Paul L. Walker

University of Virginia, Charlottesville, Virginia, United States

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Publications (13)5.04 Total impact

  • James H. Irving · Paul L. Walker
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    ABSTRACT: We summarize our recently published study in Accounting Horizons (Catanach et al. 2011) that examines client acceptance patterns and client outcomes following auditor resignations. We used a sample of auditor resignations to examine two issues: (1) why accounting firms assume the role of successor auditor on these presumably risky engagements, and (2) the future outcomes of clients accepted by these successor auditors. We find that smaller accounting firms accept the successor auditor role for resigned clients at a considerably greater rate than do larger firms. Additionally, resigned clients accepted by smaller firms are riskier on several dimensions than those accepted by larger firms. Furthermore, resigned clients accepted by smaller firms are associated with weaker long-term financial ratios, shorter survival tenures, and a greater likelihood of adverse outcomes relative to those accepted by larger firms. We offer related insights for practitioners.
    No preview · Article · Jun 2012 · Current Issues in Auditing
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    ABSTRACT: In August 2011, the Public Company Accounting Oversight Board (PCAOB or Board) issued a concept release to solicit public comment on the potential direction of a proposed standard-setting project on means to enhance auditor independence, objectivity, and professional skepticism. The Concept Release sought comments on and explores in detail the possibility of mandatory audit firm rotation. The PCAOB provided for a 121-day exposure period (from August 16 to December 14, 2011) for interested parties to examine and provide comments on the concept release. The Auditing Standards Committee of the Auditing Section of the American Accounting Association provided the comments in the letter below (dated December 13, 2011) to the PCAOB on PCAOB Rulemaking Docket Matter No. 37: PCAOB Release No. 2011-006, Concept Release on Auditor Independence and Audit Firm Rotation.
    Preview · Article · Jun 2012 · Current Issues in Auditing
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    ABSTRACT: In November 2010, COSO announced a project to review and update the 1992 Internal Control-Integrated Framework (COSO 1992). COSO's goal in updating the framework was to increase its relevance in the increasingly complex and global business environment to help ensure that organizations worldwide can better design, implement, and assess internal control. The proposed Framework retains the core definition of internal control and the five components of internal control. One of the most significant enhancements is the expression of concepts described in the original framework into 17 principles, accompanied by related attributes. COSO provided for a 104-day exposure period (from December 19, 2011 to March 31, 2012) for interested parties to examine the exposure draft and provide comments. On March 29, 2012, the Auditing Standards Committee of the Auditing Section of the American Accounting Association provided the comments in the letter below to COSO on Public Exposure Draft: Internal Control-Integrated Framework (COSO Framework).
    No preview · Article · Jun 2012 · Current Issues in Auditing
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    James H. Irving · Jeff L. Payne · Paul L. Walker
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    ABSTRACT: There have been calls for auditor liability reform in U.S. and international markets. A frequent recommendation is to place a ceiling, or cap, on auditors’ potential liabilities. Despite the interest in liability caps, a lack of publicly available data has precluded researchers from studying these agreements. We examine a unique sample of 111 companies that publicly disclose auditor liability caps during 2005 and 2006, a time period in which there was uncertainty in the regulatory guidance regarding the impact of auditor liability caps on auditor independence. Our analysis addresses two research questions. First, does the presence of auditor liability caps vary depending on client risk characteristics? We find some evidence of heightened risk in companies with liability caps. Relative to a control sample, our liability cap sample is more concentrated in high-litigation risk industries and reports internal control weaknesses with greater frequency. Second, does the presence of an auditor liability cap impact audit fees? Consistent with the insurance hypothesis for audit pricing, we find a negative relation between audit fees and companies with liability caps.
    Preview · Article · Dec 2011 · SSRN Electronic Journal
  • William G. Shenkir · Thomas L. Barton · Paul L. Walker
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    ABSTRACT: This chapter contains sections titled: IntroductionLessons from the ERM ProcessLessons from Integrating ERM with OngoingManagement InitiativesSome Key Value Lessons from ERMConclusion NotesFurther ReadingAbout the AuthorsPARTVI Special Topics and Case Studies
    No preview · Chapter · Dec 2011
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    ABSTRACT: The auditor change literature has generally concluded that clients from which an audit firm resigns are risky clients, yet little is known about the period after a predecessor auditor has resigned from an engagement. We investigate a sample of resignations to determine why an audit firm chooses to accept the role of successor auditor on a presumably risky engagement and whether this decision is associated with a future adverse outcome. Consistent with prior studies, our results indicate that, relative to Non-Big N firms, Big N firms are more selective in accepting the successor auditor role when the predecessor auditor has resigned. Incremental to these prior studies, we find that Big N firms factor in two variables to help mitigate their potential risk – the timing of the predecessor audit firm’s resignation and their own firm’s expertise. Our analysis of future outcomes indicates that the resigned clients engaged by Non-Big N successor auditors are associated with weaker long-term financial ratios, shorter survival tenures, and a greater proportion of adverse outcomes compared with the resigned clients engaged by Big N successor auditors.
    Preview · Article · Dec 2010 · Accounting Horizons
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    ABSTRACT: Porter's (1985) analysis of competitive strategy is used to explain industry specialization by Big 6 accounting firms. In Porter's framework, industry specialization can be viewed as a differentiation strategy whose purpose is to create a sustainable competitive advantage relative to nonspecialist auditors. A differentiation strategy will lead to higher audit fees if valued by clients. We find evidence of higher fees for Big 6 industry specialists relative to nonspecialists in the U.S. audit market, but only for companies in the lower halt of the sample based on size (assets < $123 million). By contrast, companies in the upper half of the sample do not pay a specialist premium, and audit fees actually decrease as a company becomes increasingly large relative to its auditor's industry clientele. Together these results suggest that audit fees are higher when clients are small and have little bargaining power, but audit fees are lower when clients have greater bargaining power and this is more likely when companies are large in absolute size and large relative to their auditor's industry clientele.
    No preview · Article · Mar 2004 · Auditing A Journal of Practice & Theory
  • Paul L. Walker · William G. Shenkir · C. Stephen Hunn

    No preview · Article · May 2001 · Issues in Accounting Education
  • Paul L. Walker · Jeffrey R. Casterella
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    ABSTRACT: This paper examines the role of auditee profitability in pricing new audit engagements. Changes in the auditing environment are noted that suggest that auditors are managing their practices differently than they have in prior years. Audit fees are examined to answer two questions: first, whether CPA firms still discount fees for new engagements in the current audit environment; second, whether such fee discounts are dependent upon auditee profitability. The results suggest that auditors still discount new engagements in the 1990s, but that they are less willing to offer discounts when auditees show losses in the year prior to the new audit engagement. Further, this result is stronger for companies that switch from non-Big Six firms to Big Six firms than it is for intra-Big Six switches. These findings suggest that auditors are managing their exposure to audit risk by adjusting audit fees.
    No preview · Article · May 2000 · Auditing A Journal of Practice & Theory
  • Jeffrey R. Casterella · Barry L. Lewis · Paul L. Walker
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    ABSTRACT: The issuance of clean opinions to failing firms has been interpreted by both the financial press and Congress as evidence of serious problems in the auditing profession. Critics of the audit profession believe that audit failures are caused by a lack of overall audit quality and/or problems related to independence. The purpose of this paper is twofold. First, we provide additional insights into the opinion formulation process by presenting a model that is both simpler than that used in prior research and more consistent with what auditors say they actually do. Based on a sample of 311 bankrupt firms, our results indicate that our simple indicator model significantly outperforms prior models in distinguishing between modified and unmodified reports issued to bankrupt companies. Second, we evaluate the extent to which the data for these bankrupt firms are reasonably predictive of failure. Contrary to public perception, we find that auditors consistently modify the reports of those companies that are most distressed and issue unmodified reports to those companies that are least distressed. In fact, the auditors modified significantly more audit reports than they would have by using a well-accepted bankruptcy prediction model. The vast majority of the firms in our sample, however, simply do not exhibit the characteristics we would expect of severely distressed firms.
    No preview · Article · Apr 2000 · Research in Accounting Regulation
  • Jeffrey R. Casterella · Barry L. Lewis · Paul L. Walker
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    ABSTRACT: Many observers are dissatisfied with the accounting profession's ability to warn the public of upcoming bankruptcy filings. Since regulators and users tend to treat an unmodified audit opinion as a "clean bill of health," they do not expect the business to fail in the near future. Research has shown that more often than not, auditors end up letting users down when it comes to predicting bankruptcy filings with audit opinions. Although auditors assert they are not responsible for predicting future events, it is very clear that their opinion decision is evaluated, at least in part, based on events that occur after the audit report date. The interesting and logical next step is to find out how companies exit bankruptcy. Do they liquidate or reorganize? Successful reorganization may, in the end, exonerate auditors and preserve their role as an early warning device. The opinion prediction model developed in the paper introduces a new bankruptcy resolution variable that proxies for the auditor's prognosis of the ultimate disposition of the soon-to-be-bankrupt company. Using a sample of bankruptcy filings between 1982 and 1992, we find that auditors do not seem to be able to predict filings or resolution. Our tests of bankruptcy resolution support what auditors have been arguing for years; that they are not clairvoyant with respect to a client's future.
    No preview · Article · Apr 2000 · Decision Sciences
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    Thomas L Barton · William G Shenkir · Paul L Walker
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    ABSTRACT: The first in a series of articles highlighting Financial Executives Research Foundation research over the past 65 years, this article looks at the evolution of risk management. ThegoalofFERF research is advance-ment through knowl-edge that is relevant and practical for organizations. It's widely acknowledged that one of the culprits in the current economic crisis has been the underestimation or mismanage-ment of risk. No one ever imagined that real estate prices could aaualiy go down, so what was wrong with holding mort-gages that might not be paid down? Prob-lems that plagued the financial-services industry quickly spread throughout the global economy, and a global recession soon followed. Each decade seems to suffer some widespread economic problem that could have been avoided with prudent risk man-agement. Aithough problems may vary from decade to decade, the global econo-my will always be fraught with uncertainty. Any company could benefit from enterprise risk management (ERM), a structured and disciplined approach to evaluate and man-age uncertainty As Financial Executives Research Foun-dation celebrates its 65th anniversary of producing unbiased research that financiai executives can implement, it's interesting to reflect on how risk management has evolved in organizations.
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    James H Irving · Jeff L Payne · Paul L Walker

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