Stephen Kwaku Asare, Joost P. van Buuren, Barbara Majoor
Views Icon Views Article contents Figures & tables Video Audio Supplementary Data Peer Review Share Icon Share Facebook Twitter LinkedIn Email Tools Icon Tools Get Permissions Search Site Cite View This Citation Add to Citation Manager Citation Stephen Kwaku Asare, Joost P. van Buuren, Barbara Majoor; American Accounting AssociationThe Joint Role of Auditors’ and Auditees’ Incentives and Disincentives in the Resolution of Detected Misstatements. AUDITING: A Journal of Practice & Theory 1 May 2023; 42 (2): 231. https://doi.org/10.2308/AJPT-2023-035 Download citation file: Ris (Zotero) Reference Manager EasyBib Bookends Mendeley Papers EndNote RefWorks BibTex toolbar search Search Dropdown Menu toolbar search search input Search input auto suggest filter your search All ContentAUDITING: A Journal of Practice & Theory Search Advanced Search
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Pub Date : 2023-02-01DOI: 10.2308/0278-0380-42.1.e
{"title":"Editorial Policy","authors":"","doi":"10.2308/0278-0380-42.1.e","DOIUrl":"https://doi.org/10.2308/0278-0380-42.1.e","url":null,"abstract":"","PeriodicalId":48142,"journal":{"name":"Auditing-A Journal of Practice & Theory","volume":"47 1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136361931","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-02-01DOI: 10.2308/0278-0380-42.1.i
{"title":"Covers and Front Matter","authors":"","doi":"10.2308/0278-0380-42.1.i","DOIUrl":"https://doi.org/10.2308/0278-0380-42.1.i","url":null,"abstract":"","PeriodicalId":48142,"journal":{"name":"Auditing-A Journal of Practice & Theory","volume":"39 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136361930","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
SUMMARY Independent assurance of extended external reports (EER) is one of the most significant trends in today’s global assurance profession. When companies decide to purchase third-party assurance on EER, they need to decide whether to engage their financial statement auditor or a different assurance provider. We examine factors that impact this decision, and the consequences of this decision on financial statement audit quality and cost. We find that independence concerns are associated with companies choosing different EER assurance providers from their incumbent financial statement auditors, while providers’ expertise in EER assurance and the recent trend of integrating nonfinancial information into the annual report promote the use of the same provider. We further find some evidence that companies with the same provider attesting to both financial statements and EER benefit from having higher financial statement audit quality without paying significantly different audit fees.
{"title":"Using the Same Provider for Financial Statement Audit and Assurance of Extended External Reports: Choices and Consequences","authors":"Meiting Lu, Roger Simnett, Shan Zhou","doi":"10.2308/ajpt-19-080","DOIUrl":"https://doi.org/10.2308/ajpt-19-080","url":null,"abstract":"SUMMARY Independent assurance of extended external reports (EER) is one of the most significant trends in today’s global assurance profession. When companies decide to purchase third-party assurance on EER, they need to decide whether to engage their financial statement auditor or a different assurance provider. We examine factors that impact this decision, and the consequences of this decision on financial statement audit quality and cost. We find that independence concerns are associated with companies choosing different EER assurance providers from their incumbent financial statement auditors, while providers’ expertise in EER assurance and the recent trend of integrating nonfinancial information into the annual report promote the use of the same provider. We further find some evidence that companies with the same provider attesting to both financial statements and EER benefit from having higher financial statement audit quality without paying significantly different audit fees.","PeriodicalId":48142,"journal":{"name":"Auditing-A Journal of Practice & Theory","volume":"61 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135500172","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Brant E. Christensen, Nathan J. Newton, Michael S. Wilkins
We use proprietary archival data to examine one annually inspected audit firm’s experience with the PCAOB inspection process. We find that the firm’s audits are primarily selected for inspection due to client characteristics, while deficiencies identified by inspectors are related to characteristics of both the client and the audit team. We also find that not all identified audit deficiencies are reported to the public. However, we find some evidence that only publicly disclosed deficiencies are associated with ex-post measures of audit quality, suggesting that the PCAOB releases only the most relevant and material information to the public. Finally, we find that inspections affect the concurrent year’s audit team staffing decisions and reduce the proportion of the audit that is completed during the interim period. Overall, our study provides important insights into the PCAOB inspection process while also developing and validating a model of inspection risk for future researchers.
{"title":"The PCAOB Inspection Process: A Client-Level Analysis of a Large Firm’s Experience","authors":"Brant E. Christensen, Nathan J. Newton, Michael S. Wilkins","doi":"10.2308/ajpt-2020-143","DOIUrl":"https://doi.org/10.2308/ajpt-2020-143","url":null,"abstract":"We use proprietary archival data to examine one annually inspected audit firm’s experience with the PCAOB inspection process. We find that the firm’s audits are primarily selected for inspection due to client characteristics, while deficiencies identified by inspectors are related to characteristics of both the client and the audit team. We also find that not all identified audit deficiencies are reported to the public. However, we find some evidence that only publicly disclosed deficiencies are associated with ex-post measures of audit quality, suggesting that the PCAOB releases only the most relevant and material information to the public. Finally, we find that inspections affect the concurrent year’s audit team staffing decisions and reduce the proportion of the audit that is completed during the interim period. Overall, our study provides important insights into the PCAOB inspection process while also developing and validating a model of inspection risk for future researchers.","PeriodicalId":48142,"journal":{"name":"Auditing-A Journal of Practice & Theory","volume":"7 1","pages":""},"PeriodicalIF":2.8,"publicationDate":"2022-02-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91278301","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Jeffrey R. Cohen, Lisa Milici Gaynor, Norma R. Montague, Carolina Alves de Lima Salge, J. Wayne
Fair value estimates (FVEs) are common in financial reporting and regulators are concerned that auditors are insufficiently skeptical in their FVEs evaluations. Using Nolder and Kadous’s (2018) professional skepticism model, we examine the process by which firm guidance impacts auditors’ skeptical judgments and actions through their cognitive processing of evidence. We find that rewording firm guidance to include either a directional goal instructing them to oppose management’s assertions or a bi-directional goal instructing them to support and oppose management’s assertions lead auditors to gather more conflicting evidence than a directional goal instructing them to support management’s assertions. However, gathering more conflicting evidence does not yield more skeptical actions unless auditors are instructed to support and oppose management’s assertions. This is supported by theory suggesting that attending to both confirming and conflicting information forces individuals to reconcile the inconsistent information, enhancing the likelihood that it will be incorporated in their judgments.
{"title":"The Effects of Audit Guidance on Auditors’ Evaluations of Fair Value Estimates","authors":"Jeffrey R. Cohen, Lisa Milici Gaynor, Norma R. Montague, Carolina Alves de Lima Salge, J. Wayne","doi":"10.2308/ajpt-18-145","DOIUrl":"https://doi.org/10.2308/ajpt-18-145","url":null,"abstract":"Fair value estimates (FVEs) are common in financial reporting and regulators are concerned that auditors are insufficiently skeptical in their FVEs evaluations. Using Nolder and Kadous’s (2018) professional skepticism model, we examine the process by which firm guidance impacts auditors’ skeptical judgments and actions through their cognitive processing of evidence. We find that rewording firm guidance to include either a directional goal instructing them to oppose management’s assertions or a bi-directional goal instructing them to support and oppose management’s assertions lead auditors to gather more conflicting evidence than a directional goal instructing them to support management’s assertions. However, gathering more conflicting evidence does not yield more skeptical actions unless auditors are instructed to support and oppose management’s assertions. This is supported by theory suggesting that attending to both confirming and conflicting information forces individuals to reconcile the inconsistent information, enhancing the likelihood that it will be incorporated in their judgments.","PeriodicalId":48142,"journal":{"name":"Auditing-A Journal of Practice & Theory","volume":"11 1","pages":""},"PeriodicalIF":2.8,"publicationDate":"2022-02-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75226350","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We contribute to the literature on auditor’s task-specific expertise by examining the role of auditor experience in mergers and acquisitions (M&A), a complicated and increasingly prevalent corporate event that can give rise to misreporting. We find that in industries with more complex accounting, clients of M&A expert auditors are less likely to experience M&A-related misstatements. In industries with less complex accounting, M&A experts pass audit fee savings to their clients during acquisition years. Additional analyses suggest that firms are more likely to switch to an M&A expert auditor during an acquisition year, but only in industries with complex accounting. Overall, our results suggest that firms with an acquisitive strategy that engage with M&A expert auditors experience improved M&A-related audit outcomes.
{"title":"Auditor expertise in Mergers and Acquisitions","authors":"Ronen Gal-Or, Rani Hoitash, Udi Hoitash","doi":"10.2308/ajpt-2019-120","DOIUrl":"https://doi.org/10.2308/ajpt-2019-120","url":null,"abstract":"We contribute to the literature on auditor’s task-specific expertise by examining the role of auditor experience in mergers and acquisitions (M&A), a complicated and increasingly prevalent corporate event that can give rise to misreporting. We find that in industries with more complex accounting, clients of M&A expert auditors are less likely to experience M&A-related misstatements. In industries with less complex accounting, M&A experts pass audit fee savings to their clients during acquisition years. Additional analyses suggest that firms are more likely to switch to an M&A expert auditor during an acquisition year, but only in industries with complex accounting. Overall, our results suggest that firms with an acquisitive strategy that engage with M&A expert auditors experience improved M&A-related audit outcomes.","PeriodicalId":48142,"journal":{"name":"Auditing-A Journal of Practice & Theory","volume":"16 1","pages":""},"PeriodicalIF":2.8,"publicationDate":"2022-02-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77739474","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Jeffrey R. Cohen, G. Krishnamoorthy, Marietta Peytcheva, A. Wright
In its inspection process, the PCAOB has historically focused on reporting audit deficiencies and used a risk-weighted selection method. In two experiments (focusing on a “micro” and a “macro” investment), we take a “what if” exploratory public policy perspective of evaluating the potential effects on investors’ audit quality judgments and investment decisions of two evolving PCAOB inspection practices: disclosure of audit strengths as well as deficiencies; and the use of a random inspection selection method. In both experiments, we manipulate: inspection reporting (only deficiencies under the historical PCAOB inspection reporting; only deficiencies under a “balanced” PCAOB reporting; or a report where strengths are present but outnumbered by deficiencies), and inspection selection method (risk-weighted or random). We find that inspection strengths are highly relevant to investment decisions, through influencing investors’ audit quality assessments and confidence in financial reporting, and that investors consider inspection selection method in macro-level, but not micro-level judgments.
{"title":"An Examination of the Effects of PCAOB Inspection Selection Method and Disclosure of Audit Strengths on Investor Judgments","authors":"Jeffrey R. Cohen, G. Krishnamoorthy, Marietta Peytcheva, A. Wright","doi":"10.2308/ajpt-19-071","DOIUrl":"https://doi.org/10.2308/ajpt-19-071","url":null,"abstract":"In its inspection process, the PCAOB has historically focused on reporting audit deficiencies and used a risk-weighted selection method. In two experiments (focusing on a “micro” and a “macro” investment), we take a “what if” exploratory public policy perspective of evaluating the potential effects on investors’ audit quality judgments and investment decisions of two evolving PCAOB inspection practices: disclosure of audit strengths as well as deficiencies; and the use of a random inspection selection method. In both experiments, we manipulate: inspection reporting (only deficiencies under the historical PCAOB inspection reporting; only deficiencies under a “balanced” PCAOB reporting; or a report where strengths are present but outnumbered by deficiencies), and inspection selection method (risk-weighted or random). We find that inspection strengths are highly relevant to investment decisions, through influencing investors’ audit quality assessments and confidence in financial reporting, and that investors consider inspection selection method in macro-level, but not micro-level judgments.","PeriodicalId":48142,"journal":{"name":"Auditing-A Journal of Practice & Theory","volume":"4 1","pages":""},"PeriodicalIF":2.8,"publicationDate":"2022-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85159399","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Research Forum on COVID-19: Implications for Audits and the Audit Profession","authors":"Christopher P. Agoglia, Jayanth K. Krishnan","doi":"10.2308/ajpt-10805","DOIUrl":"https://doi.org/10.2308/ajpt-10805","url":null,"abstract":"","PeriodicalId":48142,"journal":{"name":"Auditing-A Journal of Practice & Theory","volume":"119 1","pages":""},"PeriodicalIF":2.8,"publicationDate":"2022-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77938946","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
When property & casualty (P&C) insurers understate their loss reserves, they increase the appearance of solvency. Understating loss reserves can lead to inadequate loss protection for policyholders. This paper investigates the effect of external monitoring by state regulators on financial reporting by P&C insurers. Specifically, we analyze whether a regulatory financial examination of P&C insurers, as mandated and conducted by state law, results in reporting more conservative loss reserve estimates. We find that P&C insurers report more conservative loss reserve estimates during and following a regulatory financial examination. Whereas past studies use audits as external monitoring events around which fluctuations in loss reserves are observed, we focus on regulatory financial examinations as external monitoring events that mitigate the use of loss reserves to manage perceptions of company health.
{"title":"The Effect of External Monitoring on Conservative Financial Reporting in the Property-Casualty Insurance Industry","authors":"Willie D. Reddic, Jill Bisco, Kayla Denise Booker","doi":"10.2308/ajpt-17-069","DOIUrl":"https://doi.org/10.2308/ajpt-17-069","url":null,"abstract":"When property & casualty (P&C) insurers understate their loss reserves, they increase the appearance of solvency. Understating loss reserves can lead to inadequate loss protection for policyholders. This paper investigates the effect of external monitoring by state regulators on financial reporting by P&C insurers. Specifically, we analyze whether a regulatory financial examination of P&C insurers, as mandated and conducted by state law, results in reporting more conservative loss reserve estimates. We find that P&C insurers report more conservative loss reserve estimates during and following a regulatory financial examination. Whereas past studies use audits as external monitoring events around which fluctuations in loss reserves are observed, we focus on regulatory financial examinations as external monitoring events that mitigate the use of loss reserves to manage perceptions of company health.","PeriodicalId":48142,"journal":{"name":"Auditing-A Journal of Practice & Theory","volume":"51 1","pages":""},"PeriodicalIF":2.8,"publicationDate":"2022-01-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85126580","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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