Have You Seen...?
Sudip Bhattacharjee, Virginia Tech
Duane Brandon, Auburn University and
Gary Peters, University of Arkansas
“Effect of Different Types of Feedback on the Level of Auditors’ Configural Information Processing”, by P. W. Leung and K. T. Trotman, Accounting & Finance, (Volume 48, Issue 2, 2008): 301–318.
This paper examines the impact of four different forms of feedback (outcome, task properties, cognitive and combined) on increasing the extent of configural information processing by auditors (i.e. jointly considering the impact of different cues). Audit seniors participated in the study and a made series of judgments of the risk of misstatement of an account balance. The results indicate that task properties, cognitive, and combined (task properties plus cognitive) feedback all lead to increased configural information processing. There is no impact of outcome feedback. The authors also find that the extent of configural processing is positively associated with their measure of judgment performance.
“Internal Audit Sourcing Arrangement and the External Auditor's Reliance Decision”, by S. M. Glover, D. F. Prawitt, and D. A. Wood,Contemporary Accounting Research, (Volume 25, Issue 1, 2008): 193-213.
This paper examines the effects of internal audit sourcing arrangement on the external auditor's reliance decision in the presence of different levels of inherent risk and task subjectivity. External auditors from a Big 4 firm completed an experimental case which manipulated internal audit sourcing, inherent risk, and task subjectivity. Results indicate an interaction between sourcing and inherent risk such that external auditors rely more on outsourced than in-house internal auditors when the level of inherent risk is high but do not differentiate on the basis of sourcing arrangement when inherent risk is low. Although the authors find that reliance is lower for subjective than for objective tasks, they do not find an interaction between sourcing arrangement and subjectivity of the work performed.
“Judging Audit Quality in Light of Adverse Outcomes: Evidence of Outcome Bias and Reverse Outcome Bias”, by M. E. Peecher and M. D. Piercey,Contemporary Accounting Research, (Volume 25, Issue 1, 2008): 243-274.
This study seeks to empirically isolate the extent to which commonly observed outcome effects actually reflect outcome bias when judging audit quality. A key question is whether individuals' belief revision from adverse audit outcomes is too large (outcome bias), or too small (reverse outcome bias). In two experiments, participants revise their likelihood judgments about auditor negligence in response to adverse outcome information. The study compares their revised judgments against their own Bayesian revised judgments. Consistent with the hypotheses, the study finds that individuals’ judgments of auditor negligence exhibit outcome bias when their own Bayesian probabilities of negligence fall below the vicinity of 40 percent, but also exhibit reverse outcome bias when such probabilities lie above the 40 percent vicinity.
“Internal Audit, Alternative Internal Audit Structures and the Level of Misappropriation of Assets Fraud”, by P. Coram, C. Ferguson, and R. Moroney, Accounting & Finance, In Press.
This study assessed whether organizations with an internal audit function are more likely to detect and self-report fraud than those without. The fraud data was from the 2004 KPMG Fraud Survey, which reported fraud from 491 organizations in the private and public sector across Australia and New Zealand. The internal audit data was from a separate mail survey sent to the respondents of the KPMG Fraud Survey. The authors find that organizations with an internal audit function are more likely than those without such a function to detect and self-report fraud. Furthermore, organizations that rely solely on outsourcing for their internal audit function are less likely to detect and self-report fraud than those that undertake at least part of their internal audit function themselves.
“Non-Audit Fees, Long-Term Auditor-Client Relationships and Earnings Management”, by S. Cahan, D. Emanuel, D. Hay, and N. Wong, Accounting & Finance, (Volume 48, Issue 2, 2008): 181-207.
Prior research documents inconclusive evidence regarding the impairment of audit quality (independence) caused by non-audit services. The current study extends the prior literature by considering whether the length of time in which non-audit fees are received or whether the growth rate of these fees impacts audit quality. Similar to prior audit quality research the author’s do not find support for the above associations. However, the author’s findings do raise the issue as to potential impact of client importance on the association between discretionary accruals and the length of time that non-audit fees are received.
“Evidence on the Impact of Internal Control and Corporate Governance on Audit Fees”, by D. Hay, W. R. Knechel, and H. Ling, International Journal of Auditing (Volume 12, Issue 1, 2008): 9–24
The authors of this study examine the mixed findings in prior literature regarding the association between audit fees and strength of internal controls and governance. In particular, the authors examine whether the association reflects a substitution effect vs. complements effect. In general, the results of this study are consistent with a complements view, where the demand for external audit services is positively associated with the strength of internal audit, governance, and ownership concentration. The authors discuss complexity of the above associations resulting from the variety of agency issues, relevant risks, and availability of controls present within the firm. The authors also highlight the potential implications of these associations within industries with varying degrees of regulation.
“Management Turnover Following Auditor Resignations”, by K. Menon and D. D. Williams. Contemporary Accounting Research (Volume 25, No. 2. 2008): 567-604.
Building upon the recent executive turnover literature, this study examines the pattern of CEO and CFO turnovers following auditor resignations. The authors find that the likelihood of CEO and CFO turnover is greater among firms who experience auditor resignations versus those firms who dismiss their auditors. The author’s argue the executive turnover reflects a desire to improve financial reporting credibility and financial performance.
“Does the SOX Definition of an Accounting Expert Matter? The Association Between Audit Committee Directors Accounting Expertise and Accounting Conservatism”, by G. V. Krishnan and G. Visvanathan, Contemporary Accounting Research, In Press.
This paper investigates whether having non-accounting experts (versus accounting experts) serving on the audit committee affects the quality of financial reporting. The authors use a sample of S&P 500 firms to examine whether the committee's financial expertise is associated with accounting conservatism, a fundamental characteristic of financial reporting. The results suggest that an audit committee's financial expertise is positively associated with conservatism when financial expertise is defined to include only accounting experts. However, the results are conditional upon the firm's overall corporate governance. For weak boards, accounting financial expertise is ineffective in promoting conservative accounting.
|
