How Client Advocacy and a (Mis)Matched, Foreign Decision Environment Affect Auditor Judgment

Many auditors use an audit methodology that requires a strategic risk assessment of their client's business model as a first step for assessing audit risks. This study examines whether the holistic perspective that auditors acquire in making a strategic risk assessment influences the extent to which they adjust account-level risk assessments when they encounter changes in accounts that are inconsistent with information about client operations. Based on halo theory from the performance evaluation literature, we hypothesize that auditors who (1) perform (do not perform) strategic assessment, and (2) develop favorable (unfavorable) strategic risk assessments, are less (more) likely to adjust account-level risk assessments for inconsistent fluctuations. Data from two laboratory experiments using experienced auditors support both hypotheses. Findings suggest that the halo effect generated during strategic assessment influences judgment by altering auditor tolerance for inconsistent fluctuations.

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Mr. and Mrs. Smith: A Student Introduction to Federal Tax Compliance and Documentation

Issues in Accounting Education ◽

10.2308/iace-51207 ◽

2015 ◽

Vol 31 (1) ◽

pp. 119-132 ◽

Cited By ~ 2

Author(s):

Michaele L. Morrow ◽

Shane R. Stinson

Keyword(s):

Communication Skills ◽

Professional Practice ◽

Income Tax ◽

Tax Compliance ◽

Personal Income Tax ◽

Initial Information ◽

Face To Face ◽

Client Advocacy ◽

Tax Practice

ABSTRACT In this case, students assume the role of new accounting staff tasked with the preparation of a personal income tax return and supporting documentation for a client of their firm. Students are provided prior year work papers and client communications, a copy of the prior year's tax return, as well as a letter and supporting documents from the client for the current year. To complete the case, students generate questions based on the initial information provided, meet face-to-face with the client, and roll forward a set of electronic work papers before submitting a complete current year engagement file for senior review. This case adds work papers and client interaction to the traditional tax compliance case to reinforce both the technical and communication skills valued in professional practice. The formulation of questions for the client also allows students to practice discussing technical topics in a non-technical manner and underscores the required balance between attitudes of client advocacy stressed in professional tax practice and legal requirements for “good-faith” tax return reporting. This case is appropriate for an individual income tax course at either the undergraduate or graduate level, and can be easily adapted to increase or decrease difficulty.

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The optimum output quantity of a duopoly market under a fuzzy decision environment

Computers & Mathematics with Applications ◽

10.1016/j.camwa.2008.02.018 ◽

2008 ◽

Vol 56 (5) ◽

pp. 1176-1187 ◽

Cited By ~ 8

Author(s):

Gin-Shuh Liang ◽

Ling-Yuan Lin ◽

Chin-Feng Liu

Keyword(s):

Fuzzy Decision ◽

Decision Environment ◽

Output Quantity ◽

Duopoly Market ◽

Optimum Output

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The Effect of Auditor Reporting Choice and Audit Committee Oversight on Management Financial Disclosures

The Accounting Review ◽

10.2308/tar-2016-0246 ◽

2021 ◽

Author(s):

Stephen H. Fuller ◽

Jennifer R. Joe ◽

Benjamin L. Luippold

Keyword(s):

Audit Committee ◽

Financial Statements ◽

Audit Committees ◽

Auditor Judgment ◽

Joint Effects ◽

Financial Disclosures ◽

Auditor Reporting ◽

Management Disclosures

We investigate the joint effects of auditor's reporting choice and audit committee effectiveness on management disclosures about complex estimates. A new PCAOB standard requires auditors to report on Critical Audit Matters (CAMs): issues "communicated or required to be communicated to the audit committee" about accounts or disclosures that (1) "are material to the financial statements" and (2) "involved especially challenging, subjective, or complex auditor judgment" (PCAOB 2017a, 11). Consistent with investor arguments, we find that audit committee effectiveness and more detailed CAM reporting encourage managers' disclosures of the risk underlying complex estimates. When the auditor's report is more informative about a complex estimate and the audit committee is more effective, management's related financial disclosures are more forthcoming. However, less informative auditor disclosures or more effective audit committees alone do not prompt greater management disclosure. Thus, expanded auditor reporting and more effective audit committees, together, can enhance the disclosures investors value.

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