain. Using a sample of working papers from a Belgium Big 4 firm, the authors explore the controllable (i.e., managerial) and non-controllable (i.e., environmental) factors that contribute to variations in audit efficiency within the auditor-client coproduction of financial reporting quality. The results suggest that partner tenure positively contributes to the efficiency of the audit engagement, but the audit work prepared by the client, interim-work by the auditor, and the final audit work performed during off-peak season negatively affect audit efficiency. While this may be surprising from an efficiency standpoint, it may be that such measures add to the audit effectiveness to an extent that outweighs any efficiency loss. Audit quality or audit production, after all, is a matter of efficiency and effectiveness. GWK offer a number of important insights for practitioners interested in the delicate balance of managing efficiency and effectiveness. In the paragraphs that follow, we aim to both summarize the GWK research and highlight the importance of the findings to practice.

The Use of Business Risk Audit Perspectives by Non-Big 4 Audit Firms

2014 ◽  
Vol 33 (3) ◽  
pp. 105-128 ◽  
Author(s):  
Joost van Buuren ◽  
Christopher Koch ◽  
Niels van Nieuw Amerongen ◽  
Arnold M. Wright
Keyword(s):  
Current Debate ◽  
Business Risk ◽  
Big 4 ◽  
Audit Firms ◽  
Audit Approach ◽  
Audit Technology ◽  
Audit Standards ◽  
A Current ◽  
International Audit

SUMMARY: This study investigates the role of business risk perspectives in the audit of smaller and medium-sized entities (SMEs) by small and medium-sized audit practices (SMPs). The research is important, since we have little knowledge of how SMPs utilize business risk factors, and there is a current debate about the need for proportionally applying auditing standards, including standards on business risks, in the audit of SMEs. We conduct 38 interviews with Dutch and German auditors of both small and medium-sized audit practices to capture a variety of different audit environments. We develop a model that considers a continuum of audit approaches ranging from a substantive-based audit approach to a full-scope business risk audit, and observe a limited and heterogeneous application of business risk perspectives by SMP auditors. We find that client complexity, enforcement by audit supervisory authorities, relative emphasis on book-tax alignment in different countries, and investments in audit technology are important factors explaining the use of business risk perspectives. The findings imply a need to provide auditors with sufficient flexibility to proportionally adjust their audit approaches in the application of international audit standards under varying client and audit firm conditions.

Evidence of Organizational Learning and Organizational Forgetting from Financial Statement Audits

2015 ◽  
Vol 35 (2) ◽  
pp. 53-72 ◽  
Author(s):  
Monika Causholli
Keyword(s):  
Production Efficiency ◽  
Financial Statement ◽  
Accounting Firm ◽  
Audit Firm ◽  
Productivity Losses ◽  
Learning Rates ◽  
Organizational Forgetting ◽  
Audit Production ◽  
Productivity Gains ◽  
Over Time

SUMMARY This paper examines the association between audit firm tenure and audit production efficiency. The analyses are based on proprietary audit production data provided by a large international accounting firm. The results document evidence of learning over time. Specifically, repeatedly servicing a client increases production efficiency by reducing the total audit hours expended in an audit engagement. Learning rates vary across different ranks of labor and learning is more pronounced among higher personnel ranks, with lower ranks experiencing little learning. Further, learning rates are not constant over time; there is little incremental learning beyond the initial productivity gains consistent with the concept of the learning curve. Finally, the results show some evidence of productivity losses as audit hours increase for very long tenures consistent with the notion of organizational forgetting. JEL Classifications: M41; M42

Auditor Industry Specialization and Audit Pricing and Effort

2018 ◽  
Vol 38 (1) ◽  
pp. 51-75 ◽  
Author(s):  
Gil Soo Bae ◽  
Seung Uk Choi ◽  
Jae Eun Lee
Keyword(s):  
Production Efficiency ◽  
Audit Fees ◽  
Data Availability ◽  
Audit Pricing ◽  
Firm Level ◽  
Accounting Firms ◽  
Industry Specialization ◽  
Audit Firms ◽  
Audit Production ◽  
Industry Expertise

SUMMARY We find that auditor industry expertise is both a firm-level and partner-level phenomenon, which suggests that industry expertise captured by accounting firms is dispersed among engagement partners through knowledge sharing and transfers within audit firms. We also find that the higher audit fees by expert auditors are due to more hours and not higher rates. While spending more hours allows expert auditors to extract higher fees in total, the finding that expert firms/partners exert greater effort does not support the suggestion that expert auditors are in general more efficient in audit production. However, we find weak evidence that audit hours for expert auditors are lower in industries and companies with homogenous operations and comparable accounting than in other industries and companies. This finding suggests that knowledge transfers more likely take place in homogeneous and comparable industries, leading to production efficiency that moderates the increase in audit hours charged by experts. JEL Classifications: M4; M42. Data Availability: All data are available from the identified sources.

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