Have You Seen...?
Sudip Bhattacharjee, Virginia Tech
Duane Brandon, Auburn University and
Gary Peters, University of Arkansas
"Auditor–Client Management Relationships and Roles in Negotiating Financial Reporting", by S. A. McCracken, S. E. Salterio, and M. Gibbins, Accounting, Organizations and Society, In Press.
The authors conducted a field study of chief financial officer (CFO)–audit partner dyads to examine the assumption that the roles played by each side and the nature of the relationships are similar across negotiations. The study finds that these negotiations are 'fluid', with continual redefinition not only of the substantive issues under negotiation, but also of the negotiation roles and relationships (i.e. 'shadow' negotiations). The CFO's actions and expectations in these 'shadow' negotiations appear to define the auditor's role and the relationship's parameters, but both can evolve over time. The audit partners express a desire to be in the "ideal" relationship where they assume the role of the 'expert advisor' but they seemingly have no explicit strategy to move the relationship toward a 'proactive' (rather than 'reactive') state.
"An Examination of Auditor Planning Judgments in a Complex Accounting Information System Environment", by J. F. Brazel and C. P Agoglia, Contemporary Accounting Research, (Volume 24, Issue 4, 2007): 1059–83.
This study investigated the effects of computer assurance specialists (CAS) competence and auditor accounting information system (AIS) expertise on auditor planning judgments in a complex AIS environment. Using audit seniors as subjects, the study finds that AIS expertise and CAS competence affected auditors' control risk assessments, because both those with high AIS expertise and those assigned low competence CAS tended to assess control risk as higher than their counterparts. While there was no evidence that auditors' AIS expertise moderated the effect of CAS competence on their control risk assessments, the difference between high AIS expertise auditors' and low AIS expertise auditors' scope and effectiveness of planned audit procedures was greater when CAS competence was low than when it was high.
"Effects of Qualitative Factor Salience, Expressed Client Concern, and Qualitative Materiality Thresholds on Auditors' Audit Adjustment Decisions", by T. B. Ng, and H. Tan, Contemporary Accounting Research, (Volume 24, Issue 4, 2007): 1171–92.
This study examined the factors that influence auditors' propensity to book or waive audit differences that affect the client's ability to meet the analysts' consensus forecast and avoid a negative earnings surprise. Using audit managers as subjects, the results indicate that auditors are more likely to book the audit difference when the qualitative materiality factor is made salient, but this effect applies only for auditors with lower qualitative materiality thresholds. In addition, the benefits of such attention-directing mechanisms (to auditors with lower qualitative materiality thresholds) disappear in the presence of communication by the client expressing concern about adverse consequences resulting from the auditors' booking of the audit difference. Auditors with higher qualitative materiality thresholds are unaffected by the client's expressed concern.
"Examination of Factors Associated with the Type and Number of Internal Control Documentation Formats", J. Bierstaker, D. Janvrin, and D. J. Lowe, Advances in Accounting, (Volume 23, 2007): 31-48.
Auditing standards require that auditors obtain and document their understanding of internal control on every engagement, but do not specify the type or number of documentation formats auditors should adopt. This study investigated the association of selected factors on the type and number of formats chosen. Data were collected from 181 auditors suggest that auditors are most likely to use narratives followed by questionnaires. Firm size, client IT complexity, and auditor IT expertise are associated with auditors' format choice. Furthermore, while auditors use multiple formats, they tend to emphasize one format more than others. These findings have implications for audit effectiveness, since prior research suggests that documentation format may impact audit judgment, and auditors who rely on a single format may overlook significant internal control deficiencies.
"Management's Evaluation of Internal Controls Under Section 404(a) Using the COSO 1992 Control Framework: Evidence from Practice", by Parveen P. Gupta, International Journal of Disclosure and Governance (Volume 5, Number 1, February 2008): 48-68.
This study investigates how companies are utilizing the COSO control framework to carry their responsibilities under Section 404(a). The author analyzes the responses of 374 survey participants from companies of all sizes, and finds that companies are relying more on the internal control auditing standard than the guidance provided in the COSO 1992 control framework to conduct their control evaluations. The author discusses various potential consequences of these findings and also suggests some solutions.
"Ten Common Misconceptions About Enterprise Risk Management", by John R. S. Fraser and Betty Simkins, Journal of Applied Corporate Finance (Volume 19 Issue 4, Fall 2007)
This study reviews the current status of Enterprise Risk Management implementation from survey respondents. The authors describe a straightforward approach for undertaking ERM. The authors then go on to describe common misconceptions about ERM. Among other misconceptions, the authors emphasize the importance of properly defining the common concepts of risk and tying the concepts to the firm's overall business environment and strategies. The authors also point out the confusion about the underlying purpose of ERM initiatives and the control focus of the Sarbanes-Oxley Act. For example, whereas the requirements of SOX emphasize the importance of viewing financial reporting risks as of a certain date, ERM emphasizes the importance of viewing entity-wide risks that might decrease the likelihood of meeting strategic objectives over time.
"Choices and Best Practice in Corporate Risk Management Disclosure", by Ekaterina E. Emm, Gerald D. Gay, and Chen-Miao Lin, Journal of Applied Corporate Finance (Volume 19 Issue 4, Fall 2007)
This report takes a closer look at the reporting trends for complying with the SEC 10K requirements of disclosing the nature and extent of their risk exposures. The authors evaluate the relative prominence of reporting among the following three methods: (1) sensitivity analysis; (2) the so-called "tabular" format; and (3) value-at-risk (VaR). The report includes a description of the differences in the type and level of information revealed by each method. The authors then go on to analyze the potential firm-specific and industry characteristics that are associated with the choice among the reporting methods. The authors conclude that firms choosing the tabular method provide the most revealing data. In association with the extent of information revealed, the author's also note that choice of disclosure methods is also tied to the company's size, extent of interest rate and commodity exposure, demand for external financing, use of derivatives, and competitiveness concerns.
"Auditor's Engagement Risk and Audit Fees: The Role of Audit Firm Alumni", by Ilias G. Basioudis, Journal of Business Finance & Accounting, (Volume 34, Issue 9, 2007)
Using a sample of UK data, this study explores the effect of incumbent audit firm alumni who sit on the client board of directors. Following engagement risk theory, the report finds a negative association with audit fees for large companies. The author provides additional discussion about the study's implications for the accounting profession and the regulators.
"The Hiring of Accounting and Finance Officers from Audit Firms: How Did the Market React?", by Marshall A. Geiger, Clive S. Lennox and David S. North, Review of Accounting Studies, (Volume 13, Issue 1, 2008)
This study investigates the prevalence and reaction to the hiring of accounting and finance officers directly from incumbent external audit firms. Over the sample period of 1985-2002, the authors document a low proportion of hiring from external audit firms. However, when these types of hires took place, the authors document positive stock market reactions around the announcements of newly appointed accounting and finance officers. The authors also investigate and find no evidence that the above hiring companies subsequently experience lower financial reporting quality. In general, the authors posit that perhaps SOX restrictions on hiring audit personnel may have been unnecessary and offer little protection in light of the potential benefits argued by market participants.
"Audit Committee Effectiveness: Informal Processes and Behavioural Effects", by Stuart Turley and Mahbub Zaman, Accounting, Auditing and Accountability Journal, (Volume 20, Number 5, 2007): 765-788.
This paper reports a case study investigating the conditions and processes affecting the operation and potential effectiveness of audit committees, with particular focus on the interaction between the committee, individuals from financial reporting and internal audit functions and the external auditors. The authors find that informal networks between audit committee participants condition the impact of the committee and that the most significant effects of the committee on governance outcomes occur outside the formal structures and processes. An audit committee has pervasive behavioral effects within the organization and may be used as a threat, an ally and an arbiter in bringing solutions to issues and conflicts. Audit committees are used in organizational politics, communication processes and power plays and also affect interpretations of events and cultural values. The authors discuss these findings in with emphasis on governance policy, theory, and the relative impact of audit committees.
|
