International Journal of Auditing最新文献

This study investigates the effect of key audit matter (KAM) disclosure on conditional conservatism. Exploiting the exogenous shock of audit regime reform in China and employing a difference-in-differences research design, we document a significant increase in the degree of conditional conservatism among Chinese listed firms following the adoption of KAM disclosures. Further textual analysis shows that the informational characteristics of KAMs play a crucial role in shaping management's financial reporting behaviour. Specifically, the disclosure of managerial discretion information in KAMs is positively associated with conditional conservatism, suggesting that increased transparency of managerial assertions induces firms to adopt more prudent accounting practices. In contrast, implied auditor support is negatively related to conditional conservatism, reducing the likelihood of conservative financial reporting by managers. By differentiating the informational effects of KAM content, this study contributes to the literature on audit disclosures and financial reporting conservatism, highlighting the nuanced role of KAMs in influencing managerial reporting incentives.

Prior auditing literature often directly relates auditor traits to behaviour, but modern models of moral psychology (i.e., the sociocognitive model) contend individuals' behavioural predispositions must first pass through a self-regulatory moral gate before they manifest as actions. We investigate one such moral gate, moral identity, that ought to reliably predict auditors' negative (or positive) behaviours. Moral identity is the degree to which morality is important to a person's self-concept. Using responses from 113 practicing auditors, we predict and find that lower (higher) moral identity auditors' adjustments are (are not) dependent upon management's motive. Moreover, we test moral identity's robustness to a familiar trait associated with negative behaviours (i.e., Dark Triad) and find that, in our experimental setting, moral identity continued to have a strong association with audit quality-jeopardizing judgements, suggesting that future researchers should consider incorporating the sociocognitive model of moral behaviour when investigating individuals' likelihood to engage in unethical behaviours.

This study investigates whether firms with a lead independent director who serves on the audit committee are more likely to have an industry specialist auditor. Based on prior research indicating that lead independent directors are associated with higher quality corporate governance and higher quality financial reporting, we hypothesize that lead independent directors who serve on the audit committee may advocate for high-quality auditing, resulting in a greater likelihood that the firm will have an industry specialist. Consistent with this expectation and Agency Theory, our results suggest that firms with a lead independent director who serves on the audit committee are associated with either a 28.6% or a 16.8% increase in the likelihood of having an industry specialist auditor, depending on the measure of industry specialization used.

The audit environment is increasingly complex, and stakeholders are demanding higher-quality audits. As a result, auditors are increasingly relying on experts across various fields, especially in areas with high estimation uncertainty. While this approach aims to improve audit quality, it has cost implications. Recent studies that used PCAOB data from large US firms have offered valuable insights regarding the general use of experts. Using hand-collected audit reports data from Norwegian listed companies from 2016 to 2019, we build on the prior insights by focusing on the specific use of experts in high-risk areas of audit engagements. We find that the use of experts is positively associated with audit fees and negatively associated with absolute discretionary accruals, suggesting higher audit quality. This finding thus extends prior studies by emphasizing that the impact of experts on audit quality is significantly influenced by the specific areas of the audit engagement within which they are deployed. Therefore, our results suggest that to achieve the desired benefits and justify the associated incremental costs, experts should be strategically deployed in the most critical areas of the audit.

Inter-corporate loans (ICLs) are significant issues in many developing countries, such as India, given the opportunities for wealth extraction from non-controlling shareholders. ICLs have attracted significant attention from legislators and regulators in India as part of efforts to enhance corporate governance and financial reporting quality. Recent changes in law and regulation in India require greater scrutiny of ICLs by audit committees. Using an unbalanced panel of 6074 firm-year observations from 2261 publicly listed Indian firms, we find that audit committee independence (busyness) is negatively (positively) associated with ICLs. The results have policy implications because Indian law and Indian stock exchange listing rules (a) do not require that audit committees of publicly listed companies be fully independent and (b) have very high thresholds for audit committee director busyness.

This study examines whether going concern opinions (GCOs) issued in periods prior to bankruptcy convey useful information to trade creditors. Using a sample of Australian listed companies that entered bankruptcy administration, it explores the relationship between GCOs and subsequent trade credit supply. The analysis focuses on the critical prebankruptcy period when trade creditors are sensitive to default risks and must make informed decisions about extending or curtailing credit. Prior research on this topic is limited and presents mixed findings. The study shows that GCOs are associated with lower trade credit, confirming their informativeness to trade creditors. Robustness tests confirm the reliability of this relationship and show that it extends beyond bankrupt firms, suggesting that GCOs function as general indicators of risk for trade creditors. The effect of GCOs is found to be context dependent: First-time GCOs have a stronger impact on smaller, high-risk firms with limited information, while repeat GCOs are more influential for larger firms and closer to bankruptcy, reflecting greater sensitivity to persistent distress signals. These findings reinforce the role of GCOs as an informative signal for trade creditors during periods of heightened financial risk.

The aim of this study is to investigate whether an audit firm's certification network (hereafter also referred to as audit network) influences auditors' strategies to reduce fees in the competition for new client engagements and whether the influence of the audit network varies according to industry diversity within corporate groups (hereafter also referred to as groups). In addition, the study aimed to shed light on how an audit network influences audit quality. The empirical results suggest that a broader audit network does not lead to winning engagements from existing clients within groups by undercutting fees, regardless of the degree of industry relatedness, and that it also limits the use of discretionary accruals by firms. However, for new clients with a higher degree of industry relatedness, a broader audit network is more likely to win new client engagements through more aggressive underbidding of fees. It is also observed that auditors are more likely to allow these new clients to use negative discretionary accruals to reduce earnings. The empirical results of the study help to understand how audit networks influence audit fee underbidding. They provide insights from the perspective of industry relatedness within groups and thus address the impact of audit networks on audit quality in such an environment.

In this commentary, I discuss a potentially troubling divide between human-focused fraud research on one hand and audit regulation and practice on the other hand. Fraud research increasingly highlights the human element of fraud and emphasizes knowing and assessing people as keys to understanding and mitigating fraud risk. By contrast, auditing standards continue to be based on the traditional fraud triangle, which largely ignores people. Further, audit practice has shifted markedly toward what I call the ‘jammy pants audit’, where many auditors work remotely, interacting with client personnel on a very limited basis. Thus, fraud research is emphasizing people, while auditing regulators and audit practice are not. Based on the analysis, I offer implications for auditing regulators and firms as well as related future research opportunities. Ultimately, a significant part of auditing is determining if management assertions are credible. It is more difficult to make that determination and to fully assess fraud risk if you do not know much about the people behind the assertions and the numbers.