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"The Evolving Role of IS Audit: A Field Study Comparing The Perceptions of IS and Financial Auditors," by V. P. Vendrzk and N. A. Bagranoff, Advances in Accounting (2003): 141-163.

This study collected data from 20 managers and partners at Big 5 firms in the United States regarding how the information systems audit function is expected to change. The authors find differences between information systems and financial auditors in terms of their perceptions regarding the current and future relationship between information systems and financial audits. Information systems and financial auditors also differed in terms of their opinions on client expectations for future audit services.

"Behavioral Implications of Alternative Going Concern Reporting Formats," by C. Viger, A. Anandarajan, A. P. Curatola, and W. Ben-Amar, Advances in Accounting Behavioral Research (2004): 53-73.

This study compares the format for going concern reporting in the United States (unqualified opinion with an explanatory paragraph) to the Canadian format (clean opinion with going concern reporting in the endnotes). Canadian students were used as unsophisticated investors in a between-subjects experiment. The results indicate that format influenced participants' investment decisions and risk perceptions.

"International Knowledge, Skills, and Abilities of Auditors / Accountants: Evidence from Recent Competency Studies," by K. N. Palmer, D. E. Ziegenfuss, and R. E. Pinsker, Managerial Auditing Journal (Volume 19, Number 7, 2004): 889-896.

Studies by the Big 8, the Institute of Management Accountants, Institute of Internal Auditors, International Federation of Accountants, and the American Institute of Certified Public Accountants were compared to determine the competencies and general skills needed by students for auditing careers. These competencies, knowledge, skills and abilities included: communication skills, interpersonal skills, general business knowledge, accounting knowledge, problem-solving skills, information technology skills, personal attitudes and capabilities, and computer skills.

"Complying with the Sarbanes-Oxley Ethics Requirements," by W. M. Seganish and N. C. Holter, Internal Auditing (July / August 2004): 1-8.

This article discusses how the internal auditor can assist a firm in complying with Sarbanes-Oxley. The focus is on how internal auditors can aid in the development and refinement of a code of ethics. The article provides a list that an internal auditor can use when discussing the company's code of ethics with management or the audit committee.

"Market Reaction to Voluntary Announcements of Audit Committee Appointments: The Effect of Financial Expertise," by W. Davidson, B. Xie and W. Xu, Journal of Accounting and Public Policy (Volume 31, 2004): 951-985.

The authors investigate stock returns surrounding 136 announcements of director appointments to audit committees between 1990 and 2001. Most of the announcements were made by small NASDAQ-listed companies. The authors find significant positive stock price reactions when newly appointed members of audit committees have financial expertise. The reported results are robust to controls for the state of audit committees prior to director appointment and for an alternative definition of financial expertise. The results suggest that investors recognize and reward firms that appoint financial experts to their audit committees.

"The Role of Institutional Ownership in the Market for Auditing Services: An Empirical Investigation," by G. Kane and U. Velury, Journal of Business Research (Volume 57, 2004): 976-983.

The authors of this paper argue that institutional investors are likely to demand that companies in which they invest purchase high quality audits. Further, they posit that large firms are perceived as providing higher quality audits than smaller firms. The authors find support for their argument—the results show a positive association between audit firm size and the level of institutional ownership, after controlling for client firm size, level of debt, growth and complexity.

"The Effects of the Auditor's Professional Qualification and the Firm's Financial Health on Depreciation in Finland," by S. Sundren and C. Johansson, Accounting & Business Research (Volume 34, Issue 2, 2004): 125-143.

The authors examine the relationship in Finland between firms' financial health and their depreciation policies. The sample was primarily non-public firms. The results suggest a negative correlation between leverage and depreciation as a percentage of depreciable assets. The authors note that, because accounting-based debt covenants are rare among the size class of firms studied, the correlation likely is attributable to implicit contracting-related factors. In addition, some of the models tested indicated that firms audited by Big 5 firms depreciated their assets over somewhat shorter periods of time than those audited by non-Big 5 firms.

"Auditor Economic Incentives and Going-Concern Opinions in a Limited Litigious Continental European Business Environment: Empirical Evidence from Belgium." by A. Vanstraelen, Accounting & Business Research (Volume 33, 2003): 171-186.

Previous research has suggested the auditors' reporting behavior may be influenced by the perceived consequences of issuing a going-concern opinion. The author examined auditors' going-concern opinions in an environment where litigation is of minimal concern. The results suggest that auditors in Belgium are significantly less likely to issue going-concern opinions to clients that pay higher audit fees and when the audit firm has lost a relatively large proportion of its clients in the preceding year. The auditor's going-concern opinion does not appear to be significantly influenced by the length of the auditor-client relationship, year of the auditor engagement period, and auditor type.

"Ethical Principles Vs. Ethical Rules: The Moderating Effect of Moral Development on Audit Independence Judgments," by T. Herron and D. Gilbertson, Business Ethics Quarterly (Volume 14, 2004): 499-523.

The authors conducted an experiment, using as participants upper-level accounting students who had not taken an auditing course. The experiment involved two independent variables: whether the code of conduct was rules-based, principles-based, or both; and a measure of the level of the students' moral development. The results suggest that individuals at higher levels of moral development made poorer judgments when provided only with a rules-based code. Conversely, individuals operating at a lower level of moral development performed worse when provided with a principles-based code. The results suggest that the AICPA's current approach of including both principles and rules in the Code of Conduct may be optimal.

"An Empirical Analysis of Auditor Reporting and its Association With Abnormal Accruals," by M. Butler, A. J. Leone and M. Willenborg, Journal of Accounting and Economics (Volume 37, 2004): 139-165.

Using a web-based sampling approach, the authors reexamine the question of whether modified audit opinions are associated with earnings management. Their results suggest that the relation between audit opinions and abnormal accruals is driven by the large negative accruals of companies receiving going-concern opinions. Further, the authors find no difference in abnormal accruals for these companies when compared to other companies matched on measures of financial distress. In addition, the authors point out a significant problem with the manner in which Compustat classifies audit opinions as "modified."

"Risk Assessment by Internal Auditors Using Past Research on Bankruptcy: Applying Bankruptcy Models," by W. A. Wallace, available through The Institute of Internal Auditors (www.theiia.org).

Well-controlled companies will build an infrastructure that evaluates the parties with whom they transact business. One tool they may use is bankruptcy modeling. This paper summarizes a number of bankruptcy models presented in past literature for ease of reference and application by internal auditors and other professionals interested in assessing bankruptcy risk. A companion Microsoft Excel spreadsheet is provided for ease of use.

"Auditor choice and the cost of debt capital for newly public firms," by J. A. Pittman and S. Fortin, Journal of Accounting and Economics (Volume 37, Number 1, 2004): 113-136.

Based on a sample of 2,180 IPOs, the authors examine the impact of auditor choice on debt pricing in firms' early public years (when they are lesser known). Results suggest that retaining a Big 6 auditor is associated with lower borrowing costs for young firms, perhaps because Big 6 firms help reduce debt-monitoring costs by enhancing the credibility of financial statements. The authors also provide evidence consistent with choice of a Big 6 auditor affecting firms' interest rates less over time. In addition, Big 6 auditors particularly benefits firms with short private histories.

"Client Size, Auditor Specialization and Fraudulent Financial Reporting," by J. V. Carcello and A. L. Nagy, Managerial Auditing Journal (Vol. 19, No. 5, 2004): 651-668.

The authors use a logistic regression model to examine the effect of client size on the relation between industry specialist auditors and the existence of fraud. The authors generally find a significant negative relation between industry specialization and financial fraud, with stronger results for Big 6 firms. They also find that the negative relationship between auditor industry specialization and financial fraud is not as strong for larger clients.

Enron.Con, Critical Perspectives on Accounting, (Vol. 15, No. 6/7, 2004): 733-1008.

As the name of this special issue implies, this edition of the journal contains multiple articles pertaining to Enron, Arthur Andersen, and regulatory reform. A central theme of the articles seems to be that the current structure and practices of the auditing and accounting profession fail to accomplish essential outcomes for diverse stakeholders of modern corporations. The issue includes articles by A. Briloff, who emphasizes that the accounting profession must rededicate itself to the independent audit as surrogates on behalf of all stakeholders; and A. Reinstein and J. McMillan, who link the misrepresentations inherent in Enron's financial statements to numerous failures of auditors to appropriately employ fundamental principles of fraud detection.

"The Ability of Analytical Procedures to Signal Transaction Errors," by S. B. Law and R. Willett, Managerial Auditing Journal (Vol. 19, No. 7, 2004): 869-888.

This study uses computer simulations to examine the error detection ability of a set of analytical procedures (APs). The results indicate that higher noise levels reduce performance; however, a more detailed modeling of the process appears to produce a compensatory increase in performance. Contrary to findings in previous studies, some annual APs performed better than their related monthly counterparts. An additional contribution of the study is that the simulations use Statistical Activity Cost Theory to generate accounting numbers from specified, underlying stochastic processes. This allows errors to be related to transactions, i.e. the level at which they typically occur, whereas in prior experiments, errors have been related only to accounts.

"Ethical Issues Related to the Provision of Audit and Non-Audit Services: Evidence from Academic Research," by H. Ashbaugh, Journal of Business Ethics, (Vol. 52, No. 2, 2004): 143-148.

The author summarizes the role of auditing in the capital markets, including how various stakeholders rely on audited financial information. She discusses the auditing literature that demonstrates the economic bond between the auditor and client, and explains the ethical dilemma inherent in audit contracts; specifically, how the provision of non-audit services threatens auditor independence.

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