Have You Seen...?By James Lloyd Bierstaker, University of Massachusetts-Boston, |
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"An Investigation of the Attributes of Top Industry Audit Specialists," by M. J. Abdolmohammadi, D. G. Searfoss, and J. Shanteau, Behavioral Research in Accounting (Volume 16, 2004): 1-18. This study collected questionnaire data from 114 senior audit partners who were top industry audit specialists at a Big 6 firm to collect an expanded list of attributes of these specialists. The findings of the study indicate that, consistent with prior research, knowledge was the highest-ranking attribute, with experience and technical skills also very important. However, personality and social attributes (e.g., communications and leadership skills) also were very important. These findings suggest some important constructs for future behavioral research on auditing expertise. "The Effects of Alternative Justification Memos on the Judgments of Audit Reviewees and Reviewers," by C. P. Agoglia, T. Kida, and D. M. Hanno, Journal of Accounting Research (Volume 41, 2003): 33-46. Prior research has shown that requiring justification of judgments can result in differences in auditor judgments and decisions. In this study, the authors examine the impact of using three different justification memos: supporting, balanced, and component. Using a comprehensive control environment case based on an actual client that experienced fraud, they find that the type of justification memo can affect the judgments of auditors preparing the memos, as well as the judgments of auditors who review their work. Specifically, the results indicate that auditors using the component memo thought that the firm's control environment was more likely to prevent fraud as compared to the supporting and balanced memo groups. "An Examination of Factors Influencing Managers' and Auditors' Assessments of the Appropriateness of an Accounting Treatment and Earnings Management Intentions," by B. Vinciguerra and M. O'Reilly-Allen, American Business Review (Volume 22, 2004): 78-87. This paper examines attributes associated with auditors' and managers' assessment of the appropriateness of an accounting treatment. The researchers presented a case to 54 auditors and 50 MBA students who served as a surrogate for management. For auditors, the presence of a review requirement and allowability under GAAP were significant factors in their perceptions of appropriateness of a warranty-related accounting treatment. Interestingly, auditors' assessments of the appropriateness of the accounting treatment decreased when their judgment was subject to review by an accounting consultation unit. MBA students' assessments were influenced by the allowability under GAAP and whether they perceived the treatment as fraudulent financial reporting or as an ordinary adjustment. "Rough Sets Bankruptcy Prediction Models versus Auditor Signaling Rates," by T. McKee, Journal of Forecasting (Volume 22, 2004): 569-586. The author tested the ability of rough sets theory to develop bankruptcy prediction models and compared the models' performance to that of auditors as measured by modified audit opinions. Using a matched-sample containing 146 bankrupt and 145 non-bankrupt U.S. public companies, the author applied rough sets theory to develop two bankruptcy prediction models. These models accurately classified companies 61 percent and 68 percent of the time, respectively. By comparison, auditors signaled going concern problems via opinion modification for only 54 percent of the bankrupt companies. However, when other audit opinion modifications were considered, the auditors' signaling rate for bankrupt companies climbed to 66 percent. The author concludes that rough sets theory does not outperform auditors' methodologies. "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, 2004): 113-136. Building from evidence of a life cycle in the pattern of corporate financing, this paper examines the role of auditor choice on the cost of debt capital. Information asymmetry is likely greatest in a firm's early public years. The authors provide evidence that choosing a Big 6 auditor and the retention of a Big 6 auditor result in reduced borrowing costs for younger firms. Further, the paper presents evidence that the effect on borrowing costs from retaining a Big 6 firm diminishes over time, presumably because of the decrease in information asymmetry. "Does the Adoption of a Business Risk Audit Approach Change Internal Control Documentation and Testing Practices," by J. Bierstaker and A. Wright, International Journal of Auditing (Volume 8, 2004): 67-78. The authors collected data from audit seniors both before and after a firm-wide change to a new business risk audit approach in 1997. The results suggest that, after the change, the auditors used narratives to document internal control processes and testing more often than before, while relying on other documentation formats less often than before. In addition, after changing the audit approach, auditors were more likely to use fewer documentation formats and to rely on a single format than prior to the change. "Pricing and Supplier Concentration in the Private Client Segment of the Audit Market: Market Power or Competition?" by M. Willekens and C. Achmadi, International Journal of Accounting (Volume 38, 2003): 431-455. The authors examined audit pricing in the private client segment of the Belgian audit market comparing 1989 to 1997 (post-mergers). Prior studies suggested that fee premiums are less likely to exist in the private client segment because of lower audit supplier concentration. However, the results show that a positive relationship existed between audit firms' market shares and their fees in this market segment for both years examined. In addition, the results suggest that price competition was greater in 1997 than 1989, as evidenced by a less significant relationship between market share and pricing, as well as smaller fee premiums on first year audits. "Audit Fees and Market Segmentation – Further Evidence on How Client Size Matters Within the Context of Audit Fee Models," by E. Carson , N. Fargher, D. Simon, and M. Taylor, International Journal of Auditing (Volume 8, 2004): 79-91. The researchers examined the audit fee premium related to the Big 6 brand in the small and large client segments of the audit market in Australia during the period form 1995-1999. The results suggest that Big 6 firms were able to charge a fee premium in the small client segment of the market, but not in the large client segment. Further, the results suggest that the relationship between the log of client size and the log of audit fees is non-linear. The authors observe that studies that fail to control for the non-linearity of this relationship potentially are misspecified. "Artificial Neural Networks in Analytical Review Procedures," by E. Koskivaan, Managerial Auditing Journal (Vol. 19, No. 2, 2004): 191-223. This paper provides a literature review of artificial neural network (ANN) studies conducted in auditing. ANNs are adaptive tools for processing information—they can learn, remember, and compare complex patterns, even if the data are noisy and ambiguous. Because ANNs are data-driven, a priori assumptions about the distribution of data is not necessary, as they are for traditional statistical techniques such as regression analysis. The ANN studies cited in the article are categorized and discussed by topic, including material errors, management fraud, going concern decisions, internal control, risk assessment, audit fees, and financial distress problems. The author suggests that ANNs appear to have much potential in the area of analytical procedures. "Auditor Reputation and the Insurance Hypothesis: The Information Content of Disclosures of Financial Distress of a Major Accounting Firm," by W. Hillison and C. Pacini, Journal of Managerial Issues (Vol. XVI, No. 1, Spring 2004): 65-86. In this study, the authors investigate market reactions to client-firm stock prices arising from E&Y bankruptcy rumors in late November and early December 1990, as well as the market reaction to a full page ad placed in the Wall Street Journal (WSJ) by E&Y to mitigate the rumors. The results provide evidence that rumors of E&Y's bankruptcy are associated with negative risk-adjusted stock price reactions of its audit clients, and that smaller client-firms had greater negative price reactions than larger client-firms. The results also indicate that, rather than dispelling the bankruptcy rumors, E&Y's advertisement in the WSJ may have reinforced the rumors as the market showed significant negative returns following the advertisement. "Going Concern Prediction Using Data Mining Techniques," by H. C. Koh, Managerial Auditing Journal (Vol. 19, No. 3, 2004): 462-476. This study explores and compares logistic regression, neural networks, and decision trees in predicting a firm's going concern (GC) status. The author argues that data mining techniques may be able to predict / classify better than traditional statistical methods when complex non-linear and interactive relationships exist in the data; thus, the techniques potentially are useful for the construction of GC prediction models. Using a matched-pair design, the author develops predictive GC models using six financial ratios as the explanatory variables. While the decision tree performed best, the logistic regression and neural network models also perform well, with classification accuracy above 95 percent. The author acknowledges that the overall classification accuracy rate is computed simplistically and that, in practice, it also is necessary to consider the misclassifications and their relative costs. |