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The Impact of Retention Incentives and Client Business Risks on Auditors' Decisions Involving Aggressive Reporting Practices
Abstract
This research examines the individual and interactive effects of client retention incentive and client business risks on auditors' decisions regarding whether to accept clients' aggressive reporting practices. Fifty-five audit seniors and managers from all of the Big 5 accounting firms participated in this experimental study. We find a significant main effect of client business risks and an interactive effect between client retention incentives and client business risks on auditors' decisions. Specifically, the results indicate that, when a client's business risks are high, auditors tend to scrutinize such risks and carefully evaluate a client's proposed accounting practices. However, when there is less concern over a client's business risks, auditors may be willing to accept the client's aggressive reporting proposal if retention incentives are high.
... Beberapa hasil penelitian menemukan bahwa semakin penting klien bagi auditor atau KAP maka semakin rendah kualitas audit karena faktor ketergantungan ekonomi (Chi dan Lisic, 2011;Ghosh dan Moon, 2005;Chen et al., 2008;Chang dan Hwang, 2003). Penelitian yang dilakukan oleh Fitriany (2012) menunjukkan hasil yang berbeda yaitu client importance tidak berpengaruh signifikan terhadap kualitas audit. ...
... Auditor cenderung tidak mampu menemukan kecurangan dan jika menemukan kecurangan mereka tidak akan melaporkan, sehingga kualitas audit akan semakin menurun. Semakin penting klien bagi auditor, semakin rendah kualitas audit karena faktor ketergantungan ekonomi (Chi dan Lisic, 2011;Ghosh dan Moon, 2005;Chen et al., 2008;Chang dan Hwang, 2003). Berdasarkan pemaparan tersebut, maka dirumuskan hipotesis sebagai berikut. ...
... Penurunan tingkat obyektifitas dan independensi auditor tentu akan berdampak pada penurunan kualitas audit karena probabilitas auditor untuk melaporakan penyelewengan yang terjadi dalam sistem akuntansi klien tergantung pada independensi auditor. Hasil penelitian ini sesuai dengan hasil penelitian yang dilakukan oleh Chi dan Lisic (2011), Ghosh dan Moon (2005), Chen et al (2008), Chang dan Hwang (2003) yang menemukan bahwa semakin penting klien bagi auditor atau KAP maka semakin rendah kualitas audit karena faktor ketergantungan. Ketergantungan ekonomi membuat auditor tidak independen dan obyektif, mereka akan cenderung tidak melaporkan hasil temuan kecurangan yang ada di dalam laporan keuangan. ...
This research was done in purpose of finding out empirical evidences about the
effects of client importance towards the audit quality, dan the commitment ability of the accounting profession in weakening the influence of client importance on audit quality. The research sample that returned the results of questionnaires is 36 auditors from a total of 65 auditors working in the Public Accounting Firm (KAP) in 2018. The sample selection was done using the purposive sampling method. The data sources used in this study are primary data. Primary data is obtained by using a questionnaire that has been structured in order to collect information from the auditor as the respondent in this study. MRA model analysis was applied to analyze the data. The data analysis support the hypothesis: (1) client importance has negative dan significant effect towards the audit quality, dan (2) commitment of the accounting profession was able to moderate the influence of client importance on audit quality. The results of this study can be used as reference material for KAP leaders in evaluating dan performing more strict supervision on the implementation of professional commitment of auditors when conducting audit process, because the existence of KAP depends on the quality of audits that can affect public trust. Regulators can also make very strict rules dan sanctions related to violations of the accounting code of ethics dan violations of the audit process so that they can cause deterrent effects for the perpetrators dan can be used as learning for other auditors so as not to violate these rules.
... The discovery of inappropriate reporting can affect all stakeholders. For example, it may cause a decrease in the value of shareholder and creditor interests, an increase in the cost of capital for the client, a reputational loss for auditors and the profession, and an increase in costs for regulators to restore investor confidence Firth 1980;Farmer et al. 1987;Chang and Hwang 2003), typically discussed in terms of revenue from audit and/or nonaudit services. It is argued, and supported by prior auditing research (e.g. ...
... It is argued, and supported by prior auditing research (e.g. Lord 1992;Chang and Hwang 2003), that as auditors become more financially dependent upon a client, they are more likely to acquiesce to client pressures. Another incentive commonly cited relates to the interpersonal relationship that develops between auditor and client. ...
... While the relationship between client importance and auditor decisions has been supported in prior research (e.g. Chang and Hwang 2003;Lord 1992), it is possible the recent accounting scandals and the resulting bad press have caused auditors to now be more conservative with their larger clients than prior to the scandals. An alternative explanation is that the financial importance of a client may still affect audit decisions in practice, however, the recent scandals caused auditor-participants to be sensitive to the manipulation (i.e. they saw through the manipulation) and they made certain the importance of the client did not affect their responses. ...
... All previous research on auditor-auditee negotiation outcome and risk has been focused on one type of risk. Brown and Johnstone (2007) are focused on engagement risk and negotiation outcome, Chang and Hwang (2003) had examine the individual and interactive effects of auditee business risks on auditor's decisions regarding whether to accept auditees' aggressive reporting practices. Houston (1999) has paid significant attention to audit risk and auditor decision. ...
... Drawing from accounting contextual features identified by Gibbins, Salterio and Webb (2001) as important in auditor-auditee negotiations, we examine how risk evaluations influence auditor decision during auditor-auditee negotiations. Research demonstrates that risk influences decision making behavior (e.g., Knapp, 1985;Walo, 1995;Hackenbrack and Nelson, 1996;Johnstone, Bedard and Biggs, 2002;Chang and Hwang, 2003;Blay, 2007;Gibbins, McCracken, and Salterio, 2008) and is an important aspect of the overall audit environment (Bell et al., 2002). ...
... Several studies have examined the effect of auditee business risks on audit decisions (Houston, 1999;Johnstone, 2000;Chang and Hwang, 2003;Ballou, Earley and Rich, 2004;O'Donnell and Schultz, 2005;Brandon et al., 2007). ...
The purpose of this paper is to study the impact of auditee business risk, audit risk and auditor business risk evaluation on auditor-auditee negotiation outcomes. An experimental research was conducted using 200 Tunisian auditors as participants. We have proved the association between audit risk and auditee business risk. Also, our results indicate that auditee business risk has a significant effect on auditor-auditee negotiation outcomes. So, auditors will be less likely to accept an auditee’s aggressive reporting practice when the auditee’s business risks are high. On the other hand, results shows that audit risk evaluation don’t affect auditor auditee negotiation outcomes. Finally and for the effect of auditor business risk on auditor agreement probability with auditee preferences, the result is not significant.
... All previous research on auditor-auditee negotiation outcome and risk has been focused on one type of risk. Brown and Johnstone (2007) are focused on engagement risk and negotiation outcome, while Chang and Hwang (2003) have examined individual and interactive effects of auditee business risks on auditor's decisions regarding whether to accept auditees' aggressive reporting practices. Houston (1999) has paid significant attention to audit risk and auditor decision. ...
... Drawing from accounting contextual features identified by Gibbins, Salterio, and Webb (2001) as important in auditor-auditee negotiations, we examine how risks evaluations influence auditor decision during auditor-auditee negotiations. Research demonstrates that risk influences decision making behavior (e.g., Blay, 2007;Chang & Hwang, 2003;Hackenbrack & Nelson, 1996;Johnstone, Bedard, & Biggs, 2002;Knapp, 1985;Walo, 1995) and is an important aspect of the overall audit environment (Bell et al., 2002). Prospect Theory suggests that people are risk averse in situations where they are confronting potential gains and that they are risk seeking in situations where they are confronting potential losses (Kahneman & Tversky, 1979). ...
... Auditee Business Risk and Auditor-Auditee Negotiation. Several studies have examined the effect of auditee business risks on audit decisions (Ballou, Earley, & Rich, 2004;Brandon et al., 2007;Chang & Hwang, 2003;Houston, 1999;Johnstone, 2000;O'Donnell & Schultz, 2005). ...
Manuscript Type: Empirical
Research Question/Issue: This study seeks to investigate the impact of auditee business risk, audit risk, and auditor business risk evaluation on auditor-auditee negotiation outcomes. A model is developed and tested that characterizes the auditor-auditee negotiation outcome as a process of risk evaluation and risk adaptation.
Research Findings/Insights: An experiment was conducted using 200 Tunisian auditors as participants. The results show that the partners considered the relationship between audit risk and auditee business risk. Also, our results indicate that auditee business risk has a significant effect on auditor-auditee negotiation outcomes. So, auditors will be less likely to accept an auditee's aggressive reporting practice when the auditee's business risks are high. On the other hand, results show that audit risk evaluation don't affect auditor-auditee negotiation outcome. Finally, auditor business risk has a non-significant effect on auditor-auditee negotiation outcome.
Theoretical/Academic Implications: This study provides evidence that despite the expectation of conservatism required by generally accepted auditing principles (GAAP), certain environmental factors may cause auditors to acquiesce to auditee preferences and allow more aggressive reporting. From stakeholders' (e.g., investors, regulators) perspective, this is not necessarily an optimal criterion for decisions that impact the financial statements. The expectations of stakeholders are that auditors will select the most informative alternative.
Practitioner/Policy Implications: The implication for practice is that accounting firms may need to strengthen their internal oversight mechanisms (e.g., peer reviews, concurring partner reviews) to ensure that auditors' decisions are aligned with the firm's, as well as stakeholders', expectations of audit quality. So, auditors must pay more attention to financial statements when business risk is high.
... Accordingly, the researcher recommends that audit firms in Egypt pay more and increasing attention towards auditors' training especially in the field of professional judgement and the client acceptance decisions. (Sila, et al., 2016, Liu, et al., 2017, and Yustina and Putri, 2017 (Johnstone, 2000, Chang and Hwang, 2003, Asare, et al., 2005, and Chaffai and Dietsch, 2013 (Johnstone, 2000, Chang and Hwang, 2003, Asare, et al., 2005, Chaffai and Dietsch, 2013, and Siregar, et al., 2015 . (Johnstone, 2000, Miller, et al., 2012, and Siregar, et al., 2015 . ...
... Accordingly, the researcher recommends that audit firms in Egypt pay more and increasing attention towards auditors' training especially in the field of professional judgement and the client acceptance decisions. (Sila, et al., 2016, Liu, et al., 2017, and Yustina and Putri, 2017 (Johnstone, 2000, Chang and Hwang, 2003, Asare, et al., 2005, and Chaffai and Dietsch, 2013 (Johnstone, 2000, Chang and Hwang, 2003, Asare, et al., 2005, Chaffai and Dietsch, 2013, and Siregar, et al., 2015 . (Johnstone, 2000, Miller, et al., 2012, and Siregar, et al., 2015 . ...
... 18 In addition, research suggests that the ultimate outcome is less likely to be biased when client risk is high. For example, auditors are less likely to exhibit client preference bias (Hwang and Chang 2010;Chang and Hwang 2003;Hackenbrack and Nelson 1996) or be susceptible to order effects when evaluating evidence (Monroe and Ng 2000;Reckers and Schultz 1993). High client risk also causes auditors to generate more explanations for financial statement anomalies (Mueller and Anderson 2002). ...
... Motivated reasoning may cause auditors to direct their search for and evaluation of SEs toward evidence that supports the client's preferred position, resulting in a failure of objectivity. However, when auditors face high client risk or are accountable to knowledgeable audit committees, they may not be susceptible to biased search or evaluation (Hwang and Chang 2010;Chang and Hwang 2003;Kadous et al. 2003;Hackenbrack and Nelson 1996). This discussion on motivated reasoning raises the following research questions: ...
Approximately one-third of the PCAOB's inspection reports and several SEC enforcement releases identify deficiencies in the audit of subsequent events (SEs). Despite these issues, little research has been conducted to understand how and why these deficiencies occur. This paper integrates the psychology and behavioral accounting literatures to develop a model of the factors that influence the effectiveness of SE audit procedures. The model suggests that the effectiveness of these procedures is largely influenced by the auditor's cognitive processing mode, which is initially affected by environmental, individual, and task-specific factors. Our model provides a theoretical basis for future research into the causes of these deficiencies and suggests potential mitigating strategies that auditors can employ to improve the effectiveness of the audit of SEs. We conclude with a discussion of the implications arising from the model for professionals, standard setters, and researchers.
... Interestingly, the reviewing party did not expect that the behavior of the reviewed party was biased by the review [Wilks, 2002]. No significant effects for experience have been detected [Buchman et al., 1996; Chang and Hwang, 2003]. Motivational factors that mitigate the effects of the accountability heuristic include counteracting financial incentives like litigation risk [Farmer et al., 1987; Hackenbrack and Nelson, 1996; Chang and Hwang, 2003;, additional accountability towards an audit partner who had preferences for a high audit quality [Gramling, 1999], low commitment to keeping the client [Kadous et al., 2003] or high commitment to professional values [Lord and DeZoort, 2001]. ...
... No significant effects for experience have been detected [Buchman et al., 1996; Chang and Hwang, 2003]. Motivational factors that mitigate the effects of the accountability heuristic include counteracting financial incentives like litigation risk [Farmer et al., 1987; Hackenbrack and Nelson, 1996; Chang and Hwang, 2003;, additional accountability towards an audit partner who had preferences for a high audit quality [Gramling, 1999], low commitment to keeping the client [Kadous et al., 2003] or high commitment to professional values [Lord and DeZoort, 2001]. ...
... Our results show that seemingly irrelevant differences in how information is obtained can affect the weight given to that information, and that the psychological effect of the choice to obtain information is a function of both setting (e.g., level of litigation risk) and individual characteristics (such as auditor experience). Previous research finds that judgment biases are mitigated in high litigation risk settings because the increased pressure leads to more conservatism and/or greater focus and effort in the search for and evaluation of relevant information (Farmer et al. 1987; Pratt and Stice 1994; Hackenbrack and Nelson 1996; Zhang 1999; Johnstone 2000; Barron et al. 2001; Johnstone et al. 2001; Chang and Hwang 2003; Blay 2005; Kadous et al. 2008; Hwang and Chang 2010). We find, however, that the information pursuit bias is actually stronger in high litigation risk settings. ...
... Prior work has found that litigation risk, a major input into overall engagement risk (Colbert et al. 1996), is an important factor affecting auditor judgments. For example, auditors' willingness to accept client-preferred alternatives has been shown to be decreasing in litigation risk (Farmer et al. 1987; Hackenbrack and Nelson 1996; Zhang 1999; Chang and Hwang 2003; Hwang and Chang 2010). Further, litigation risk has been shown to increase evidence gathered by auditors (Pratt and Stice 1994; Barron et al. 2001), and is a major factor in client acceptance decisions (Johnstone 2000). ...
Previous research finds that individuals place more weight on information when they have chosen to obtain it than when it is received without explicit choice. We examine the effects of litigation risk and experience on auditors' susceptibility to this "information pursuit bias." In our experiment, auditor participants evaluate the likelihood of an inventory obsolescence problem for a hypothetical client subsidiary. Our results show that, in a high litigation risk setting, less experienced auditors weight a specifically chosen item of information more heavily than auditors who receive that cue without choice. Interestingly, less experienced auditors in a low risk setting exhibit the opposite behavior, applying less weight to the cue when they have chosen to receive it. These differences are not observed among experienced auditors, suggesting a mitigating effect of experience on information pursuit effects. The results also show that auditors who choose to receive the cue are more confident in their obsolescence judgments. Our study contributes to the accounting and psychology literature on information pursuit, with theoretical and practical implications for audit judgment and decision-making.
... Results are somewhat difficult to interpret, but one conclusion seems to be that 'pressured' auditors of smaller, financially healthier clients are more likely to accept management's suggested accounting treatment if APNAS is increased. Chang and Hwang (2003) provide further experimental evidence supporting the proposition that audit judgments about clients' aggressive reporting would be influenced by the levels of professional fees paid to the auditor by the client. Chang and Hwang surveyed practitioners about how they would react to a reporting dilemma, while at the same time manipulating the degree of client business risk and client retention incentives. ...
... Most research dealing with more precise and less precise norms focuses on comparing rules-based accounting standards with principles-based accounting (Psaros, Trotman, 2004;Agoglia et al., 2011), with auditors as actors in the decision-making process (Kadous, Mercer, 2012;2016;Greiner et al., 2020). There is also research suggesting that aggressive reporting is not mitigated by more precise standards (Cuccia et al., 1995;Agoglia et al., 2011;Abbasian et al., 2015), while incentives motivate decisions (Chang, Nen-Chen, 2003) and ethical judgments (Smieliauskas et al., 2018). ...
Objective: This article examines the impact of accounting norm reminders on a decision about the impairment of two groups of assets: receivables and inventories. It also inves-tigates the ethical judgment of a non-compliant decision. Method: The examination is performed via a laboratory experiment. Results: A non-compliant decision was found to have a significant impact in the groups of males and females. Men’s propensity to non-compliance was higher regardless of the group of assets, suggesting that imprecise accounting regulations are perceived as a gateway to manipulations. Women’s propensity to make a non-compliant decision after recalling a norm was different, depending on the type of asset. The ethical evaluation was affected by gender: women evaluated a non-compliant decision of two groups of assets differently after recalling a norm. The main contribution of the study indicates that accountants may decide the opposite to the norm’s intention when the norm is less precise. Limitations: The study was conducted in one country and among masters’ degree ac-counting students. The number of males was relatively small. Practical implications: The results should be of interest to behavioral researchers, academic teachers, and Polish standards setters as they continue to develop national accounting standards. Contribution: We provide evidence that the interaction of norm recall, the type of asset, as well as the gender of the decision-maker impacts non-compliant decisions.
... Existing research suggests that audit fees depend on company size (Simunic, 1980;Koh & Tong, 2013;Gietzmann & Pettinicchio, 2014;Han et al., 2016), auditee complexity (Craswell, Francis, & Taylor, 1995;Choi et al., 2008;Hogan & Wilkins, 2008;Han et al., 2016), asset structure (Stice, 1991;Sundgren, 1998;Krishnan & Visvanathan 2009), financial condition (Stice, 1991;Craswell, Francis, & Taylor, 1995;Chang & Hwang, 2003;Desai, Hogan, & Wilkins, 2006;), business risk (Bell, Landsman, & Shackelford, 2001;Koh & Tong, 2013), earnings quality (Becker et al., 1998;Bartov, Gul & Tsui, 2000;Bedard & Johnstone, 2004;Abbott et al., 2006;Dechow, Ge, & Schrand, 2010), corporate governance (Chen et al., 2014;Srinidhi, Yan, & Tayi, 2015), and regulatory environment (Jaggi & Low, 2011;Su & Wu, 2017). Furthermore, researchers have also considered the effect of external monitoring on audit risk. ...
This study investigates the impact of cyber-security incidents on audit fees. Using a sample of 5,687 firms, we find that (i) breached firms are charged 12 percent higher audit fees, and (ii) firms operating in the same industry of a breached firm are charged 5 percent higher fees. Finally, using a difference-indifference regression on a propensity score matched sample, we provide evidence suggesting that auditors do not revise their audit risk assessment following a breach. Overall, these results suggest that the increase in audit fees in the year of a breach is only temporary, and that auditors include cyber-security risk in their audit risk assessment even before an incident occurs. Higher cyber-security risk is ultimately reflected in higher audit fees paid by auditees.
... ﻗﺎﺑﺔ ﻟﻠر اﻟﻣﻧﺧﻔﺿﺔ اﻟﻣﺧﺎطر اﺗﻳﺟﻳﺔ اﺳﺗر ﺑﺧﺻوص أﻣﺎ أي ر ﺑﺣﺳب ﻓﻬﻲ اﻟداﺧﻠﻳﺔ ) Taylor et al., 1997 " :( ا ﻣدى ﻋﺗﻣﺎد اﻟﻣﺗﻌﻠﻘﺔ ﻟﻺﺛﺑﺎﺗﺎت ﺗﺟﻣﻳﻌﻪ ﻓﻲ اﻟداﺧﻠﻳﺔ ﻗﺎﺑﺔ اﻟر ﻋﻠﻰ اﻟﻣدﻗق ﺑﺎﻟﺗدﻗﻳق " ﻗم ر اﻟدوﻟﻲ اﻟﺗدﻗﻳق ﻟﻣﻌﻳﺎر وطﺑﻘﺎ ، ) 330 ( ﺗﻧص ، ة اﻟﻔﻘر ) 45 ( ﻋﻠﻰ ﻣﻧﻪ " : ﻗﺎﺑﺔ اﻟر ات اﺧﺗﺑﺎر اﻟﻣدﻗق ﻳﺻﻣم اﻟداﺧﻠﻳﺔ ﻗﺎﺑﺔ اﻟر ﺑﺄن وﻛﺎﻓﻳﺔ ﻣﻼﺋﻣﺔ إﺛﺑﺎت أدﻟﺔ ﻋﻠﻰ ﻟﻠﺣﺻوﻝ ﻣوﺿوع ة اﻟﻔﺗر ﺧﻼﻝ ﺑﻔﺎﻋﻠﻳﺔ طﺑﻘت اﻟﺗﻲ اﻷﻣور أن و ،اﻻﻫﺗﻣﺎم ﻗﺎﺑﺔ ﻟﻠر ات اﻻﺧﺗﺑﺎر ﺣﺟم ﺗﺣدﻳد ﻋﻧد ﺑﺎﻟﺣﺳﺑﺎن اﻟﻣدﻗق ﻳﺄﺧذﻫﺎ ﻳﻠﻲ ﻣﺎ ﻣﻧﻬﺎ ﺟزء ﻓﻲ ﺗﺗﺿﻣن اﻟداﺧﻠﻳﺔ : " : ﺷﺄﻧﻪ ﻣن ﺣدث ﻋن اء ﺳو اﻟﻣﺳﺎﻫﻣﻳن ﺣﻘوق ﻗﻳﻣﺔ ﻓﻲ ﺗﺧﻔﻳض إﻟﻰ ﻳؤدي أن أﺷﻛﺎﻝ ﻣن آﺧر ﺷﻛﻝ أي ﺑﻔﻌﻝ أو اﻟﻣﺎﻝ أس ر ﻓﻲ ة ﺧﺳﺎر ﻳق طر ة اﻟﺧﺳﺎر ." ﻣﻔﻬوم اﻷﻋﻣﺎﻝ ﻣﺧﺎطر ﻓﺈن اﻟﺳﻳﺎق ﻫذا وﻓﻲ ﻟﻪ-347ﺑﺎح أر ﺗﺣﻘﻳق ﺑﺎﺣﺗﻣﺎﻟﻳﺔ ﻳﺗﻌﻠق أﻧﻪ ﻳﻌﻧﻲ وﻫذا ،اﻟﺗﺄﻛد ﺑﻌدم ﺗﺑﺎط ار أﺷﺎر ﻛﻣﺎ ،ة ﺧﺳﺎر ﻧﺷوء أو ) Chang et al., 2003 ( أن إﻟﻰ إﻟﻰ ﻳﺷﻳر اﻷﻋﻣﺎﻝ ﻣﺧﺎطر ﻣﺻطﻠﺢ " : وﺿﻊ ﺗدﻫور ﻣﺧﺎطر ﻛﻝ ﻋﻠﻰ ة اﻟﻣﻘدر ﺑﻌدم وذﻟك اﻟوﻗت ﺑﻣرور اﻻﻗﺗﺻﺎدي اﻟﻣﻧﺷﺄة و اﻟﻣﻧﺷودة ﺑﺎح اﻷر ﺗﺣﻘﻳق ﻣن / اﻟوﻓﺎء أو اﻣﺎت ﺑﺎﻻﻟﺗز ." اﻟﺗدﻗﻳق اﺗﻳﺟﻳﺔ اﺳﺗر ﻳف ﺗﻌر ﻳﻣﻛن ﻓﺈﻧﻪ ﺗﻘدم ﻣﺎ ﻋﻠﻰ وﺑﻧﺎء اﻷﺳﺎﻟﻳب و اﻟوﺳﺎﺋﻝ اﺧﺗﻳﺎر ﻛﻳﻔﻳﺔ ﺗﺗﺿﻣن ﻣﺧططﺔ ﻣﻧﻬﺟﻳﺔ ﺑﺄﻧﻬﺎ ﺑﻛﻔﺎءة اﻟﺗدﻗﻳق ﻣﻬﻣﺔ ﻟﺗﻧﻔﻳذ إﺗﺑﺎﻋﻬﺎ اﻟﻣدﻗق ﻋﻠﻰ اﺟب اﻟو ﻟﺣﺳﺎب أﻛﺛر أو اﺣدة و اﺗﻳﺟﻳﺔ اﺳﺗر اﺳﺗﺧدام وﻳﻣﻛن ،وﻓﺎﻋﻠﻳﺔ ﺿﻣن ﺣﺳﺎﺑﺎت ﻣﺟﻣوﻋﺔ أو ﻣﻌﻳن ﻛﻣﺎ ،اﻟﻣﺣددة اﻟﺗدﻗﻳق ﻣﻬﺎم اﻷوﻟﻰ ﺑﺎﻟدرﺟﺔ ﻳﻌﺗﻣد اﻟﺗدﻗﻳق ﻋﻣﻠﻳﺔ إﻧﺟﺎح أن درﺟﺔ ﻋﻠﻰ ﺑﻳن ﻓﻳﻣﺎ اﻟﺗﻌﺎون ،اﻟﺗدﻗﻳق ﻳق ﻓر أﻋﺿﺎء وﺑﺧﺎﺻﺔ ﻓﻧﺎ ﻋر ﻣﺎ إذا اﻳدة وﻣﺗز ﻣﺗﺟددة اﻟﺣﺳﺎﺑﺎت ﻣدﻗق ﺑﻬﺎ ﻳﻛﻠف اﻟﺗﻲ اﻟﺧدﻣﺎت أن ،اﻟﻧوع و اﻟﻛم ﻓﻲ ﺑﺎﻋﺗﺑﺎر أن اﻟﻣدﻗق ﻳﻘدﻣﻬﺎ وﺧدﻣﺔ ﻣﻬﻧﺔ اﻟﺗدﻗﻳق ﻟﻌﻣﻼ ،وﻣﺟﺗﻣﻌﻪ ﺋﻪ ﻣﺗﺟددة اﻟﻣﺟﺗﻣﻊ ﻫذا اﺣﺗﻳﺎﺟﺎت أن وﺑﺎﻋﺗﺑﺎر ودﻳﻧﺎﻣﻳﻛﻳﺗﻪ ﻟﻠﻣﺟﺗﻣﻊ اﻟطﺑﻳﻌﻲ اﻟﺗطور ﺑﺳﺑب اﻳدة وﻣﺗز . ...
343-اﻟﻣؤﺛرة اﻣﻝ اﻟﻌو ﻓﻲ اﺗﻳﺟﻳﺔ اﺳﺗر ﺑﻧﺎء اﻟﺣﺳﺎﺑﺎت ﺗدﻗﻳق) ﻣﻳداﻧﻳ اﺳﺔ در ﺔ اﻷردن ﻓﻲ اﻟﺧﺎرﺟﻳﻳن اﻟﺣﺳﺎﺑﺎت ﻣدﻗﻘﻲ ﻧظر وﺟﻬﺔ ﻣن (ﻣﺣﻣد ا اﻳﺳﺔ اﻟﻧو اﻫﻳم ﺑر ﻣ ﻠﺧ ـ ص اﺗﻳﺟﻳﺔ اﺳﺗر ﺑﻧﺎء ﻓﻲ ة اﻟﻣؤﺛر اﻣﻝ اﻟﻌو ﻋﻠﻰ اﻟﺗﻌرف إﻟﻰ اﺳﺔ اﻟدر ﻫذﻩ ﺗﻬدف اﻟﺣﺳﺎﺑﺎت ﻣدﻗﻘﻲ ﻧظر وﺟﻬﺔ ﻣن اﻟﺣﺳﺎﺑﺎت ﺗدﻗﻳق اﻟ اﻟﻌﻳﻧﺔ وﺗﻛوﻧت ،أﻳن ﺟز ﻣن ﺗﺗﻛون اﺳﺗﺑﺎﻧﺔ ﺗﺻﻣﻳم ﺗم ﻓﻘد ،ﻓرﺿﻳﺎﺗﻬﺎ اﺧﺗﺑﺎر و اﺳﺔ اﻟدر أﻫداف وﻟﺗﺣﻘﻳق ،اﻷردن ﻓﻲ ﺧﺎرﺟﻳﻳن ﻣن اﻟﺗﺣﻠﻳﻝ و اﻟﺑﺣث اض ﻷﻏر اﻟﻣﻌﺗﻣدة و اﻟﻧﻬﺎﺋﻳﺔ) 86 (أﺻﻝ ﻣن اﺋﻳﺔ ﻋﺷو ﻳﻘﺔ ﺑطر اﺧﺗﻳﺎرﻫم ﺗم ،ﻣدﻗﻘﺎ) 326 (اوﻟﻳن ﻣز ﻣدﻗﻘﺎ ﻧﻬﺎﻳﺔ ﺣﺗﻰ اﻟﻣﻣﻠﻛﺔ داﺧﻝ ﻟﻠﻣﻬﻧﺔ 2005. اﺗﻳﺟﻳﺔ اﺳﺗر ﺑﻧﺎء أﻫﻣﻳﺔ ﻳدرﻛون اﻟﻣدﻗﻘﻳن أن إﻟﻰ اﺳﺔ اﻟدر ﺗوﺻﻠت ﺑدرﺟﺔ ﻣﻧﺎﺳﺑﺔ ﺗدﻗﻳق) 84.4 (% اﻣﻝ اﻟﻌو ﺗﺄﺛﻳر درﺟﺔ أن و ، ﺑﻠﻐت ة اﻟﻣﺑﺎﺷر اﻷﺳﺎﺳﻳﺔ ات اﻻﺧﺗﺑﺎر اﺗﻳﺟﻳﺔ اﺳﺗر اﺧﺗﻳﺎر ﻋﻠﻰ ﻣﺟﺗﻣﻌﺔ) 78.0 (% اﻟﺗﺣﻠﻳﻠﻳﺔ اءات اﻹﺟر اﺧﺗﻳﺎر وﻋﻠﻰ ،) 75.4 (% ا اﻟﺗوﺻﻳﺎت ﺑﺑﻌض اﺳﺔ اﻟدر اﺧﺗﺗﻣت وﻗد اﻟﺗدﻗﻳق ﻛﻔﺎءة ﻓﻊ ر ﺑﻬدف اﻟﻣدﻗﻘﻳن و اﻷردﻧﻳﻳن اﻟﻘﺎﻧوﻧﻳﻳن اﻟﻣﺣﺎﺳﺑﻳن ﺟﻣﻌﻳﺔ إﻟﻰ ﻟﻣوﺟﻬﺔ. اﻟداﻟﺔ اﻟﻛﻠﻣﺎت : ﺣﺳﺎﺑﺎت ﺗدﻗﻳق ،ﺗﺣﻠﻳﻠﻳﺔ اءات إﺟر ،أﺳﺎﺳﻳﺔ ات اﺧﺗﺑﺎر ،اﻟﺗدﻗﻳق اﺗﻳﺟﻳﺔ اﺳﺗر .
... Hackenbrack and Nelson 1996;Kadous, Kennedy, and Peecher 2003). Further, archival research finds that auditors' judgments are negatively impacted by the perceived risk of losing a client (Farmer, Rittenberg, and Trompeter 1987;Blay 2005) and client retention incentives (Lord 1992;Trompeter 1994;Chang and Hwang 2003). This indicates that when auditors are more economically accountable to management, they are likely to cater to management's reporting preferences. ...
We use experimental economic markets to examine the impact of changing institutional design features on audit quality. Specifically, we manipulate auditors' economic accountability to managers by altering who hires the auditor—a manager or an independent third party—and auditors' psychological accountability to investors by explicitly stating that the auditor is hired on the investors' behalf. Our design shifts auditors' accountability from managers, who have directional goal preferences, to investors, who prefer judgment accuracy. We find that removing auditors' economic accountability to managers and replacing it with psychological accountability to investors significantly increases audit quality. This increase in audit quality occurs despite the independent third party randomly hiring auditors. In an additional treatment, we incorporate auditor accuracy into the third-party hiring algorithm and find even higher audit quality. Our results suggest that altering auditors' accountability relationships can significantly enhance audit quality.
Data Availability: The laboratory market data used in this study are available from the authors upon request.
... Furthermore, the selection of an auditor based on other than quality may signal to outsiders that the owner of the company could be driven by other incentives by choosing a sub-standard governance mechanism that may result in adverse effects to others but not themselves. Studies show that auditors' quality judgment can be adversely affected by incentives such as potential loss of clients (Blay, 2005), intention to retain clients (Chang & Hwang, 2003), economic benefits gained (Beeler & Haounton, 2002) and client engagement pressures (Kadaous et al., 2003). ...
This study investigates the relationship between the ownership structure of Malaysian public-listed companies and the choice of auditor based on ethnicity. In addition, the study compares results for the years 2006, 2007 and 2008. The years were chosen as the Malaysian Code of Corporate Governance (MCCG) was revised in 2007. This enabled comparison to be made in the pre, during and post revision periods of the Malaysian Code of Corporate Governance. The data were derived from a sample size of 300 companies listed on Bursa Malaysia for three years i.e. 2006, 2007 and 2008. As such, it is possible to observe any impacts of the changes in the revised MCCG on ownership structure and auditor's ethnicity. Multinomial logistic regression was employed to analyse the relationship as the data levels support its use. It is found that in general MCCG 2007 influences the selection of auditor's ethnicity by companies. Future research is recommended to study the reasons and rationale of this result by employing other research strategies such as qualitative techniques and increasing the sample size to get more generalisable findings.
... le adjustment. Shu found that increase in auditor litigation risk is positively related to the likelihood of the auditor dropping the client. Shu also found the market responds negatively to auditor resignation due to litigation risk, and the extent to which a firm's stock prices declines is inversely related to the severity of the litigation risk.Chang & Hwang (2003) used an experiment involving 55 audit seniors and managers to examine the effects of client retention incentive and client business risks on auditors' decision about client's aggressive practices. Firm financial performance, meeting of market's earnings expectation, ability to meet financial obligations, and the litigious environment of ...
... When faced with relatively high levels of engagement risk, auditors typically increase audit fees, planned audit hours, and evidence requirements (Simunic 1980;Pratt and Stice 1994;Houston et al 1999), particularly in areas involving a great deal of subjective judgment such as accounting estimates and accruals (Lys and Watts 1994). Engagement risk focuses auditors' attention on making accurate decisions (Palmrose 1988;Stice 1991) and auditors are less willing to accept errors in financial statements as engagement risk increases (Chang and Hwang 2003;Farmer et al. 1987). Given the litigious environment in which the audit profession operates, auditors are acutely aware that they must be prepared to defend their decisions to jurors should the need arise (Lowe and Reckers 2000). ...
... Specifically, the quality of auditor judgments has been found to be adversely impacted by the perceived risk of client loss (e.g., Farmer et al. 1987;Blay 2005); fee pressure (e.g., Houston 1999; Gramling 1999), client retention incentives (e.g., Lord 1992;Trompeter 1994;Chang and Hwang 2003), economic benefits contingent on specific actions (e.g., Schatzberg and Sevcik 1994;Beeler and Hunton 2002), and other client-related and engagement pressures (e.g., Hackenbrack and Nelson 1996;Haynes et al. 1998;Jenkins and Haynes 2003;Kadous et al. 2003;Blay 2005). However, there are several countervailing incentives in place, such as concerns for regulatory enforcement, potential litigation costs, and potential reputation losses, ...
This study presents a review of academic research on audit quality. We begin with a review of existing definitions of audit quality and describe general frameworks for establishing audit quality. Next, we summarize research on indicators of audit quality, such as inputs, process, and outcomes. Finally, we offer some suggestions for future research. The study should be useful to academics interested in audit quality as well as to the Public Company Accounting Oversight Board (PCAOB) and other regulators.
... Prior experimental studies find that auditors' independence is at risk when auditors are hired by the management, at least when client retention incentives are high. For example, auditors are more willing to accept the accounting method proposed by the management when the risk of losing the client is high (e.g., Blay, 2005), when the client is important (e.g., Chang and Hwang, 2003), when the auditor's compensation scheme rewards client retention (e.g., Trompeter, 1994), or when the client represents future business opportunities (e.g., Moreno and Bhattacharjee, 2003). The potential negative effects of client retention incentives on auditors' independence are especially likely to occur when the auditor is highly committed to retaining the client (Kadous et al., 2003). ...
Recent regulatory initiatives stress that an independent oversight board, rather than the management board, should be the client of the auditor. In an experiment, we test whether the type of client affects auditors’ independence. Unique features of the German institutional setting enable us to realistically vary the type of auditors’ client as our treatment variable: we portray the client either as the management preferring aggressive accounting or the oversight board preferring conservative accounting. We measure auditors’ perceived client retention incentives and accountability pressure in a post-experiment questionnaire to capture potential threats to independence. We find that the type of auditors’ client affects auditors’ behaviour contingent on the degree of the perceived threats to independence. Our findings imply that both client retention incentives and accountability pressure represent distinctive threats to auditors’ independence and that the effectiveness of an oversight board in enhancing auditors’ independence depends on the underlying threat.
... Our results also show that the psychological effect of the choice to obtain information is a function of both audit setting characteristics (i.e., the level of litigation risk) and individual characteristics (i.e., the level of auditor experience). Previous research finds that several judgment biases are mitigated in high litigation risk settings because litigation risk leads to more conservatism and/or greater focus and effort in the search for and evaluation of relevant information (Farmer et al. 1987; Pratt and Stice 1994; Hackenbrack and Nelson 1996; Kinney and Nelson 1996; Zhang 1999; Johnstone 2000; Barron et al. 2001; Johnstone et al. 2001; Chang and Hwang 2003; Blay 2005; Kadous et al. 2008; Hwang and Chang 2010). We find, however, that for less-experienced auditors, increased litigation risk can lead to non-normative differences in information weighting based on information pursuit. ...
Previous research finds that individuals place more weight on information when they choose to obtain it than when they acquire it without explicit choice. We examine whether litigation risk and auditor experience influence auditors’ susceptibility to this information choice effect. In our experiment, auditor participants evaluate the likelihood of an inventory obsolescence issue for a hypothetical client subsidiary. We find that in a high litigation risk setting, less-experienced auditors weight information they choose to acquire more heavily than do less-experienced auditors who acquire the same information without choice. Further, we predict and find that auditors choosing to acquire information are more confident in their judgments than auditors who acquire the same information without choice. Interestingly, the effect of choice on confidence is exacerbated by experience, and is especially pronounced when litigation risk is high. Our study contributes to the auditing, management, and psychology literatures on information choice, with practical and theoretical implications for judgment and decision-making in accounting settings.
... In general, incentive studies provide evidence that auditors are more likely to make judgments that exhibit more PS (i.e., are less willing to allow aggressive reporting) as the balance of incentives tips toward concerns about exposure to litigation and reputation loss and away from concerns about client importance and the potential for client loss. Some studies also provide evidence of more complex relationships among incentive factors, e.g., that concerns over client retention might sway auditor judgment more when litigation risk is low (Chang and Hwang [2003], but also see Asare et al. [2005] for evidence of independent effects of litigation risk and potential for nonaudit services). Figure 1 depicts evidential input, pre-existing knowledge, traits and incentives all affecting audit judgment. ...
This paper reviews research that examines professional skepticism (hereafter, PS) in auditing. Consistent with much research and with recent regulatory concerns, the paper defines PS as ‘‘indicated by auditor judgments and decisions that reflect a heightened assessment of the risk that an assertion is incorrect, conditional on the information available to the auditor.’’ In many circumstances the assertion in question will be a client’s assertion that the financial statements are free of material misstatement, but the definition could apply to other assertions as well (e.g., attesting to the effectiveness of a client’s internal controls). This definition reflects more of a ‘‘presumptive doubt’’ than a ‘‘neutral’’ view of PS, implying that auditors who exhibit high PS are auditors who need relatively more persuasive evidence (in terms of quality and or quantity) to be convinced that an assertion is correct. Depending on how an auditor’s decisions are evaluated, it is possible under this definition for an auditor to exhibit too much PS, in that they could design overly inefficient and expensive audits.
Client service is a defining feature of the auditing profession. Auditors are coached to manage their daily interactions with client managers by providing better client service (e.g., communicating timely, minimizing disruptions, and being accessible). However, the effects of better client service performance on auditors’ judgments about accounting issues are not well understood. Psychology theory suggests that better client service performance could either impair or improve auditors’ judgments, depending upon whether performance is framed as an expression of goal commitment (i.e., the importance of a goal) or as an indication of goal progress (i.e., moving forward on a goal). In an experiment, I find theory-consistent evidence that with commitment framing, better client service performers are less willing to challenge management’s preferred accounting than worse performers. With progress framing, this deleterious effect of client service performance is eliminated. However, inconsistent with theory, progress framing does not cause better client service performers to be more challenging than worse performers. Taken together, this study provides new evidence about the age-old tension between client satisfaction and audit quality. Satisfying clients by providing better service can compromise audit quality, but not necessarily.
استهدف البحث دراسة واختبار أثر تقييم مراقب الحسابات لخطر أعمال عميل المراجعة وخطر المراجعة على قراره بشأن قبول التكليف بمراجعة الحسابات، وكذلك أثر خبرة مراقب الحسابات على العلاقة بين تقييمه لهذين الخطرين من ناحية، وقرار قبول التكليف بمراجعة حسابات عميل المراجعة من ناحية أخرى، وذلك من خلال دراسة تجريبية على عينة من 97 مراقب حسابات فى وظيفة مراجع أول أو مدير مراجعة أو شريك مراجعة فى مكاتب المراجعة المختلفة فى مصر.
قام الباحث بتصميم حالة تجريبية 2X2 between subjects لإختبار أثر خطرى المراجعة وأعمال العميل على قرار مراقب الحسابات بشأن قبول التكليف بمراجعة الحسابات. وقد توصل الباحث إلى وجود أثر معنوى لكلاً من خطر أعمال العميل وخطر المراجعة (منفردين ومجتمعين) على قرار قبول مراقب الحسابات للتكليف بمراجعة الحسابات، حيث توصلت الدراسة إلى وجود انخفاض معنوى فى احتمال قبول مراقب الحسابات للتكليف بمراجعة الحسابات فى حالة ارتفاع خطر أعمال هذا العميل و/أو خطر المراجعة. وكذا توصل الباحث إلى وجود تأثير أقوى لارتفاع خطر المراجعة – بالمقارنة بأثر ارتفاع خطر أعمال العميل - على قرار قبول مراقب الحسابات للتكليف بمراجعة الحسابات.
وللتحقق من أثر خبرة مراقب الحسابات على العلاقة بين خطر أعمال العميل وخطر المراجعة من ناحية وقرار قبوله للتكليف بمراجعة الحسابات من ناحية أخرى، قام الباحث بتصميم نموذج انحدار متعدد ولكنه لم يتوصل إلى وجود أثر معنوى لخبرة مراقب الحسابات فى هذا الصدد وهو ما يشير إلى تجاوز الأثر السلبى الذى يخلفه خطر أعمال العميل وخطر المراجعة عن الأثر الإيجابى الذى تخلفه خبرة مراقب الحسابات.
وعليه، أوصى الباحث بضرورة اهتمام مكاتب المراجعة فى مصر بتدريب مراقبى الحسابات وتنمية مهاراتهم خاصة تلك المتعلقة بإصدار الأحكام المهنية وقبول التكليف.
استهدف البحث دراسة واختبار أثر تقييم مراقب الحسابات لخطر أعمال عميل المراجعة وخطر المراجعة على قراره بشأن قبول التكليف بمراجعة الحسابات، وكذلك أثر خبرة مراقب الحسابات على العلاقة بين تقييمه لهذين الخطرين من ناحية، وقرار قبول التكليف بمراجعة حسابات عميل المراجعة من ناحية أخرى، وذلك من خلال دراسة تجريبية على عينة من 97 مراقب حسابات فى وظيفة مراجع أول أو مدير مراجعة أو شريك مراجعة فى مكاتب المراجعة المختلفة فى مصر.
قام الباحث بتصميم حالة تجريبية 2X2 between subjects لإختبار أثر خطرى المراجعة وأعمال العميل على قرار مراقب الحسابات بشأن قبول التكليف بمراجعة الحسابات. وقد توصل الباحث إلى وجود أثر معنوى لكلاً من خطر أعمال العميل وخطر المراجعة (منفردين ومجتمعين) على قرار قبول مراقب الحسابات للتكليف بمراجعة الحسابات، حيث توصلت الدراسة إلى وجود انخفاض معنوى فى احتمال قبول مراقب الحسابات للتكليف بمراجعة الحسابات فى حالة ارتفاع خطر أعمال هذا العميل و/أو خطر المراجعة. وكذا توصل الباحث إلى وجود تأثير أقوى لارتفاع خطر المراجعة – بالمقارنة بأثر ارتفاع خطر أعمال العميل - على قرار قبول مراقب الحسابات للتكليف بمراجعة الحسابات.
وللتحقق من أثر خبرة مراقب الحسابات على العلاقة بين خطر أعمال العميل وخطر المراجعة من ناحية وقرار قبوله للتكليف بمراجعة الحسابات من ناحية أخرى، قام الباحث بتصميم نموذج انحدار متعدد ولكنه لم يتوصل إلى وجود أثر معنوى لخبرة مراقب الحسابات فى هذا الصدد وهو ما يشير إلى تجاوز الأثر السلبى الذى يخلفه خطر أعمال العميل وخطر المراجعة عن الأثر الإيجابى الذى تخلفه خبرة مراقب الحسابات.
وعليه، أوصى الباحث بضرورة اهتمام مكاتب المراجعة فى مصر بتدريب مراقبى الحسابات وتنمية مهاراتهم خاصة تلك المتعلقة بإصدار الأحكام المهنية وقبول التكليف.
استهدف البحث دراسة واختبار أثر تقييم مراقب الحسابات لخطر أعمال عميل المراجعة وخطر المراجعة على قراره بشأن قبول التكليف بمراجعة الحسابات، وكذلك أثر خبرة مراقب الحسابات على العلاقة بين تقييمه لهذين الخطرين من ناحية، وقرار قبول التكليف بمراجعة حسابات عميل المراجعة من ناحية أخرى، وذلك من خلال دراسة تجريبية على عينة من 97 مراقب حسابات فى وظيفة مراجع أول أو مدير مراجعة أو شريك مراجعة فى مكاتب المراجعة المختلفة فى مصر.
قام الباحث بتصميم حالة تجريبية 2X2 between subjects لإختبار أثر خطرى المراجعة وأعمال العميل على قرار مراقب الحسابات بشأن قبول التكليف بمراجعة الحسابات. وقد توصل الباحث إلى وجود أثر معنوى لكلاً من خطر أعمال العميل وخطر المراجعة (منفردين ومجتمعين) على قرار قبول مراقب الحسابات للتكليف بمراجعة الحسابات، حيث توصلت الدراسة إلى وجود انخفاض معنوى فى احتمال قبول مراقب الحسابات للتكليف بمراجعة الحسابات فى حالة ارتفاع خطر أعمال هذا العميل و/أو خطر المراجعة. وكذا توصل الباحث إلى وجود تأثير أقوى لارتفاع خطر المراجعة – بالمقارنة بأثر ارتفاع خطر أعمال العميل - على قرار قبول مراقب الحسابات للتكليف بمراجعة الحسابات.
وللتحقق من أثر خبرة مراقب الحسابات على العلاقة بين خطر أعمال العميل وخطر المراجعة من ناحية وقرار قبوله للتكليف بمراجعة الحسابات من ناحية أخرى، قام الباحث بتصميم نموذج انحدار متعدد ولكنه لم يتوصل إلى وجود أثر معنوى لخبرة مراقب الحسابات فى هذا الصدد وهو ما يشير إلى تجاوز الأثر السلبى الذى يخلفه خطر أعمال العميل وخطر المراجعة عن الأثر الإيجابى الذى تخلفه خبرة مراقب الحسابات.
وعليه، أوصى الباحث بضرورة اهتمام مكاتب المراجعة فى مصر بتدريب مراقبى الحسابات وتنمية مهاراتهم خاصة تلك المتعلقة بإصدار الأحكام المهنية وقبول التكليف.
استهدف البحث دراسة واختبار أثر تقييم مراقب الحسابات لخطر أعمال عميل المراجعة وخطر المراجعة على قراره بشأن قبول التكليف بمراجعة الحسابات، وكذلك أثر خبرة مراقب الحسابات على العلاقة بين تقييمه لهذين الخطرين من ناحية، وقرار قبول التكليف بمراجعة حسابات عميل المراجعة من ناحية أخرى، وذلك من خلال دراسة تجريبية على عينة من 97 مراقب حسابات فى وظيفة مراجع أول أو مدير مراجعة أو شريك مراجعة فى مكاتب المراجعة المختلفة فى مصر.
قام الباحث بتصميم حالة تجريبية 2X2 between subjects لإختبار أثر خطرى المراجعة وأعمال العميل على قرار مراقب الحسابات بشأن قبول التكليف بمراجعة الحسابات. وقد توصل الباحث إلى وجود أثر معنوى لكلاً من خطر أعمال العميل وخطر المراجعة (منفردين ومجتمعين) على قرار قبول مراقب الحسابات للتكليف بمراجعة الحسابات، حيث توصلت الدراسة إلى وجود انخفاض معنوى فى احتمال قبول مراقب الحسابات للتكليف بمراجعة الحسابات فى حالة ارتفاع خطر أعمال هذا العميل و/أو خطر المراجعة. وكذا توصل الباحث إلى وجود تأثير أقوى لارتفاع خطر المراجعة – بالمقارنة بأثر ارتفاع خطر أعمال العميل - على قرار قبول مراقب الحسابات للتكليف بمراجعة الحسابات.
وللتحقق من أثر خبرة مراقب الحسابات على العلاقة بين خطر أعمال العميل وخطر المراجعة من ناحية وقرار قبوله للتكليف بمراجعة الحسابات من ناحية أخرى، قام الباحث بتصميم نموذج انحدار متعدد ولكنه لم يتوصل إلى وجود أثر معنوى لخبرة مراقب الحسابات فى هذا الصدد وهو ما يشير إلى تجاوز الأثر السلبى الذى يخلفه خطر أعمال العميل وخطر المراجعة عن الأثر الإيجابى الذى تخلفه خبرة مراقب الحسابات.
وعليه، أوصى الباحث بضرورة اهتمام مكاتب المراجعة فى مصر بتدريب مراقبى الحسابات وتنمية مهاراتهم خاصة تلك المتعلقة بإصدار الأحكام المهنية وقبول التكليف.
While the importance of addressing cybersecurity risks and cyber incidents is widely acknowledged, there is no explicit requirement by regulators or audit standard setters for auditors to do so. This paper investigates 1) whether external auditors respond to cyber incidents by charging higher audit fees, 2) whether they anticipate and price material cybersecurity risk before cyber incidents occur, and 3) whether increases in audit fees for firms experiencing a cyber incident in the current period are associated with subsequent cyber incidents. We define cyber incidents as cyber-attacks that are initiated by hackers as distinct from various other information security and privacy breaches where the consequences are far less severe than those resulting from attacks by hackers. We find that only cyber incidents are associated with increases in audit fees and that the association is driven by more severe incidents. We also provide some evidence that increases in audit fees are smaller for firms with prior cybersecurity risk disclosure after 2011 when the SEC issued cybersecurity disclosure guidance. Finally, larger increases in audit fees for firms experiencing cyber incidents in the current period are associated with a lower likelihood of subsequent cyber incidents.
This experimental study analyzes whether reporting an accounting estimate as a key audit matter (KAM) can influence auditor judgment about the accounting estimate and the corresponding action. We find that skeptical action in the form of proposed adjustment amounts is significantly lower when the accounting estimate is reported as a KAM. Thus, the disclosure of a KAM can serve as a moral license to waive an adjustment. Taking into account that the KAM disclosure does not affect auditors' skeptical judgments in the form of a reasonableness assessment of the accounting estimate, our results indicate the existence of a judgment–action gap. Furthermore, implicit client pressure does not enlarge the moral licensing effect of the KAM disclosure. We also find evidence that audit effort is not affected by reporting a KAM. Overall, our study contributes to the current debate about the audit reporting model by showing that reporting a KAM might have unintended “real effects” on auditors' actions.
This paper examines how auditors' judgments about accounting policies may differ when experiencing different levels of affinity for client management and facing different levels of pressure from client management. The theory of motivated reasoning is employed to analyze the effects of these two factors that should lead individual auditors to adopt as a directional goal the acceptance of client management's aggressive accounting. Accordingly, we predict and find that auditor's experiencing greater client affinity and facing explicit client pressure suggest lower adjustments to client's aggressive accounting consistent with motivated reasoning's goal related predictions. But our study goes further and investigates also how auditors react when motivated reasoning theory's "reasonableness constraint" is potentially violated by auditors perceiving excessive client pressure. We predict and find, consistent with the individual auditor's "reasonable constraint" being triggered in at least some auditors, ...
This papers goal is to study advanced understanding of the relationships between Accounting Information System Knowledge on Audit Effectiveness via the mediating influences of the Risk Assessment Competency and Auditor Planning Judgments Quality. For data collection and validation; various entries were presented to a computer software for simulation.
SYNOPSIS
Previous research finds that individuals place more weight on information when they choose to obtain it than when they acquire the same information without explicit choice. We examine whether litigation risk and auditor experience influence auditors' susceptibility to the information choice effect, which has potential implications for audit effectiveness and efficiency. In our experiment, auditors evaluate the likelihood of an inventory obsolescence issue for a hypothetical client. We find that in a high litigation risk setting, less experienced auditors exhibit a choice effect. Surprisingly, in a low litigation risk setting, less experienced auditors appear to exhibit the reverse of a choice effect, weighting information they pursued less heavily than auditors who obtained the information without choice. We do not observe these effects of choice in the judgments of more experienced auditors. Further, we predict and find that auditors choosing to acquire information are more confident in their judgments than auditors who acquire the same information without choice. Interestingly, the effect of choice on confidence is exacerbated by experience, and is especially pronounced when litigation risk is high. Our study contributes to the auditing, management, and psychology literatures on information choice, with practical and theoretical implications for judgment and decision making in accounting settings.
Data Availability: Contact the authors.
SYNOPSIS
In this paper, we examine individual auditors' identification with, and commitment to, privately held clients, and their effects on auditor objectivity. Client identification reflects the extent to which an auditor's self-concept and self-definition are derived from a perceived oneness with the client. In contrast, client commitment reflects a responsibility for and a dedication to the client, but the auditor and client remain separate psychological entities. Drawing from the unique perspectives of social identity theory and social exchange theory, we hypothesize and find that client identification is distinct from client commitment. Further, we hypothesize and find that client identification and client commitment have different effects on auditor objectivity. Specifically, client identification is negatively related to auditor objectivity, whereas client commitment is positively related. The findings of this study apply predominantly to the audit of private companies where clients are more likely to exert influence over auditors and auditors may be less likely to withstand client pressures.
Data Availability: Please contact the first author.
The purpose of this article is to expose accounting faculty to an accounting negotiation course to inspire them to consider teaching such a course. Professional standards recognize the auditor's dual responsibility to detect material misstatements and to ensure their appropriate resolution. However, accounting education has focused primarily on the first responsibility of designing and performing appropriate audit procedures to detect material misstatements, and not on negotiation skills to ensure their proper resolution (Trotman et al. 2005). This article provides a detailed overview of the author's half-semester graduate elective accounting negotiation course that may become a required course in the near future.
Data Availability: Interested parties can obtain copies of all course materials by contacting the author.
Investor confidence is the cornerstone of the capital markets, and reporting quality depends on the proper resolution of contentious accounting and disclosure matters that surface during the audit process. As our overview of the auditor-client negotiation process portrays, the negotiation literature depicts this process as consisting of three stages: pre-negotiation, negotiation, and negotiation outcomes. These stages are influenced by characteristics of the auditor, the client, and the environment. A unique aspect of auditor-client negotiations is the very rich, complex set of environmental factors such as nature (complexity) of the issue, litigation, corporate governance, and the multiperiod relationship between the auditor and the client. We identify the major findings of this emerging body of work, recommend promising avenues for future research, and suggest implications for practice.
The purpose of this study is to extend our understanding of the factors that impact auditor judgment and decision-making. Specifically, we investigate how two factors, client importance and auditor trust, impact auditors' directional goal commitment and decision-making at the transaction level. We find no impact of client importance on the auditors' goal commitment or acceptance of a client preferred accounting treatment. However, we find that trust in client's management is positively related to the commitment to the goal of supporting the client's preferred method of recognizing revenue. Further, we find that auditors' goal commitment is positively related to their acceptance of a client preferred accounting treatment.
Auditor independence has been extensively examined from the perspective of independence in appearance, driven by the perception that the provision of non-audit services (NAS) leads to the diminution of auditor independence as well as appearance. This study reports on experimental laboratory research using experienced auditors and finds, similar to archival studies, that independence in fact is not compromised by NAS. On the contrary, our results suggest that greater NAS associates with more conservative auditor going-concern judgments among more experienced auditors. One explanation is that greater NAS associates with documented firm-performance deficiencies and experienced auditors recognize that association and respond accordingly.
Purpose
The purpose of this paper is to examine the interactive effect of the provision of non‐audit services (NAS) and auditors' perceptions of management integrity on assessments of risk of material misstatement.
Design/methodology/approach
The research method consisted of a behavioral experiment involving 47 audit seniors from a big‐four accounting firm.
Findings
Manipulations of management integrity significantly affected risk assessments. Manipulations of NAS did not affect risk assessment. However, a significant interaction manifested itself – participants who role‐played auditors providing significant tax consulting services tended to highly discount the incremental risk of material misstatement arising out of dubious management integrity, compared with their counterparts who role‐played auditors not providing any NAS.
Research limitations/implications
This study shows that, while provision of NAS may not in and of itself impact auditor independence, it has the potential to impact audit quality by mitigating the effect of other audit evidence. This study also highlights the importance of testing for interactions since main effects may not readily capture the complexities involved.
Practical implications
The finding calls for continuing attention to the issue of NAS provision and audit firm culture and a redoubling of efforts to ameliorate the effects of auditor‐provided NAS.
Originality/value
This is one of the few papers that consider the interactive effect of provision of NAS and CEO image on assessment of management integrity. This is important because the likelihood of fraud increases when management integrity is suspect and the auditor is not vigilant.
We study auditors' client risk management in the first year of the Sarbanes-Act Oxley (SOX) 404 implementation, and find that a pecking order exists among auditors' strategies to manage control risk resulting from internal control weaknesses. We first examine the relation between internal control weaknesses and audit fees, modified opinions, and auditor resignations, respectively, and establish that these are viable strategies to manage control risk on a stand-alone basis. We also find that changes in audit fees and changes in modified opinions are positively associated with changes in reported internal control weaknesses. When we investigate these strategies simultaneously, descriptive evidence suggests that a pecking order exists among auditors' client risk management strategies. Ordered logit analyses further confirm that, as clients' control risk increases, auditors are likely to respond in the order of audit fee adjustments, modified opinions, and auditor resignations. Our comprehensive evidence suggests that auditors use an array of ordered strategies to manage client-related control risk.
Adoption of Computer Assisted Audit Techniques and Tools (CAATTs) has not only become a beneficial choice for some businesses, but has become a fundamental part of many audit methodologies. (CICA, 1994; Progrob, Isenberg, 1999; Paukowits, 2000; Hudson, 1998). However, little is known about the adoption process for these tools. This research posits that further knowledge about the motivations for successful adoption of CAATTs may be contained in general literature on IT adoption activity. It also argues this could be usefully supplemented to address wider implementation and operational issues by better understanding of existing practices of internal audit departments who use CAATTs extensively to illustrate best practice in this field that others could benefit from. This paper therefore reviews, then makes use of, current theories that are seeking to better understand IT adoption processes (in particular, the most recent unified theory called the Unified Theory of Acceptance and Use of Technology -UTAUT) and explores the application of this theory to the specialized domain of CAATTs adoption for internal audit. This is undertaken initially using a survey instrument to collect quantitative data on the potential applicability of this theory. Building on the results of this survey, a series of ten mini-case studies is then used to add qualitative depth to the survey results. Using a combination of these two approaches, a model of successful CAATTs adoption by internal auditors is then proposed. This resulting model is comprised of four dimensions covering the issues of; factors influencing motivation, best practices of implementation, performance measurement criteria and challenges that can become barriers to successful implementation. This paper details the theoretical foundations used for the development of this model, details the empirics used to explore the motivational theory for adoption, presents the resulting model and illustrates the validation performed on the model.
The purpose of the current study is to examine the extent to which audit risk and litigation risk cause auditors to increase reliance on decision aids. These are particularly relevant issues in the era of Sarbanes-Oxley and abundant audit litigation, as decision aids hold the potential to improve audit quality; yet, immense legal and regulatory pressures on audit firms to improve audit quality could lead to a 'check list' mentality where auditors subordinate their audit judgments for the sake of compliance. Based on an experiment involving 118 audit practitioners, we find that auditors rely more on decision aid recommendations when either litigation risk (exogenous to the audit risk model) or internal control risk (endogenous to the audit risk model) is high relative to low. When litigation risk and internal control risk are simultaneously high, there is an interactive effect on decision aid reliance. Further analyses suggest that litigation risk amplifies the auditors' awareness of legal defensibility, which in turn increases decision aid reliance. Disturbingly, when both litigation risk and control risk are high, the auditors appear to deferentially follow the aid's advice to increase the legal defensibility of their decisions, even as their confidence in the quality of their decisions deteriorates.
This study examines the effect of independence threats and litigation risk on auditors' evaluation of information and subsequent reporting choices. Using a Web-based experiment, I tracked auditors' information gathering and evaluation leading to a going-concern reporting decision. Specifically, forty-eight audit managers assessed client survival likelihood, gathered additional information, and suggested audit report choices. I found that auditors facing high independence threats (fear of losing the client) evaluated information as more indicative of a surviving client and were more likely to suggest an unmodified audit report, consistent with client preferences. In contrast, auditors facing high litigation risk evaluated information as more indicative of a failing client and were more likely to suggest a modified audit report. In addition, the association between risk and report choice was fully mediated by final information evaluation. This suggests that it is unlikely that different reporting choices resulted from a conscious choice bias but rather that motivated reasoning during evidence evaluation plays a key role in the effect of risk in auditor decision-making.
This paper examines how external auditors’ reliance decisions on the internal audit function (IAF) are affected by two Public Company Accounting Oversight Board (PCAOB) regulatory actions (the risk-based audit approach required by auditing standards and a change in the focus of the PCAOB inspection process) and engagement risk. As predicted, we find a significant interaction between these three factors that shows the following. First, when the riskiness of the audit tests is low, the effect of focus of the PCAOB inspection process is not significant on the auditors’ reliance on the IAF when engagement risk is low. However, when engagement risk is high, the auditors placed significantly greater reliance on the IAF when a balanced focus is used for the PCAOB inspection process compared to an effectiveness focus. Second, when the riskiness of the tests to be performed is high, the auditors relied more on the IAF in the balanced focus of the PCAOB inspection process condition regardless of the level of engagement risk. Lastly, we find that under the new regulatory regime external auditors rely more on the IAF to perform tests of controls than substantive procedures.
This paper was nominated for the American Accounting Association's Seminal Contributions to the Accounting Literature Award (See Related Research). As the first published precursor to the Sarbanes-Oxley Act of 2002, Section 704: Study of Enforcement Actions, it explores three questions related to the SEC's accounting enforcement program: (1) what types of accounting and auditing problems motivate enforcement actions, (2) what are the consequences of investigations on targets' financial statements, managers, and auditors, and (3) how do investors and other market agents view the SEC's actions? The SEC enforcement program, which consists of investigations and subsequent injunctive actions or administrative proceedings against offending registrants and auditors, is designed " to concentrate on particular problem areas and to anticipate emerging problems" (SEC,1989,p.1). The potential for SEC enforcement action provides incentives for corporate officers and independent CPAs to avoid unacceptable practices whose "effective prosecution is essential to preserving the integrity of the disclosure system" (SEC, 1989,p.81). The SEC summarizes its accounting-based enforcement actions in the Accounting and Auditing Enforcement Releases (AAERs). We examined 224 AAERs, issued between April 1982 and April 1989, describing the results of investigations against 188 firms. In the sample period, the SEC most often pursued overstatements of accounts receivable and inventories resulting from premature revenue recognition and delayed write-off, respectively. These two accounts make up 70% of the investigations. The income effects of these financial disclosure violations average more than 50% of reported income. We find that the disclosure of these reporting violations changed expectations of targets' future earnings as reflected in financial analysts' reduced earnings estimated after the disclosures.Disclosures and investigations of reporting violations have other consequences. Typically, targets' managers settle enforcement actions by consenting to an injunction that prohibits future violations of securities laws. Subsequently, more than 72% of the enforcement targets fired or forced the resignations of top managers and 81% were sued by their shareholders. In 42% of our sample, the SEC also censured the target's auditor; criticisms and penalties were more likely for smaller audit firms. In exploring how market agents react to the enforcement process, we focus on market returns around disclosures of alleged reporting violations, investigations, and final settlements. Disclosures of reporting violations are associated with average two-day abnormal returns of -13%; the magnitude of these returns is highly correlated with the earnings impact of the disputed accounting. We also observe abnormal returns of -6% at disclosures of investigations, even when the accounting errors were announced earlier. These negative returns imply substantial incentives for managers to avoid these investigation. We do not observe any changes in targets, share values at the investigations' final settlement. Section 2 describes the SEC enforcement process. Section 3 documents the effects of the SEC investigations and settlements on firms' financial statement, managers, and auditors. Section 4 addresses the stock market's reactions to the disclosure of reporting violations, investigations, and settlements. Section 5 provides conclusions and policy implications.
The study of behavioural decision-making has expanded into the area of accounting and auditing. This branch of research seeks to understand the cognitive processes that govern such necessary functions as the pricing of products and services, evaluating corporate performance, granting credit to prospective borrowers, and investing in financial securities. In Judgment and Decision-Making Research in Accounting and Auditing, editors Robert and Alison Ashton present and review more than twenty years of research in decision-making science. The book analyzes the judgments that business managers, investors, auditors and creditors make daily. It considers the assets and liabilities of applied decision-making, and makes suggestions for future research. Accounting and auditing academics, researchers, practitioners, and students who seek a survey of the field and its applications will find this a solid reference work.
In this paper we review the academic evidence on earnings management and its implications for accounting standard setters and regulators. We structure our review around questions likely to be of interest to standard setters. In particular, we review the empirical evidence on which specific accruals are used to manage earnings, the magnitude and frequency of any earnings management, and whether earnings management affects resource allocation in the economy. Our review also identifies a number of opportunities for future research on earnings management.
The article presents information on the effect of auditor changes on security prices in both a mechanical decision rule and in the possibility that an adverse audit opinion may lead to dismissal. The analysis implies that the stock price response to the announcement of an auditor change depends on the preswitch audit opinion. The author contends that his research proves auditor switches can be good for investors and that even when they are costless, and there is no collusion between auditor and firm, market reaction can be negative.
Little is known about how audit partners make the client-acceptance decision. In this paper, a model is developed and tested that characterizes the client-acceptance decision as a process of risk evaluation and risk adaptation. The model proposes that auditors will evaluate client-related risks (e.g., financial viability, and internal control) and use that evaluation to determine if the audit firm will suffer a loss on the engagement via a lack of engagement profitability or future litigation. The model proposes that auditors will adapt to the client-acceptance risks by using three strategies: (1) screening clients based on their risk characteristics; (2) screening clients based on the audit firm's risk of loss on the engagement; and (3) more proactively adapting using strategies including adjusting the audit fee, making plans about necessary audit evidence, making plans about personnel assignment, and/or adjusting the amount of data collected during the client-acceptance process.
To test the model, an experiment was conducted using 137 highly experienced audit partners as participants. The results show that the partners considered the relationships between client-related risks and used their evaluation of those risks to evaluate the audit firm's risk of loss on the engagement. In terms of risk adaptation, partners screened clients based on the clients' risk characteristics and based on the audit firm's risk of loss on the engagement. Contrary to prediction, the partners did not use more proactive risk-adaptation strategies (e.g., adjusting the audit fee, making plans about necessary audit evidence, etc.) to make less “acceptable” clients more acceptable. It appears that avoiding risk, rather than proactively adapting to risk, is descriptive of how audit partners currently make the client-acceptance decision.
Large size and high quality single crystals GdCa4O(BO3)3 have been grown from platinum crucible under air atmosphere by the conventional rf-heating Czochralski method. The crystal growth conditions, growth habits, and transmission spectra were investigated. The crystal is transparent in the visible and near-infrared region (320-2600 nm). It has a good second harmonic generation phase-matching condition. The phase-matching experiment result is well consistent with the theoretical one. The frequency-doubling efficiency is 26.7% in the phase-matching angles theta = 45° and phiv = 45.1° direction. Bibtex entry for this abstract Preferred format for this abstract (see Preferences) Find Similar Abstracts: Use: Authors Title Abstract Text Return: Query Results Return items starting with number Query Form Database: Astronomy Physics arXiv e-prints
One of the practical difficulties of international capital budgeting is how to incorporate political risk into the decision process. This paper examines the nature of political risk and the use of analytical techniques in the evaluation of such risk. Questionnaire and interview findings from a survey of UK multinational companies suggest that corporate practice differs from the theoretical ‘textbook’ treatment of this type of risk.
This study identifies conditions that affect how auditors attend to and judge the possibility of aggressive financial reporting in their client?s financial statements. An experiment was conducted with 100 audit seniors and managers to determine whether the risk of misstatement and corroboration of that risk influence attention and judgment. Results indicate that auditors devote more attention to aggressive reporting in a financial statement account when it is assessed as having a high, rather than low, risk of misstatement. Moreover, attention to potential aggressive reporting in low-risk accounts is heightened only when auditors have previously examined evidence that corroborates misstatement risk for a high-risk account. If this corroborating evidence for the high-risk account is considered after the low-risk accounts are examined, auditors are less likely to note the possibility of aggressive reporting in low-risk accounts. Follow-up analyses suggest that different cognitive processes are responsible for these behaviors. Specifically, when assessments of high risk are available to guide processing of aggressive reporting evidence, judgments appear to be based on the risk assessment more than the evidence itself. In contrast, when such assessments are not available, the amount of attention given to evidence of aggressive reporting determines auditors? judgements.
In this paper we compare two matched samples of 117 corporations whose auditors are and are not sued, to provide information on lawsuits. Lawsuits tend to be filed against auditors of client firms that have liquidity problems and poor stock price performance. There is little evidence of poorer accounting performance or accounting manipulation in the year in which wrongdoing is alleged to have occurred. The likelihood of a lawsuit against an auditor is greater if the audit report is qualified, the less structured is the audit and the larger the proportion of the auditor's revenues generated by the client. We also use multivariate models to compare the two samples. However, the multivariate analysis' data requirements reduce the number of observations in each sample to 21. Nevertheless, the multivariate analysis also suggests that we can discriminate between the litigation and control firms using the variables that are significant in the univariate analysis.
This study investigates if the likelihood of hiring a Big 6 auditor is increasing in the firm's endogenous propensity to generate accruals. High-accrual firms have greater scope for aggressive and/or opportunistic earnings management and therefore have an incentive to hire a brand name Big 6 auditor to provide assurance that reported earnings are credible. For a large sample of NASDAQ firms over the period 1975-1994 we find that the likelihood of using a Big 6 auditor is increasing in firms' endogenous propensity for accruals. Even though Big 6 audited firms have higher levels of total accruals, we also find they have lower amounts of estimated discretionary accruals. These findings are robust to several specifications of discretionary accruals. These findings are consistent with Big 6 auditors constraining aggressive and potentially opportunistic reporting by firms with high levels of accruals.
We report survey evidence about 515 experiences that auditors have had with clients who they identified as attempting to manage earnings. This approach enables us to analyze separately managers' decisions about how to attempt earnings management ("EM") and auditors' decisions about whether or not to waive adjustment of managers' earnings-management attempts ("EMAs"). We provide evidence that the likelihood that managers make EMAs (and auditors waive adjustment of EMAs) that involve transaction structuring varies with the precision of the related accounting standards. Managers tend to make EMAs that increase current-year income, but auditors are less likely to waive EMAs that increase current-year income. Managers are more likely to make EMAs that decrease current-year income with unstructured transactions and/or when standards are imprecise (presumably because the resulting "cookie jar reserves" are easier to harvest in future years if structuring is not necessary or the relevant standards are flexible). Auditors are more likely to waive EMAs that they identify as immaterial or that are attempted by large clients. These variables combine to affect the areas in which EMAs are attempted and waived to become EM in the audited financial statements.
Regulators and small audit firms allege that audit firm size does not affect audit quality and therefore should be irrelevant in the selection of an auditor. Contrary to this view, the current paper argues that audit quality is not independent of audit firm size, even when auditors initially possesses identical technological capabilities. In particular, when incumbent auditors earn client-specific quasi-rents, auditors with a greater number of clients have ‘more to lose’ by failing to report a discovered breach in a particular client's records. This collateral aspect increases the audit quality supplied by larger audit firms. The implications for some recent recommendations of the AICPA Special Committee on Small and Medium Sized Firms are developed.
This paper examines accounting changes, costs of default, and accounting-based covenants violated by 130 firms reporting violations in annual reports. I find that managers of firms approaching default respond with income-increasing accounting changes and that the default costs imposed by lenders and the accounting flexibility available to managers are important determinants of managers' accounting responses. I also document that private lending agreements are the first violated, that net worth and working capital restrictions are the most frequently violated restrictions, and that in 52 percent of the cases lenders require concessions from borrowers to resolve default.
Failures of savings and loans (S & Ls) have resulted in substantial independent auditor litigation; however, there is limited empirical evidence concerning audit opinions of failed S & Ls. Our study investigates the audit opinions of publicly-traded S & Ls that subsequently failed. We found that the independent auditors of failed S & Ls issued qualified (or modified) going-concern opinions or going-concern disclaimers of opinion on the last audited financial statement prior to failure in 19 of 24 cases. Results of univariate and multivariate analyses are consistent with several predictions concerning economic factors expected to influence the type of audit opinion, and our evidence suggests that auditors rendered going-concern reports to those S & Ls that were most likely to fail ex ante. Analysis of independent auditor litigation data reveals that auditor lawsuits related to these failed S & Ls were filed in seven cases. Five of these seven lawsuits implicated auditors who rendered going-concern reports. This suggests that going-concern reports in the year prior to the failure of an S & L do not prevent auditor litigation. Because it is possible that independent auditors will face situations comparable to the S & L crisis in the future, government regulators and the public accounting profession should be interested in research that enhances the understanding of the audit opinion formulation process in such settings.
This paper examines the abnormal accruals of a sample of 94 firms that reported debt covenant violations in annual reports. We expect debt covenant restrictions to influence accounting choices in the year preceding and the year of violation. Time-series and cross-sectional models are used to estimate ‘normal’ accruals. In the year prior to violation, both models indicate that ‘abnormal’ total and working capital accruals are significantly positive. In the year of violation, there is evidence of positive abnormal working capital accruals after controlling for management changes and auditor going concern qualifications.
We study the physician's allocation of a fixed budget across patients arriving sequentially at his office. It is shown that, at any point in time, the resources allocated to the present patient will depend on the amount of resources already expended on previous patients and on the physician's attitude towards risk. Consequently, we prove that under a fundholding contract, certain basic equity criteria are violated.
Quality information: The likelihood of our markets. Remarks delivered at the Economic Club of
- A Levitt
Regulation of the accounting profession. Remarks delivered at SEC Headquarters
- H L Pitt