The Effect of Early Career Experience on Auditors' Assessments of Error Explanations in Analytical Review

2012 ◽  
Vol 24 (2) ◽  
pp. 211-229
Author(s):  
Alex C. Yen
Keyword(s):  
Early Career ◽  
Data Availability ◽  
Full Time ◽  
Career Experience ◽  
Audit Firms ◽  
Audit Efficiency ◽  
Analytical Review ◽  
Level I ◽  
Audit Effectiveness ◽  
Staff Level

ABSTRACT In this paper, I examine the analytical review judgments of staff-level auditors. Heiman (1988) finds that students do not perform as well as senior-level auditors when performing certain analytical review procedures. I conduct an experiment based on Heiman (1988, 1990) to examine the analytical review judgments of those individuals who fall in between the two groups studied by Heiman—staff-level auditors who have some full-time experience, but are not yet at the senior level. I find that staff-level auditors' judgments are similar to the senior-level auditors' judgments observed in Heiman (1990). The results provide evidence about the readiness of staff-level auditors to perform certain analytical review procedures, which has staffing implications for audit firms looking to maximize audit efficiency without sacrificing audit effectiveness. The results also provide insights about the transition of an auditor from novice to expert. Data Availability: Available upon request.

How Do Audit Workpaper Reviewers Cope with the Conflicting Pressures of Detecting Misstatements and Balancing Client Workloads?

2010 ◽  
Vol 29 (2) ◽  
pp. 27-43 ◽  
Author(s):  
Christopher P. Agoglia ◽  
Joseph F. Brazel ◽  
Richard C. Hatfield ◽  
Scott B. Jackson
Keyword(s):  
Audit Quality ◽  
Financial Statements ◽  
Regulatory Environment ◽  
Electronic Interaction ◽  
Audit Firms ◽  
Audit Efficiency ◽  
Audit Effectiveness

SUMMARY: The proliferation of electronic workpapers at audit firms allows audit managers and partners the choice of interacting electronically with their audit teams, as opposed to communicating with them in person. Prior research indicates that in-person discussion during review positively impacts audit effectiveness, while electronic review may improve audit efficiency. Thus, the choice of review format can be viewed as both a crucial and controllable audit input that can affect audit quality and, in turn, the reliability of financial statements. Still, little is known about how this decision is made. We conduct a survey and an experiment to extend the audit literature by examining reviewers’ choice of review format and by considering factors that influence this important choice. Survey evidence suggests that reviewers perceive in-person interaction during review as more effective and electronic interaction as more convenient. Given these findings, we conduct an experiment that explores whether misstatement risk and workload pressure influence the choice of review method. We find that these factors interact to affect reviewer behavior. Specifically, workload pressure can increase the likelihood of electronic review, but only when misstatement risk is low. When risk is high, reviewers choose to employ in-person reviews regardless of workload pressures. These findings are particularly relevant in light of changes in the regulatory environment that both emphasize the auditor’s role in detecting fraud/errors and exacerbate traditional workload pressures during busy times of the year. Our results suggest that reviewers cope with these conflicting pressures by choosing alternative review formats.

Team-Oriented Leadership and Auditors' Willingness to Raise Audit Issues

2016 ◽  
Vol 91 (6) ◽  
pp. 1781-1805 ◽  
Author(s):  
Mark W. Nelson ◽  
Chad A. Proell ◽  
Amy E. Randel
Keyword(s):  
Team Leader ◽  
Data Availability ◽  
Speaking Up ◽  
Team Members ◽  
Audit Efficiency ◽  
Team Success ◽  
Audit Team ◽  
Speak Up ◽  
Audit Effectiveness

ABSTRACT This paper reports five studies examining audit team members' willingness to raise audit issues. The first study is a survey of interacting audit teams that provides evidence that team members are more willing to speak up when they view their leader as team-oriented (i.e., emphasizing team success as opposed to the leader's own personal advancement). Experiments 1–3 provide converging evidence that audit seniors are more willing to speak up to a team-oriented leader and about issues that are aligned with that leader's concerns. Experiment 4 provides evidence that the effect of team-oriented leadership on willingness to speak up is mediated by team members' commitment to the team leader and, to a lesser extent, by their identification with their team, but not by concerns about the immediate or eventual repercussions of speaking up. Together, these studies provide evidence that auditors' willingness to raise audit issues is affected by what the auditor has to say and how they think their message will be received, potentially affecting audit effectiveness and audit efficiency. Data Availability: Contact the authors.

The Effects of Audit Firms' Knowledge Sharing on Audit Quality and Efficiency

2019 ◽  
Vol 39 (2) ◽  
pp. 51-79 ◽  
Author(s):  
Rong-Ruey Duh ◽  
W. Robert Knechel ◽  
Ching-Chieh Lin
Keyword(s):  
Knowledge Sharing ◽  
Survey Data ◽  
Audit Quality ◽  
Discretionary Accruals ◽  
Data Availability ◽  
Audit Firm ◽  
Regulatory Changes ◽  
Audit Firms ◽  
Audit Efficiency ◽  
Analyze Data

SUMMARY This paper examines the effect of knowledge sharing in audit firms on audit quality and efficiency. We analyze data from a survey of audit professionals from 22 audit firms in Taiwan matched to publicly available data on individual audits conducted by those firms. The results indicate that knowledge sharing within an audit firm is positively associated with audit quality as manifested in lower absolute discretionary accruals and the issuance of more unfavorable audit opinions. We also find that knowledge sharing within audit firms is associated with higher audit efficiency as represented by shorter audit lags. More importantly, we find that both higher audit quality and audit efficiency are simultaneously associated with higher levels of knowledge sharing, suggesting that effective knowledge sharing may help to improve both audit quality and audit efficiency. Given the regulatory changes to enhance both audit quality and audit timeliness, these findings have implications for audit firms. Data Availability: Data used in this study are available from public sources. Survey data are available upon request.

Auditor-Provided Nonaudit Services and Audit Effectiveness and Efficiency: Evidence from Pre- and Post-SOX Audit Report Lags

2012 ◽  
Vol 31 (4) ◽  
pp. 85-114 ◽  
Author(s):  
W. Robert Knechel ◽  
Divesh S. Sharma
Keyword(s):  
House Of Representatives ◽  
Data Availability ◽  
Audit Report ◽  
Sarbanes Oxley ◽  
Audit Efficiency ◽  
Financial Restatements ◽  
Effectiveness And Efficiency ◽  
Nonaudit Services ◽  
Audit Effectiveness

SUMMARY The Sarbanes-Oxley Act of 2002 (SOX) effectively bars an auditor from providing nonaudit services to an audit client based on the belief that the resulting economic bonding undermines the auditor's independence and quality of the audit (U.S. House of Representatives 2002). The accounting profession has strongly debated this view and counter-argues that auditor-provided nonaudit services benefit the client. We contribute to this debate by examining the effect of auditor-provided nonaudit services on the effectiveness and efficiency of the audit. We find that higher nonaudit service fees are associated with shorter audit report lags—a potential indicator of audit efficiency—prior to the passage of SOX, but such effects dissipate after SOX. We find that discretionary accruals and financial restatements—potential indicators of audit effectiveness—do not increase when shorter audit lags occur in conjunction with high nonaudit service fees. We also find that the firms with the highest levels of nonaudit service fees prior to SOX have the largest increase in audit lags after SOX. These results suggest that there is some merit to the profession's argument that auditor-provided nonaudit services benefit clients without leading to a loss of audit effectiveness. Data Availability: All data are publicly available from sources identified in the text.

Error Management in Audit Firms: Error Climate, Type, and Originator

2013 ◽  
Vol 89 (1) ◽  
pp. 303-330 ◽  
Author(s):  
Anna Gold ◽  
Ulfert Gronewold ◽  
Steven E. Salterio
Keyword(s):  
Impression Management ◽  
Data Availability ◽  
Error Management ◽  
Organizational Life ◽  
Climate Type ◽  
Error Type ◽  
Audit Firms ◽  
The Individual ◽  
Post Hoc ◽  
Willingness To Report

ABSTRACT This paper examines how the treatment of audit staff who discover errors in audit files by superiors affects their willingness to report these errors. The way staff are treated by superiors is labelled as the audit office error management climate. In a “blame-oriented” climate errors are not tolerated and those committing errors are punished. In contrast, an “open” climate characterizes error commitment as a normal, albeit unfortunate aspect of organizational life that offers opportunities for learning without sanctions on the originator. We examine error management climate in the context of audit-specific factors that might affect the decision to report errors: audit error type (conceptual or mechanical) and who committed the error (the individual who discovered it or a peer). An open climate results in an increase in the reporting of mechanical (but not conceptual) errors and all peer errors versus a blame climate. Post hoc findings suggest that one obstacle to reporting conceptual errors stems from an auditor's own impression management concerns. We discuss how auditing standards and regulatory inspections may impact audit firm error management climates. Data Availability: Experimental data are available from the second author subject to data confidentiality restrictions issued by the participating firms.

Workplace Mindfulness and its Effect on Staff Auditors' Audit Quality-Threatening Behavior

2018 ◽  
Vol 31 (1) ◽  
pp. 55-64 ◽  
Author(s):  
David N. Herda ◽  
Nathan H. Cannon ◽  
Randall F. Young
Keyword(s):  
Indirect Effect ◽  
Audit Quality ◽  
Review Process ◽  
Effective Means ◽  
Data Availability ◽  
Financial Statement ◽  
Work Setting ◽  
Effective Technique ◽  
Staff Level

ABSTRACT This study investigates the effect of staff auditors' workplace mindfulness on premature sign-off—a serious audit quality-threatening behavior that can go undetected through the review process. We also examine whether supervisor coaching is an effective means to engender workplace mindfulness. Using a sample of 115 auditors, we predict and find that (1) auditors who are coached by supervisors to appreciate the importance of their work to external financial statement users are more likely to be mindful in their work setting, and (2) greater workplace mindfulness about financial statement user considerations is associated with a reduced likelihood of auditor sign-off on an audit procedure not completed. We also find that supervisor coaching has an indirect effect on premature sign-off through workplace mindfulness. The results underscore the importance of workplace mindfulness in reducing audit quality-threatening behavior and indicate that supervisor coaching may be an effective technique in eliciting mindfulness among staff-level auditors. Data Availability: Contact the authors.

scholarly journals The use of analytical procedures by Yemeni auditors

2015 ◽  
Vol 12 (2) ◽  
pp. 17-25
Author(s):  
Shamharir Abidin ◽  
Mohammed Abobaker Baabbad
Keyword(s):  
Financial Statements ◽  
Audit Firms ◽  
Analytical Review ◽  
Analytical Procedures

This study sets out to investigate the extent to which Yemeni auditors use analytical review procedures during the audit of client’s financial statements. It also examines the stage of auditing procedure in which Yemeni auditors implement analytical review procedures. Moreover, the study determines the relationships between the importance’s factors and the use of analytical review procedures. The findings of the study have indicated that the Analytical Procedures were utilized on high percentage by audits in larger and high experienced audit firms compared to small and low experienced audit firms where the results have shown low percentage. Nevertheless, the role of auditors’ perception towards Analytical Procedures has proved to have a significant effect of usage of Analytical Procedures

The Effect of Corporate Governance on Auditor-Client Realignments

2012 ◽  
Vol 31 (2) ◽  
pp. 167-188 ◽  
Author(s):  
Cory A. Cassell ◽  
Gary A. Giroux ◽  
Linda A. Myers ◽  
Thomas C. Omer
Keyword(s):  
Corporate Governance ◽  
Audit Committee ◽  
Data Availability ◽  
Governance Mechanisms ◽  
Portfolio Decisions ◽  
Audit Market ◽  
Sarbanes Oxley ◽  
Corporate Governance Mechanisms ◽  
Audit Firms ◽  
Governance Index

SUMMARY Events leading up to the implementation of the Sarbanes-Oxley Act of 2002 (SOX) increased the public's focus on corporate governance and increased regulatory scrutiny of corporate governance mechanisms. These events also contributed to a massive restructuring in the audit market that resulted in the transfer of a large number of clients from Big N to non-Big N audit firms. We extend prior research examining the determinants of auditor-client realignments by investigating the effect of corporate governance on downward (i.e., from Big N to non-Big N auditors) switching activity. We develop a corporate governance index comprised of governance characteristics that we expect auditors to find more desirable in their clients (specifically, board and audit committee independence, diligence, and expertise). The results suggest that Big N auditors consider client corporate governance mechanisms when making client portfolio decisions. Specifically, downward auditor-client realignments are more likely for clients that score lower on our corporate governance index. However, the influence of audit committee-related corporate governance components on downward auditor-client realignments decreased post-SOX. The reduced effect of audit committee-related corporate governance components is consistent with what would be expected if the audit committee-related rules imposed by SOX reduced the variation in audit committee quality across clients. Data Availability: The data used are publicly available from the sources cited in the text.

Hiring Auditors with a Part II Quality Control Report: An Opportunity for Increased Earnings Management or Lower Audit Fees?

2020 ◽  
Vol 5 (1) ◽  
pp. 73-93
Author(s):  
Jared Eutsler ◽  
D. Kip Holderness ◽  
Megan M. Jones
Keyword(s):  
Quality Control ◽  
Audit Quality ◽  
Audit Fees ◽  
Data Availability ◽  
Fiscal Year ◽  
The Public ◽  
Audit Firms ◽  
Public Company ◽  
General Demand ◽  
Systemic Quality

ABSTRACT The Public Company Accounting Oversight Board's (PCAOB) Part II inspection reports, which disclose systemic quality control issues that auditors fail to remediate, signal poor audit quality for triennially inspected audit firms. Auditors that receive a Part II inspection report typically experience a decrease in clients, which demonstrates a general demand for audit quality. However, some companies hire auditors that receive Part II inspection reports. We examine potential reasons for hiring these audit firms. We find that relative to companies that switch to auditors without Part II reports, companies that switch to auditors with Part II reports have higher discretionary accruals in the first fiscal year after the switch, which indicates lower audit quality and a heightened risk for future fraud. We find no difference in audit fees. Our results suggest that PCAOB Part II inspection reports may signal low-quality auditors to companies that desire low-quality audits. Data Availability: Data are available from the public sources cited in the text.

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