This article summarizes the study of Rozario, Vasarhelyi, and Wang (2022), which examines the use of consumer tweets in improving the prediction and error detection performance of preliminary analytical procedures for the revenue account for firms that belong to consumer-oriented industries. They find that consumer tweets about product or brand interest increase the prediction and error detection ability of analytical procedures compared to analytical procedures that do not include it. These results suggest that this new source of external nonfinancial information is incrementally informative to auditors in developing assessments for the risk of misstated revenue in the planning stage of the audit. The findings of this study have important implications that may be relevant to the audits of other financial statement accounts.
{"title":"Using Consumer Tweets to Improve Revenue Risk Assessments in Consumer-Oriented Industries","authors":"Andrea M. Rozario, Miklos V. Vasarhelyi, T. Wang","doi":"10.2308/ciia-2022-027","DOIUrl":"https://doi.org/10.2308/ciia-2022-027","url":null,"abstract":"This article summarizes the study of Rozario, Vasarhelyi, and Wang (2022), which examines the use of consumer tweets in improving the prediction and error detection performance of preliminary analytical procedures for the revenue account for firms that belong to consumer-oriented industries. They find that consumer tweets about product or brand interest increase the prediction and error detection ability of analytical procedures compared to analytical procedures that do not include it. These results suggest that this new source of external nonfinancial information is incrementally informative to auditors in developing assessments for the risk of misstated revenue in the planning stage of the audit. The findings of this study have important implications that may be relevant to the audits of other financial statement accounts.","PeriodicalId":44019,"journal":{"name":"Current Issues in Auditing","volume":" ","pages":""},"PeriodicalIF":0.8,"publicationDate":"2022-11-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42879736","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Dereck Barr‐Pulliam, Helen L. Brown-Liburd, Amanda Gates Carlson
We summarize a recent study that examines whether and how the signals provided by the internal control (ICFR) opinion and auditor use of advanced data analytic tools (ADAs) influence juror negligence perceptions. When auditors issue an unqualified ICFR opinion and rely on traditional statistical sampling, jurors assess the auditors as more negligent than when the auditors use ADAs. Conversely, when auditors issue an adverse ICFR opinion, jurors ascribe less blame to auditors and more to investor plaintiffs regardless of whether the auditors use ADAs. Further, jurors perceive auditors as less negligent when they use ADAs for full population testing because they perceive ADAs to be an indicator of higher audit quality. Interestingly, jurors perceive no difference in the level of assurance provided by the audit opinion alone when auditors use ADAs relative to traditional sampling testing methods.
{"title":"Do Audit Data Analytics Influence Juror Perceptions of Audit Quality and Auditor Negligence?","authors":"Dereck Barr‐Pulliam, Helen L. Brown-Liburd, Amanda Gates Carlson","doi":"10.2308/ciia-2022-029","DOIUrl":"https://doi.org/10.2308/ciia-2022-029","url":null,"abstract":"We summarize a recent study that examines whether and how the signals provided by the internal control (ICFR) opinion and auditor use of advanced data analytic tools (ADAs) influence juror negligence perceptions. When auditors issue an unqualified ICFR opinion and rely on traditional statistical sampling, jurors assess the auditors as more negligent than when the auditors use ADAs. Conversely, when auditors issue an adverse ICFR opinion, jurors ascribe less blame to auditors and more to investor plaintiffs regardless of whether the auditors use ADAs. Further, jurors perceive auditors as less negligent when they use ADAs for full population testing because they perceive ADAs to be an indicator of higher audit quality. Interestingly, jurors perceive no difference in the level of assurance provided by the audit opinion alone when auditors use ADAs relative to traditional sampling testing methods.","PeriodicalId":44019,"journal":{"name":"Current Issues in Auditing","volume":" ","pages":""},"PeriodicalIF":0.8,"publicationDate":"2022-11-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48096216","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Auditors who engage in unethical behavior often face subsequent reputational damage, such as loss of market share to competing auditors. KPMG was recently embroiled in a high-profile scandal that involved prominent members of the firm inappropriately receiving confidential information about upcoming PCAOB inspections. This article summarizes a study by Hale and Truelson (2022) that analyzes the effect of the scandal on KPMG’s reputation within the audit marketplace. Specifically, the study examines KPMG’s ability to attract new clients, the types of clients acquired, and audit fees charged to new clients. We then conclude by discussing the implications of the scandal on audit practitioners, regulators, and academics.
{"title":"The Effect of an Audit Firm’s Ethics Scandal on Client Acquisition Practices","authors":"Kevin Hale, J. Truelson","doi":"10.2308/ciia-2022-033","DOIUrl":"https://doi.org/10.2308/ciia-2022-033","url":null,"abstract":"Auditors who engage in unethical behavior often face subsequent reputational damage, such as loss of market share to competing auditors. KPMG was recently embroiled in a high-profile scandal that involved prominent members of the firm inappropriately receiving confidential information about upcoming PCAOB inspections. This article summarizes a study by Hale and Truelson (2022) that analyzes the effect of the scandal on KPMG’s reputation within the audit marketplace. Specifically, the study examines KPMG’s ability to attract new clients, the types of clients acquired, and audit fees charged to new clients. We then conclude by discussing the implications of the scandal on audit practitioners, regulators, and academics.","PeriodicalId":44019,"journal":{"name":"Current Issues in Auditing","volume":"1 1","pages":""},"PeriodicalIF":0.8,"publicationDate":"2022-11-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41428168","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The concept of materiality has long been a basic feature in the US securities laws and regulations. With the current global and US efforts to develop new disclosure standards for Environmental, Social, and Governance (ESG), a debate has emerged regarding expansion of the definition of materiality. An expanded definition would include not only financial materiality (i.e., how information affects an investor’s decision to buy or sell), but it would also include environmental and social materiality (i.e., how a company’s operations impact the climate, its employees, consumers, and society). This is referred to as “double materiality” (EU 2019). However, as discussed in this paper, the concept of materiality set forth in the US securities laws and court decisions are contrary to the concept of double materiality. This paper provides a brief history of materiality, expansion of the concept, and discusses audit issues and implications.
{"title":"Expanding the Concept of Materiality-to ESG: Audit Issues and Implications","authors":"Lynn E. Turner, T. Weirich","doi":"10.2308/ciia-2022-010","DOIUrl":"https://doi.org/10.2308/ciia-2022-010","url":null,"abstract":"The concept of materiality has long been a basic feature in the US securities laws and regulations. With the current global and US efforts to develop new disclosure standards for Environmental, Social, and Governance (ESG), a debate has emerged regarding expansion of the definition of materiality. An expanded definition would include not only financial materiality (i.e., how information affects an investor’s decision to buy or sell), but it would also include environmental and social materiality (i.e., how a company’s operations impact the climate, its employees, consumers, and society). This is referred to as “double materiality” (EU 2019). However, as discussed in this paper, the concept of materiality set forth in the US securities laws and court decisions are contrary to the concept of double materiality. This paper provides a brief history of materiality, expansion of the concept, and discusses audit issues and implications.","PeriodicalId":44019,"journal":{"name":"Current Issues in Auditing","volume":" ","pages":""},"PeriodicalIF":0.8,"publicationDate":"2022-10-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45364121","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Materiality remains a challenging concept for auditors to implement in practice. The challenges underlying auditor materiality assessments are compounded by the fact that materiality is typically defined from the investor’s (rather than the auditor’s) perspective. Despite this investor orientation, there is little empirical evidence about investors’ materiality judgments, specific quantitative and qualitative factors underlying their judgments, and how their judgments compare to auditors who implement materiality in practice. This article summarizes a recent study by DeZoort, Holt, and Stanley (2019) that addresses this problem by modeling professional and nonprofessional investors’ materiality judgments in a policy-capturing study, using experienced auditors as a benchmark. Results indicate significant differences in materiality judgments, judgment consensus, and cue utilization among the three participant groups. Findings also reveal between-group differences in self-reported quantitative materiality thresholds, judgment self-insight, as well as judgment confidence. We conclude the article with a discussion of the practical implications surrounding these findings.
{"title":"How Do Investor and Auditor Materiality Judgments Compare?","authors":"F. DeZoort, Travis P. Holt, Jonathan D. Stanley","doi":"10.2308/ciia-2022-016","DOIUrl":"https://doi.org/10.2308/ciia-2022-016","url":null,"abstract":"Materiality remains a challenging concept for auditors to implement in practice. The challenges underlying auditor materiality assessments are compounded by the fact that materiality is typically defined from the investor’s (rather than the auditor’s) perspective. Despite this investor orientation, there is little empirical evidence about investors’ materiality judgments, specific quantitative and qualitative factors underlying their judgments, and how their judgments compare to auditors who implement materiality in practice. This article summarizes a recent study by DeZoort, Holt, and Stanley (2019) that addresses this problem by modeling professional and nonprofessional investors’ materiality judgments in a policy-capturing study, using experienced auditors as a benchmark. Results indicate significant differences in materiality judgments, judgment consensus, and cue utilization among the three participant groups. Findings also reveal between-group differences in self-reported quantitative materiality thresholds, judgment self-insight, as well as judgment confidence. We conclude the article with a discussion of the practical implications surrounding these findings.","PeriodicalId":44019,"journal":{"name":"Current Issues in Auditing","volume":" ","pages":""},"PeriodicalIF":0.8,"publicationDate":"2022-08-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42805438","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Chui, Curtis, and Pike (2022) find that auditors encouraged to take a forensic specialist’s perspective provide a more effective and efficient risk response in varying fraud risk environments than with their traditional mindset. The study provides evidence that auditors can adopt the forensic perspective, which focuses on fraud detection, while maintaining their typical audit roles and responsibilities. We summarize their key findings and discuss practical implications and actionable suggestions for audit practitioners. These insights suggest a potential low-cost mechanism to improve auditors’ fraud risk assessments and subsequent risk responses.
{"title":"Improving Fraud Performance with a Different Perspective","authors":"Lawrence Chui, M. Curtis, Byron J Pike","doi":"10.2308/ciia-2022-025","DOIUrl":"https://doi.org/10.2308/ciia-2022-025","url":null,"abstract":"Chui, Curtis, and Pike (2022) find that auditors encouraged to take a forensic specialist’s perspective provide a more effective and efficient risk response in varying fraud risk environments than with their traditional mindset. The study provides evidence that auditors can adopt the forensic perspective, which focuses on fraud detection, while maintaining their typical audit roles and responsibilities. We summarize their key findings and discuss practical implications and actionable suggestions for audit practitioners. These insights suggest a potential low-cost mechanism to improve auditors’ fraud risk assessments and subsequent risk responses.","PeriodicalId":44019,"journal":{"name":"Current Issues in Auditing","volume":" ","pages":""},"PeriodicalIF":0.8,"publicationDate":"2022-08-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48971219","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Kathleen M. Bakarich, Marissa Hoffmann, A. S. Marcy, Patrick E. O’Brien
Accountants potentially have a major role to play as the field of sustainability reporting grows. Surveying 173 accountants, we find that the majority are unfamiliar with many of the existing sustainability frameworks and that 31 percent have current experience working in sustainability reporting. Comments from respondents also indicate that there is some hesitation by older generations as to whether sustainability falls within accountants’ roles and responsibilities, whereas respondents under 30 indicated greater enthusiasm for the future of sustainability reporting. With the prospect of mandatory SEC sustainability reporting and assurance looming, these results are critical as firms and professionals prepare for these potential changes. Shifting market demands and new generations entering the workforce may impact the professional accounting landscape as companies seek to recruit and retain top talent who are excited about the prospects of working with sustainability information.
{"title":"Accountants’ Views on Sustainability Reporting: A Generational Divide","authors":"Kathleen M. Bakarich, Marissa Hoffmann, A. S. Marcy, Patrick E. O’Brien","doi":"10.2308/ciia-2022-003","DOIUrl":"https://doi.org/10.2308/ciia-2022-003","url":null,"abstract":"Accountants potentially have a major role to play as the field of sustainability reporting grows. Surveying 173 accountants, we find that the majority are unfamiliar with many of the existing sustainability frameworks and that 31 percent have current experience working in sustainability reporting. Comments from respondents also indicate that there is some hesitation by older generations as to whether sustainability falls within accountants’ roles and responsibilities, whereas respondents under 30 indicated greater enthusiasm for the future of sustainability reporting. With the prospect of mandatory SEC sustainability reporting and assurance looming, these results are critical as firms and professionals prepare for these potential changes. Shifting market demands and new generations entering the workforce may impact the professional accounting landscape as companies seek to recruit and retain top talent who are excited about the prospects of working with sustainability information.","PeriodicalId":44019,"journal":{"name":"Current Issues in Auditing","volume":" ","pages":""},"PeriodicalIF":0.8,"publicationDate":"2022-08-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46627754","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Kathleen M. Bakarich, Devon Baranek, Patrick E. O’Brien
This study examines environmental, social, and governance (ESG) reports of companies on the Wall Street Journal’s and Investor Business Daily’s top 100 sustainable companies. We collect information on whether the reports are assured, the type of assurance and standards cited, the assurance provider, and whether or not the provider also audits the financial statements. 58 percent of sample companies voluntarily sought external assurance services for some portion of these reports, with limited assurance primarily provided. Big 4 firms provide assurance for most international companies, but assure only 16 percent of U.S companies. We discuss practical implications and future research areas, including cross-country comparisons, ESG assurance, and standard-setting.
{"title":"The current state and future implications of ESG assurance","authors":"Kathleen M. Bakarich, Devon Baranek, Patrick E. O’Brien","doi":"10.2308/ciia-2022-012","DOIUrl":"https://doi.org/10.2308/ciia-2022-012","url":null,"abstract":"This study examines environmental, social, and governance (ESG) reports of companies on the Wall Street Journal’s and Investor Business Daily’s top 100 sustainable companies. We collect information on whether the reports are assured, the type of assurance and standards cited, the assurance provider, and whether or not the provider also audits the financial statements. 58 percent of sample companies voluntarily sought external assurance services for some portion of these reports, with limited assurance primarily provided. Big 4 firms provide assurance for most international companies, but assure only 16 percent of U.S companies. We discuss practical implications and future research areas, including cross-country comparisons, ESG assurance, and standard-setting.","PeriodicalId":44019,"journal":{"name":"Current Issues in Auditing","volume":" ","pages":""},"PeriodicalIF":0.8,"publicationDate":"2022-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43030663","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Gregory W. Martin, D. Rama, K. Raghunandan, Paul N. Tanyi
The Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) have justified audit-related disclosure rules by asserting that such information would be relevant for shareholders in auditor ratification voting decisions. The underlying assumption, stated more explicitly by activists and others, is that such voting can influence auditors’ subsequent actions. A recent study by Tanyi, Rama, Raghunandan, and Martin, (2020, TRRM), tests this assumption. Using data from 10,326 auditor ratification votes, TRRM (2020) find that higher than expected shareholder dissatisfaction of their external auditors is associated with higher audit quality and higher audit fees in the subsequent period. The results suggest that auditors should pro-actively engage with audit committees if there is higher than expected shareholder dissatisfaction. Auditors can also expect regulators to use such evidence in future rule proposals by the SEC and PCAOB, given past actions by regulators.
{"title":"Do Shareholder Ratification Votes Impact Subsequent Audit Outcomes?","authors":"Gregory W. Martin, D. Rama, K. Raghunandan, Paul N. Tanyi","doi":"10.2308/ciia-2022-015","DOIUrl":"https://doi.org/10.2308/ciia-2022-015","url":null,"abstract":"The Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) have justified audit-related disclosure rules by asserting that such information would be relevant for shareholders in auditor ratification voting decisions. The underlying assumption, stated more explicitly by activists and others, is that such voting can influence auditors’ subsequent actions. A recent study by Tanyi, Rama, Raghunandan, and Martin, (2020, TRRM), tests this assumption. Using data from 10,326 auditor ratification votes, TRRM (2020) find that higher than expected shareholder dissatisfaction of their external auditors is associated with higher audit quality and higher audit fees in the subsequent period. The results suggest that auditors should pro-actively engage with audit committees if there is higher than expected shareholder dissatisfaction. Auditors can also expect regulators to use such evidence in future rule proposals by the SEC and PCAOB, given past actions by regulators.","PeriodicalId":44019,"journal":{"name":"Current Issues in Auditing","volume":" ","pages":""},"PeriodicalIF":0.8,"publicationDate":"2022-08-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44433055","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Brian Ballou, Jonathan H. Grenier, Lettie Mitchell, Tyler Ngwa, Andrew Reffett
To minimize the associated risks (e.g., litigation, regulatory scrutiny, etc.) of implementing increasingly advanced data and analytics-based substantive auditing techniques, audit firms should ensure that key audit stakeholder groups sufficiently understand such procedures and believe that they maintain or elevate audit quality. However, little is known about how various stakeholder groups view data and analytics-based substantive procedures. Ballou, Grenier, and Reffett (2021) address this question by examining how three key audit stakeholder groups (investors, jurors, and AICPA peer reviewers) view two commonly employed data and analytics- based auditing techniques (population testing and predictive modeling). Our paper summarizes Ballou et al.’s (2021) study by summarizing its research questions, experimental method, and results. We then conclude with a discussion of the study’s implications for audit practice and, in particular, the steps that audit firms should take to ensure stakeholder comfort.
为了最大限度地降低实施日益先进的基于数据和分析的实质性审计技术的相关风险(例如，诉讼、监管审查等)，审计事务所应确保关键审计利益相关者群体充分理解这些程序，并相信它们维持或提高了审计质量。然而，人们对不同利益相关者群体如何看待数据和基于分析的实质性程序知之甚少。Ballou, Grenier和Reffett(2021)通过研究三个关键审计利益相关者群体(投资者，陪审员和AICPA同行评审员)如何看待两种常用的基于数据和分析的审计技术(人口测试和预测建模)来解决这个问题。我们的论文总结了Ballou et al.(2021)的研究，总结了其研究问题、实验方法和结果。最后，我们讨论了该研究对审计实践的影响，特别是审计公司应采取的确保利益相关者舒适的步骤。
{"title":"How do non-professional investors, jurors, and AICPA peer reviewers evaluate data and analytics-based substantive auditing procedures?","authors":"Brian Ballou, Jonathan H. Grenier, Lettie Mitchell, Tyler Ngwa, Andrew Reffett","doi":"10.2308/ciia-2021-028","DOIUrl":"https://doi.org/10.2308/ciia-2021-028","url":null,"abstract":"To minimize the associated risks (e.g., litigation, regulatory scrutiny, etc.) of implementing increasingly advanced data and analytics-based substantive auditing techniques, audit firms should ensure that key audit stakeholder groups sufficiently understand such procedures and believe that they maintain or elevate audit quality. However, little is known about how various stakeholder groups view data and analytics-based substantive procedures. Ballou, Grenier, and Reffett (2021) address this question by examining how three key audit stakeholder groups (investors, jurors, and AICPA peer reviewers) view two commonly employed data and analytics- based auditing techniques (population testing and predictive modeling). Our paper summarizes Ballou et al.’s (2021) study by summarizing its research questions, experimental method, and results. We then conclude with a discussion of the study’s implications for audit practice and, in particular, the steps that audit firms should take to ensure stakeholder comfort.","PeriodicalId":44019,"journal":{"name":"Current Issues in Auditing","volume":" ","pages":""},"PeriodicalIF":0.8,"publicationDate":"2022-05-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48542931","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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