Audit Committee Member Support for Proposed Audit Adjustments: A Source Credibility Perspective

2003 ◽  
Vol 22 (2) ◽  
pp. 189-205 ◽  
Author(s):  
F. Todd DeZoort ◽  
Richard W. Houston ◽  
Dana R. Hermanson
Keyword(s):  
Audit Committee ◽  
Source Credibility ◽  
Committee Member ◽  
Credibility Theory ◽  
Future Research ◽  
Analyst Forecast ◽  
Research Directions ◽  
Financial Report ◽  
Source Credibility Theory ◽  
Future Research Directions

This study reports the results of an experiment that investigates the effects of financial-report timing, EPS proximity to analyst forecast, and external auditor argument consistency on audit committee members' support for a proposed audit adjustment. We use source credibility theory to predict greater support for the audit adjustment when the financial report is at year-end rather than at interim, when unadjusted EPS is above rather than below forecast, and when the auditor consistently argues for adjustment rather than agrees with management's preference to avoid adjustment. One hundred thirty-one audit committee members participated in a between-subjects experiment. Consistent with theory, the participants were more likely to recommend adjustment for annual statements and for adjustments that the auditor consistently supported. Two significant interactions indicate that the effect of report timing holds only in the under forecast and inconsistent auditor conditions. Finally, audit committee members who were CPAs were less likely to recommend adjustment. We discuss implications and future research directions.

Corporate Governance Research in Accounting and Auditing: Insights, Practice Implications, and Future Research Directions

2011 ◽  
Vol 30 (3) ◽  
pp. 1-31 ◽  
Author(s):  
Joseph V. Carcello ◽  
Dana R. Hermanson ◽  
Zhongxia (Shelly) Ye
Keyword(s):  
Corporate Governance ◽  
Audit Committee ◽  
Meta Analysis ◽  
Future Research ◽  
Corporate Board ◽  
Research Papers ◽  
Research Directions ◽  
Research Paradigms ◽  
The Past ◽  
Future Research Directions

SUMMARY Over the past two decades, the corporate governance literature in accounting and auditing has grown rapidly. To better understand this body of work, we discuss 12 recent literature review or meta-analysis papers and summarize selected results (i.e., clusters of papers with new and interesting results) from recent empirical research papers, after reviewing the findings of over 250 studies. Our corporate governance focus is primarily on corporate board and audit committee issues. We discuss the major insights from this literature and the practice implications of these findings. In addition, we identify a number of opportunities for future research. In particular, we make suggestions for: (1) improved research paradigms in corporate governance, (2) extensions of existing research, and (3) new or emerging lines of research.

The Interplay of Management Incentives and Audit Committee Communication on Auditor Judgment

2015 ◽  
Vol 28 (1) ◽  
pp. 27-40 ◽  
Author(s):  
J. Owen Brown ◽  
Velina K. Popova
Keyword(s):  
Audit Committee ◽  
Source Credibility ◽  
Positive Impact ◽  
Audit Committees ◽  
Credibility Theory ◽  
Auditor Judgment ◽  
Management Incentives ◽  
Evidence Evaluation ◽  
Source Credibility Theory ◽  
Auditor Judgments

ABSTRACT This study investigates the interplay of management and the audit committee on auditor judgments and evidence documentation. In a 2 × 2 between-subjects experiment, 58 experienced auditors were tasked with evaluating an inventory obsolescence issue when management's incentives to influence the auditor were either higher or lower. The auditors were also either provided or not provided with additional communicated expectations from the audit committee that opposed management's aggressive reporting preference. Drawing on research on competing preferences and source credibility theory, we predict and find that when management's incentives are higher, additional audit committee communication has a significant and positive impact on auditors' evidence evaluation and related judgments. However, we find no effect of added audit committee influence when management incentives are lower. These findings highlight the importance of examining the interrelationships among the various actors contributing to corporate governance and also inform standard setters about the benefits of increased communication between audit committees and auditors.

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