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.

The Interplay of Client Management and the Audit Committee on Auditor Performance

2016 ◽  
Vol 10 (1) ◽  
pp. P11-P17
Author(s):  
J. Owen Brown ◽  
Velina K. Popova
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Positive Impact ◽  
Reporting Quality ◽  
Audit Committees ◽  
Auditor Judgment ◽  
Management Incentives ◽  
Evidence Evaluation ◽  
Auditor Judgments ◽  
Client Management

SUMMARY This article summarizes “The Interplay of Management Incentives and Audit Committee Communication on Auditor Judgment” (Brown and Popova 2016), which investigates the influence that client management and the audit committee have on auditor judgments and behavior. We find that additional, informal audit committee communication with the auditor, as directed under the recently issued Auditing Standard No. 16, Communications with Audit Committees, has a significant and positive impact on auditors' evidence evaluation and related judgments under certain conditions. Specifically, when client management has greater incentives to try to unduly influence the auditor, this additional communication has a significant, positive impact on auditors' evidence evaluation and related judgments. However, when client management is perceived as having lower incentives, management becomes more persuasive than the audit committee and is able to influence the auditors into accepting an aggressive, management-preferred accounting outcome. We discuss the implications of our findings for auditors, companies, and regulators who are interested in the role of corporate governance and, more specifically, the interrelationships required among management, the auditor, and the audit committee for enhancing financial reporting quality.

The Impact on Auditor Judgments of CEO Influence on Audit Committee Independence

2011 ◽  
Vol 30 (4) ◽  
pp. 129-147 ◽  
Author(s):  
Jeffrey R. Cohen ◽  
Lisa Milici Gaynor ◽  
Ganesh Krishnamoorthy ◽  
Arnold M. Wright
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Committee ◽  
Data Availability ◽  
Audit Committees ◽  
Undue Influence ◽  
Management Incentives ◽  
Auditor Judgments ◽  
The Impact ◽  
Selection Of

SUMMARY Despite the importance of audit committee independence in ensuring the integrity of the financial reporting process, recent research suggests that even when audit committees meet regulatory independence requirements, certain factors, such as undue influence by the CEO over the selection of the audit committee, may diminish the ability of its members to be substantively independent. This study investigates whether auditors consider CEO influence over audit committee independence when making audit judgments where management's incentives to manage earnings differ. In an experiment, we find that audit partners and managers waive a larger amount of a proposed audit adjustment when management's incentives for earnings management are low than when incentives are high. However, when management incentives are high, auditors are less likely to waive as much of an adjustment when the CEO has less influence over the audit committee's independence than when the CEO's influence is greater. In all, the results support our expectations that auditors consider CEO influence on audit committee independence in the resolution of contentious accounting issues. Data Availability: Contact the authors.

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.

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

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.

scholarly journals Menggali peran digital fitness influencer terhadap parasocial interaction dan fan citizenship behaviour

2021 ◽  
Vol 5 (3) ◽  
pp. 764-790
Author(s):  
Nu'man Mubarak ◽  
Andriani Kusumawati ◽  
Kusdi Raharjo
Keyword(s):  
Literature Review ◽  
Social Exchange ◽  
Social Exchange Theory ◽  
Source Credibility ◽  
Exchange Theory ◽  
Credibility Theory ◽  
Parasocial Interaction ◽  
Parasocial Relationships ◽  
Source Credibility Theory ◽  
Parasocial Interactions

This article elucidate the concept of fan citizenship behaviour can be influenced by digital fitness influencers and parasocial interactions. This article uses a systematic literature review approach to clarify the concept fan citizenship behaviour by integrating source credibility theory and social exchange theory. The results provide 39 articles extend an overview of digital fitness influencers in holistic, how fitness influencers build relationships in a parasocial and resiprokal. Digital fitness influencers share content through photos, videos and interact with fan through comments or short messages, and fan form imaginary relationships called parasocial relationships. From the relationships, fan gratify their psychological necessity such as pleasurement, cultivate loyalty and commitment to digital fitness influencers.

Celebrity Credibility Influence on Cosmetic Product Purchase Intention

2019 ◽  
pp. 153-175
Author(s):  
Fatima Zohra Chekima ◽  
Brahim Chekima
Keyword(s):  
Purchase Intention ◽  
Source Credibility ◽  
Positive Influence ◽  
Credibility Theory ◽  
Consumer Ethnocentrism ◽  
Cosmetic Product ◽  
Source Characteristics ◽  
Source Credibility Theory ◽  
Moderating Role

One of the strategies that are used by companies to differentiate their cosmetic products is celebrity endorsement. Despite this popular advertising technique, researchers and advertisers have not agreed as to which celebrity source characteristics are most effective in influencing consumers' purchase intention. Another important factor that affects consumers' purchase intention is the consumer ethnocentrism level. Consumers in different countries have different preference over local and international products. Thus, the objective of this chapter is to examine the source credibility theory with the moderating role of ethnocentrism. The result suggests that celebrity endorsers' trustworthiness (TR), attractiveness (AT), and expertise (EX) had a significant positive influence on cosmetic product purchase intention (CPPI). The moderating role of ethnocentrism between AT, TR, and CPPI were examined and found to be significant. This indicates that AT and TR are stronger when consumers' ethnocentrism is high.

Measuring Electronic Word of Mouth Review Adoption on Green Purchase Intention Using Source Credibility Theory

2016 ◽  
Vol 22 (12) ◽  
pp. 4283-4287 ◽  
Author(s):  
Roslin Abdul Rahim ◽  
Zuraidah Sulaiman ◽  
Thoo Ai Chin ◽  
Rohaizat Baharun ◽  
Farrah Merlinda Muharam
Keyword(s):  
Purchase Intention ◽  
Word Of Mouth ◽  
Source Credibility ◽  
Credibility Theory ◽  
Electronic Word Of Mouth ◽  
Source Credibility Theory

scholarly journals Impact of Audit Committee Quality on the Financial Performance of Conventional and Islamic Banks

2021 ◽  
Vol 14 (4) ◽  
pp. 176
Author(s):  
Achraf Haddad ◽  
Anis El Ammari ◽  
Abdelfattah Bouri
Keyword(s):  
Financial Performance ◽  
Audit Committee ◽  
Evaluation Method ◽  
Positive Impact ◽  
Generalized Least Squares ◽  
Audit Committees ◽  
Subprime Crisis ◽  
Islamic Banks ◽  
Conventional Banks ◽  
Conventional And Islamic Banks

A lot of previous research studied the relationship between audit committee quality and the financial performance of conventional banks before and during the subprime crisis, whereas some other investigations analyzed the same association in the framework of Islamic banks. However, no study has compared these two correlations either before, during, or after the subprime crisis. Several reasons explain the differences, such as the audit committee quality of each bank type, the evaluation method of the financial performance, the research peculiarities, the methodology, the data, and the interpretation. This research aims to compare the impacts of the audit committees’ quality on the financial performance of Islamic and conventional banks between 2010 and 2019. The financial performance measures and audit committees’ determinants of the conventional and Islamic banks concerned 112 banks of each type. The collected data covered four continents: America, Asia, Africa, and Europe. Impacts were compared by using the Generalized Least Squares analysis. The results showed that the audit committee reduced the profitability of two bank types. Moreover, it harmed the conventional banks’ efficiency but reported an unclear effect within Islamic banks. Even so, we noticed that the audit committee had a positive impact on the conventional banks’ liquidity, while the same effect was apparently ambiguous for the Islamic banks’ liquidity. For solvency, the audit committee positively influenced conventional banks while it affected that of Islamic banks.

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