Veena L. Brown, D. Hermanson, J. Higgs, J. G. Jenkins, Christine J. Nolder, T. Schaefer, K. Smith
On December 17, 2019, the Public Company Accounting Oversight Board (the Board or PCAOB) issued a request for comment on its Concept Release, Potential Approach to Revisions to PCAOB Quality Control Standards. The Board is considering revising its Quality Controls (QC) standards to focus firms on improving their QC systems. To reduce the compliance burden, the Board is considering aligning its QC standards with those of the proposed International Standard on Quality Management 1, Quality Management for Firms That Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements (proposed ISQM 1). The comment period ended March 16, 2020. This commentary summarizes the participating committee members' views on selected questions on three aspects of a QC system presented in the Concept Release: Resources (Questions 31, 32, 34, 36, 37), The Monitoring and Remediation Process (Questions 45, 46, 47), and Roles and Responsibilities of Individuals (Question 52).Data Availability: The Concept Release, Potential Approach to Revisions to PCAOB Quality Control Standards, including questions for respondents, is available at: https://pcaobus.org/Rulemaking/Docket046/2019-003-Quality-Control-Concept-Release.pdf.
{"title":"Comments of the Auditing Standards Committee of the Auditing Section of the American Accounting Association on the Concept Release, Potential Approach to Revisions to PCAOB Quality Control Standards","authors":"Veena L. Brown, D. Hermanson, J. Higgs, J. G. Jenkins, Christine J. Nolder, T. Schaefer, K. Smith","doi":"10.2308/ciia-2020-006","DOIUrl":"https://doi.org/10.2308/ciia-2020-006","url":null,"abstract":"On December 17, 2019, the Public Company Accounting Oversight Board (the Board or PCAOB) issued a request for comment on its Concept Release, Potential Approach to Revisions to PCAOB Quality Control Standards. The Board is considering revising its Quality Controls (QC) standards to focus firms on improving their QC systems. To reduce the compliance burden, the Board is considering aligning its QC standards with those of the proposed International Standard on Quality Management 1, Quality Management for Firms That Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements (proposed ISQM 1). The comment period ended March 16, 2020. This commentary summarizes the participating committee members' views on selected questions on three aspects of a QC system presented in the Concept Release: Resources (Questions 31, 32, 34, 36, 37), The Monitoring and Remediation Process (Questions 45, 46, 47), and Roles and Responsibilities of Individuals (Question 52).Data Availability: The Concept Release, Potential Approach to Revisions to PCAOB Quality Control Standards, including questions for respondents, is available at: https://pcaobus.org/Rulemaking/Docket046/2019-003-Quality-Control-Concept-Release.pdf.","PeriodicalId":44019,"journal":{"name":"Current Issues in Auditing","volume":"1 1","pages":""},"PeriodicalIF":0.8,"publicationDate":"2020-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41758865","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 impacts of auditor retendering or rotation mandates and auditor selection have been a regulatory concern for some time. However, finding suitable research settings to examine these policies has been a challenge. This paper reports the results of a study (Elder and Yebba 2020) that explores the consequences of implementing a retendering policy in a local governmental audit market. The study finds an association between periodic retendering and auditor concentration, including the growth of fee premium specialization within the market. We also find changes in quality associated with these mandates, including greater auditor effort, evidenced through higher audit fees and longer reporting delays, and improved documentation of internal controls evidenced through increased reporting of control deficiencies. Collectively, we provide evidence that periodic retendering of audit services may provide a suitable level of quality enhancement while not forcing auditees to absorb audit inefficiencies common with a rotation policy.
{"title":"The Introduction of State Regulation and Auditor Retendering in School Districts: Local Audit Market Structure, Audit Pricing, and Internal Control Reporting","authors":"Randal J. Elder, Alfred A. Yebba","doi":"10.2308/ciia-2019-506","DOIUrl":"https://doi.org/10.2308/ciia-2019-506","url":null,"abstract":"\u0000 The impacts of auditor retendering or rotation mandates and auditor selection have been a regulatory concern for some time. However, finding suitable research settings to examine these policies has been a challenge. This paper reports the results of a study (Elder and Yebba 2020) that explores the consequences of implementing a retendering policy in a local governmental audit market. The study finds an association between periodic retendering and auditor concentration, including the growth of fee premium specialization within the market. We also find changes in quality associated with these mandates, including greater auditor effort, evidenced through higher audit fees and longer reporting delays, and improved documentation of internal controls evidenced through increased reporting of control deficiencies. Collectively, we provide evidence that periodic retendering of audit services may provide a suitable level of quality enhancement while not forcing auditees to absorb audit inefficiencies common with a rotation policy.","PeriodicalId":44019,"journal":{"name":"Current Issues in Auditing","volume":" ","pages":""},"PeriodicalIF":0.8,"publicationDate":"2020-07-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44356313","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}
This study examines the PCAOB's Division of Enforcement from 2005 to 2017, a time period when it expanded from a $5 million to a $22 million program area. We find that a pronounced increase in disciplinary orders issued during the latter years of the sample period is attributable to serious audit deficiencies and misconduct by triennially inspected audit firms, non-U.S. audit firms, and firms auditing brokers and dealers. We also find that more than two-thirds of the violations of PCAOB auditing standards described in these disciplinary orders pertain to failures in general audit principles and responsibilities, obtaining audit evidence, and review and communication. Finally, we find that the PCAOB levies punitive sanctions on an overwhelming majority of audit personnel and audit firms cited in these disciplinary orders. Overall, our results indicate that the PCAOB's enforcement function has actively disciplined audit personnel and audit firms that breached their professional obligations. Data Availability: Publicly available.
{"title":"A Review of the PCAOB's Enforcement Program: 2005–2017","authors":"Carl W. Hollingsworth, James H. Irving","doi":"10.2308/ciia-2019-508","DOIUrl":"https://doi.org/10.2308/ciia-2019-508","url":null,"abstract":"\u0000 This study examines the PCAOB's Division of Enforcement from 2005 to 2017, a time period when it expanded from a $5 million to a $22 million program area. We find that a pronounced increase in disciplinary orders issued during the latter years of the sample period is attributable to serious audit deficiencies and misconduct by triennially inspected audit firms, non-U.S. audit firms, and firms auditing brokers and dealers. We also find that more than two-thirds of the violations of PCAOB auditing standards described in these disciplinary orders pertain to failures in general audit principles and responsibilities, obtaining audit evidence, and review and communication. Finally, we find that the PCAOB levies punitive sanctions on an overwhelming majority of audit personnel and audit firms cited in these disciplinary orders. Overall, our results indicate that the PCAOB's enforcement function has actively disciplined audit personnel and audit firms that breached their professional obligations.\u0000 Data Availability: Publicly available.","PeriodicalId":44019,"journal":{"name":"Current Issues in Auditing","volume":" ","pages":""},"PeriodicalIF":0.8,"publicationDate":"2020-06-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42883999","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}
This case provides instructors the opportunity to have students analyze an audit population via either Excel Pivot Tables and/or cluster analysis via the R programming language and RStudio free software environment. The analysis takes place in the context of audit risk analysis and planning. The case was developed with a background description based on a real company and instructor-generated synthetic data containing seeded misstatements. Analysis via Excel Pivot Tables is fairly straightforward and allows students to easily get into the underlying audit planning questions. Use of cluster analysis via R is more difficult but provides students with an opportunity to think about cluster analysis when there is no underlying basis for discrete population splits or as a population stratification methodology. Student feedback from use of the R language approach was very positive with students indicating they had a better understanding of how to apply cluster analysis in an audit context
{"title":"Analyzing An Audit Population Via Either Excel Pivot Tables and/or R Language Cluster Analysis","authors":"Thomas E. McKee","doi":"10.2308/ciia-2019-502","DOIUrl":"https://doi.org/10.2308/ciia-2019-502","url":null,"abstract":"\u0000 This case provides instructors the opportunity to have students analyze an audit population via either Excel Pivot Tables and/or cluster analysis via the R programming language and RStudio free software environment. The analysis takes place in the context of audit risk analysis and planning. The case was developed with a background description based on a real company and instructor-generated synthetic data containing seeded misstatements. Analysis via Excel Pivot Tables is fairly straightforward and allows students to easily get into the underlying audit planning questions. Use of cluster analysis via R is more difficult but provides students with an opportunity to think about cluster analysis when there is no underlying basis for discrete population splits or as a population stratification methodology. Student feedback from use of the R language approach was very positive with students indicating they had a better understanding of how to apply cluster analysis in an audit context","PeriodicalId":44019,"journal":{"name":"Current Issues in Auditing","volume":" ","pages":""},"PeriodicalIF":0.8,"publicationDate":"2020-06-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43759916","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}
We examine factors associated with internal audit function (IAF) size in U.S. government and nonprofit (GNP) entities. Our results, based on responses from 345 GNP participants, indicate several factors related to organizational characteristics, IAF characteristics, IAF responsibilities, and information technology (IT) tools and audit activities that are associated with IAF size. Specifically, we find IAF size is positively associated with: (1) mandated IAFs, (2) activity related to audits of general IT risks, (3) use of a rotational staffing model, (4) degree of fraud detection responsibility, (5) conduct of performance audits, (6) extent of sophisticated audit technologies, (7) organization size, (8) opportunity to receive a bonus, and (9) age of the IAF. IAF size is negatively related to (1) extent of access to records and property appropriate for the performance of audits, (2) nonprofit organizations, (3) healthcare institutions, and (4) educational institutions. Additional analysis reveals variation between large and small organizations.
{"title":"An Examination of Internal Audit Function Size: Evidence from U.S. Government and Nonprofit Sectors","authors":"Sarah A. Garven, Audrey N. Scarlata","doi":"10.2308/ciia-2019-505","DOIUrl":"https://doi.org/10.2308/ciia-2019-505","url":null,"abstract":"\u0000 We examine factors associated with internal audit function (IAF) size in U.S. government and nonprofit (GNP) entities. Our results, based on responses from 345 GNP participants, indicate several factors related to organizational characteristics, IAF characteristics, IAF responsibilities, and information technology (IT) tools and audit activities that are associated with IAF size. Specifically, we find IAF size is positively associated with: (1) mandated IAFs, (2) activity related to audits of general IT risks, (3) use of a rotational staffing model, (4) degree of fraud detection responsibility, (5) conduct of performance audits, (6) extent of sophisticated audit technologies, (7) organization size, (8) opportunity to receive a bonus, and (9) age of the IAF. IAF size is negatively related to (1) extent of access to records and property appropriate for the performance of audits, (2) nonprofit organizations, (3) healthcare institutions, and (4) educational institutions. Additional analysis reveals variation between large and small organizations.","PeriodicalId":44019,"journal":{"name":"Current Issues in Auditing","volume":" ","pages":""},"PeriodicalIF":0.8,"publicationDate":"2020-06-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46182343","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}
Steve Buchheit, Ann C. Dzuranin, C. Hux, Mark Riley
We survey highly-experienced professionals from local accounting firms regarding the adoption of and perceived benefits from data visualization in audit practice. Although the majority of responden...
{"title":"Data Visualization in Local Accounting Firms: Is Slow Technology Adoption Rational?","authors":"Steve Buchheit, Ann C. Dzuranin, C. Hux, Mark Riley","doi":"10.2308/ciia-2019-501","DOIUrl":"https://doi.org/10.2308/ciia-2019-501","url":null,"abstract":"We survey highly-experienced professionals from local accounting firms regarding the adoption of and perceived benefits from data visualization in audit practice. Although the majority of responden...","PeriodicalId":44019,"journal":{"name":"Current Issues in Auditing","volume":"14 1","pages":"0000-0000"},"PeriodicalIF":0.8,"publicationDate":"2020-04-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44594943","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}
This paper reports the results of a survey of board members who participate in auditor appointments and audit firm partners and (senior) managers on attributes influencing clients' auditor choice d...
{"title":"Attributes Influencing Clients' Auditor Choices: The Expectation Gaps between Auditors and Board Members","authors":"Francis Goddard, Martin Schmidt","doi":"10.2308/CIIA-19-026","DOIUrl":"https://doi.org/10.2308/CIIA-19-026","url":null,"abstract":"This paper reports the results of a survey of board members who participate in auditor appointments and audit firm partners and (senior) managers on attributes influencing clients' auditor choice d...","PeriodicalId":44019,"journal":{"name":"Current Issues in Auditing","volume":" ","pages":"0000-0000"},"PeriodicalIF":0.8,"publicationDate":"2020-03-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48694436","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 current regulatory environment encourages auditors to engage in “defensive auditing.” That is, auditors must show that they complied with widely accepted standard procedures in order to reduce their exposure to PCAOB inspectors and courts. This could discourage innovation in auditing, since new and innovative procedures are not standard practice. A new stream of research examines a proposed change to legal rules that would protect auditors from being second-guessed, even when they make non-standard judgments, provided that they are made rigorously and in good faith. This proposed “Audit Judgment Rule” (“AJR”) could potentially improve audit quality by encouraging innovation. We review two studies that examine the effects of such an AJR on the judgments of audit committee members and auditors. Results of these studies suggest that an AJR may have unintended consequences, reducing audit innovation and audit quality. We discuss implications for implementing an AJR, including directions for future research.
{"title":"Would an Audit Judgment Rule Improve Audit Committee Oversight and Audit Quality?","authors":"Yoon Ju Kang, M. D. Piercey","doi":"10.2308/ciia-52644","DOIUrl":"https://doi.org/10.2308/ciia-52644","url":null,"abstract":"\u0000 The current regulatory environment encourages auditors to engage in “defensive auditing.” That is, auditors must show that they complied with widely accepted standard procedures in order to reduce their exposure to PCAOB inspectors and courts. This could discourage innovation in auditing, since new and innovative procedures are not standard practice. A new stream of research examines a proposed change to legal rules that would protect auditors from being second-guessed, even when they make non-standard judgments, provided that they are made rigorously and in good faith. This proposed “Audit Judgment Rule” (“AJR”) could potentially improve audit quality by encouraging innovation. We review two studies that examine the effects of such an AJR on the judgments of audit committee members and auditors. Results of these studies suggest that an AJR may have unintended consequences, reducing audit innovation and audit quality. We discuss implications for implementing an AJR, including directions for future research.","PeriodicalId":44019,"journal":{"name":"Current Issues in Auditing","volume":" ","pages":""},"PeriodicalIF":0.8,"publicationDate":"2020-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.2308/ciia-52644","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42082688","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}
J. O. Brown, Bradley E. Lail, J. MacGregor, Timothy S. Thomasson
This case is inspired by actual experiences within the accounting and accounts payable departments of a large energy company, formerly part of the S&P 500. The primary objective of the case is to provide a real-world scenario depicting the challenges that companies face in designing and implementing controls over financial reporting, as well as the challenges that external auditors face when evaluating audit findings. In completing the case, you will assume the role of a staff auditor on the audit engagement team for Herringbone Affiliates. The case includes discussion questions that have you consider the perspective of both company management and the audit team.
{"title":"Controls, Payables, and Materiality: A Case of Unknown Collusion","authors":"J. O. Brown, Bradley E. Lail, J. MacGregor, Timothy S. Thomasson","doi":"10.2308/ciia-52639","DOIUrl":"https://doi.org/10.2308/ciia-52639","url":null,"abstract":"\u0000 This case is inspired by actual experiences within the accounting and accounts payable departments of a large energy company, formerly part of the S&P 500. The primary objective of the case is to provide a real-world scenario depicting the challenges that companies face in designing and implementing controls over financial reporting, as well as the challenges that external auditors face when evaluating audit findings. In completing the case, you will assume the role of a staff auditor on the audit engagement team for Herringbone Affiliates. The case includes discussion questions that have you consider the perspective of both company management and the audit team.","PeriodicalId":44019,"journal":{"name":"Current Issues in Auditing","volume":" ","pages":""},"PeriodicalIF":0.8,"publicationDate":"2020-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.2308/ciia-52639","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42656499","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}
Veena L. Brown, Denise Dickins, D. Hermanson, J. Higgs, J. G. Jenkins, Christine J. Nolder, Tammie J. Schaefer, K. Smith
On June 20, 2019, the American Institute of Certified Public Accountants Auditing Standards Board (the Board or ASB) issued a request for comment on its Exposure Draft, Proposed Statement on Auditing Standards, Audit Evidence. Enhancements in the proposed SAS include the use of emerging technologies by both preparers and auditors, audit data analytics, the application of professional skepticism, and the expanding use of external information sources as audit evidence. The comment period ended on September 18, 2019. This commentary summarizes the participating committee members' views on selected questions posed by the ASB. Questions not addressed by the committee are listed at the end of this manuscript. Data Availability: Proposed Statement on Auditing Standards (SAS), Audit Evidence, including questions for respondents, is available at: https://www.aicpa.org/content/dam/aicpa/research/exposuredrafts/accountingandauditing/downloadabledocuments/20190620a/20190620a-ed-sas-audit-evidence.pdf
{"title":"Comments of the Auditing Standards Committee of the Auditing Section of the American Accounting Association on Proposed Statement on Auditing Standards (SAS), Audit Evidence","authors":"Veena L. Brown, Denise Dickins, D. Hermanson, J. Higgs, J. G. Jenkins, Christine J. Nolder, Tammie J. Schaefer, K. Smith","doi":"10.2308/ciia-52603","DOIUrl":"https://doi.org/10.2308/ciia-52603","url":null,"abstract":"\u0000 On June 20, 2019, the American Institute of Certified Public Accountants Auditing Standards Board (the Board or ASB) issued a request for comment on its Exposure Draft, Proposed Statement on Auditing Standards, Audit Evidence. Enhancements in the proposed SAS include the use of emerging technologies by both preparers and auditors, audit data analytics, the application of professional skepticism, and the expanding use of external information sources as audit evidence. The comment period ended on September 18, 2019. This commentary summarizes the participating committee members' views on selected questions posed by the ASB. Questions not addressed by the committee are listed at the end of this manuscript.\u0000 Data Availability: Proposed Statement on Auditing Standards (SAS), Audit Evidence, including questions for respondents, is available at: https://www.aicpa.org/content/dam/aicpa/research/exposuredrafts/accountingandauditing/downloadabledocuments/20190620a/20190620a-ed-sas-audit-evidence.pdf","PeriodicalId":44019,"journal":{"name":"Current Issues in Auditing","volume":" ","pages":""},"PeriodicalIF":0.8,"publicationDate":"2020-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.2308/ciia-52603","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43226067","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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