Have You Seen...?Pennie Bagley, Texas Tech University “The Impact of Auditor Rotation on Auditor-Client Negotiation,” by K. J. Wang and B. M. Tuttle, Accounting Organizations and Society (Volume 34, Issue 2, 2009): 222-243. Using an experiment, this paper investigates the impact of mandatory audit firm rotation on auditor negotiation processes. Participants were assigned the role of manager (i.e., client) or verifier (i.e., auditor) and put into pairs to negotiate. Auditor rotation was manipulated by telling participants that they would negotiate for up to three periods (mandatory rotation condition) or they would negotiate for an unlimited number of periods (no mandatory rotation condition). The authors predict and find that mandatory rotation increases the likelihood that the auditor will adopt more non-cooperative negotiation strategies and that the negotiation will end in an impasse. “The Audit Committee Oversight Process,” by M. S. Beasley, J. V. Carcello, D. R. Hermanson, and T. L. Neal, Contemporary Accounting Research (Volume 26, Issue 1, 2009): 65-122. In this study, the authors conduct extensive interviews with 42 audit committee members of public companies to provide insight into the audit committee oversight processes in the post Sarbanes-Oxley environment. They explore six audit committee process areas and consider their findings with respect to both agency and institutional theory. While their findings indicate that audit committee members strive to provide effective monitoring of financial reporting and avoid serving on ceremonial audit committees, within each process area, they find evidence of both monitoring and ceremonial action. Thus neither agency nor institutional theory fully explains their findings. They also note that personal and company characteristics, in particular accounting expertise and time of appointment to the audit committee, influence the committee members’ responses. “Restoring Trust in Auditing: Ethical Discernment and the Adelphia Scandal,” by K. Barlaup, H. Dronen, and I. Stuart, Managerial Auditing Journal (Volume 24, Issue 2, 2009): 183-203. This paper proposes a model for ethical decision making and examines whether the use of the model would have led to a different outcome for the Adelphia accounting scandal. The authors’ goal is to determine whether more sophisticated ethical evaluation and processes will act as a viable alternative to further regulation in restoring trust in the financial markets. Application of the model to Adelphia indicates that had an ethical model been used, auditors as well as management would have had difficulty rationalizing their poor decisions. Thus the authors posit that if their approach to ethical decision making is adopted, auditors and business people will likely make more ethical decisions, be considered trustworthy, and thus contribute to restoring trust in the financial markets. “Auditor Tenure and the Ability to Meet or Beat Earnings Forecasts,“ by L. R. Davis, B. S. Soo, and G. M. Trompeter, Contemporary Accounting Research (Volume 26, Number 2, 2009): 517-548. The authors investigate the association between auditor tenure and the use of discretionary accruals to meat or beat earnings forecasts. In particular, the authors identify those companies that would have missed their earnings forecast without positive discretionary accruals. Using a sample period of 1998-2006 the authors construct a pre and post-SOX to also test whether the earnings management associations have changed over time. During the pre-SOX period the authors find a positive association between long audit tenure and the use of discretionary accruals to meet or beat forecasts. However, the association does not hold in the post-SOX period. “Are Assurance Services Provided by Auditors on Initial Public Offerings Influenced by Market Conditions?” by P. A. Copley and E. B. Douthett Jr., Contemporary Accounting Research (Volume 26, Number 2, 2009): 453-476. The authors examine audit fees expended during initial public offerings (IPOs) to determine whether audits are impacted by the extent a “hot” IPO market reduce the incentives for outside monitoring and risk reduction. The authors find that IPO assurance fees are about 6 percent lower during hot markets. In addition, the authors document that audit fee coefficients for client size and time-to-market are significantly smaller during “hot” markets. The authors extend their tests to differentiate their results from those that could result from systematic differences of companies that issue securities during “hot” markets. |