Assurance Standards Board Research Articles

International Archival Auditing and Assurance Research: Trends, Methodological Issues, and Opportunities

SUMMARYWe present a comprehensive review of the 130 international archival auditing and assurance research articles that were published in eight leading accounting and auditing journals for 1995–2014. In order to support evidence-based international standard setting and regulation, and to identify what has been learned to date, we map this research to the International Auditing and Assurance Standards Board's (IAASB) Framework for Audit Quality. For the areas that have been well researched, we provide a summary of the findings and outline how they can inform standard setters and regulators. We also observe a significant evolution in international archival research over the 20 years of our study, as evidenced by the measures of audit quality, data sources used, and approaches used to address endogeneity concerns. Finally, we identify some challenges in undertaking international archival auditing and assurance research and identify opportunities for future research. Our review is of interest to researchers, practitioners, and standard setters/regulators involved in international auditing and assurance activities.

Does Academic Research Provide Sufficient Evidence in Support of Changes to the Audit Reporting Model?

The Public Company Accounting Oversight Board (PCAOB) and the International Auditing and Assurance Standards Board (IAASB) and UK Financial Reporting Council (FRC) have proposed or approved standards that significantly change the independent auditor’s report. These initiatives require the auditor to make additional disclosures intended to close the information gap, that is the gap between the information users desire and that that is available through the audited financial statements, other corporate disclosures, and the auditor‘s report. They are also intended to improve the relevancy of the auditor’s report. We augment prior academic research by providing standard setters with an updated synthesis of relevant research. More importantly, we provide an assessment of whether the changes are likely to close the information gap, which is important to financial market participants and other stakeholders in the audit reporting process. Also, we identify areas where there seems to be a lack of sufficient research. These results are of interest to all stakeholders in the audit reporting process as the changes to the auditor’s report are fundamental. Additionally, our summaries of research on the auditor’s report highlight where there is limited research or inconsistent results, which will help academics identify important opportunities for future research.

New Auditor Models Threaten Boardroom Privacy

The International Auditing and Assurance Standards Board (IAASB) and the Public Company Accounting Oversight Board (PCAOB) have each proposed new auditor models for implementation by 2016. These models will no doubt increase audit fees for firms and jeopardize boardroom privacy. The authors of this article discuss and summarize the important changes.

Enhancing the Auditor's Report: To What Extent is There Support for the IAASB's Proposed Changes?

SYNOPSIS This article outlines proposed reforms to auditor reporting currently being considered by the International Auditing and Assurance Standards Board (IAASB), and other key national and transnational standard-setters and regulatory bodies. It adds to recent academic contributions on reforming the auditor's report by analyzing the 165 stakeholder responses to the IAASB's 2012 Invitation to Comment: Improving the Auditor's Report to determine levels of support for the IAASB's proposed reforms, and the differences, if any, between the views of various respondents based on stakeholder groups (e.g., audit and assurance firms, users, preparers, regulators, etc.) and regional classifications. Guided by insights from communication theory, our results show the levels of stakeholder support for the IAASB's proposed reforms addressing auditors' expectations, information, and communication gaps are mixed. The strongest overall support was for enhanced auditor reporting on other information attached to, or intended to be read with, the financial statements, and the least supported initiative was including additional information in the auditor's report about the auditor's judgments and processes. While overall there is generally consensus across both stakeholder groups and regions concerning the various questions investigated, we highlight where statistically significant differences between groups do exist. Notably, North American respondents were less likely to support a number of the IAASB's proposed reforms than their counterparts from other regions. Data Availability: The data used in this study are referred to on the IAASB's website.

Klasyfikacja usług wykonywanych przez biegłych rewidentów

The profession of an expert auditor is a public trust occupation with a distinctive feature of taking responsibility for actions in the public interest. The main responsibility of expert auditors is performing financial auditing; however, expert auditors are prepared to carry out different tasks which encompass a wide plethora of financial and auditing services for different kinds of institutions and companies. The aim of the article is first of all the description of expert auditors’ services classification according to domestic and international regulations and second of all the comparison of these services. The article presents services classifications according to domestic regulations, the International Auditing and Assurance Standards Board (IAASB) regulations and according to the IFAC ethics code for professional accountants. The article uses domestic and international regulations concerning the article topic.

Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association onFramework for Audit Quality, Consultation Paper by the International Auditing and Assurance Standards Board

SUMMARYOn January 15, 2013, the International Auditing and Assurance Standards Board (IAASB) solicited public comments on the exposure draft of its consultation paper entitled A Framework for Audit Quality (the Framework). The four-month comment period ended on May 15, 2013. This commentary summarizes the contributors' views on this exposure draft (the exposure draft and related information are available at: http://www.ifac.org/publications-resources/framework-audit-quality).This consultation paper makes great strides toward meeting the IAASB's strategy of “enhancing the quality of assurance” and “supporting global financial stability.” The three-by-three design (attributes of audit quality coupled with engagement, firm, and national levels; see page 24 of the Framework) and detailed outline of inputs, outputs, context, and interactions provides practitioners, regulators, and other stakeholders with a common audit-quality roadmap for implementation, communication, and research agendas. As financial systems continue to become more integrated, the Framework supports the global financial system and economic stability by providing worldwide coordination of the expectations of auditors, regulators, investors, and other stakeholders. We also believe that the Framework should be of great use to auditing academics and doctoral students, both as a teaching and research tool. Summarized below are our specific comments on specific issues raised in the consultation paper.

Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on International Standard on Auditing (ISA) 720 (Revised),The Auditor's Responsibilities Relating to Other Information in Documents Containing or Accompanying Audited Financial Statements and the Auditor's Report Thereon

SUMMARYOn November 14, 2012, the International Auditing and Assurance Standards Board (IAASB) solicited public comments on its exposure draft of the document entitled International Standard on Auditing (ISA) 720 (Revised), The Auditor's Responsibilities Relating to Other Information in Documents Containing or Accompanying Audited Financial Statements and the Auditor's Report Thereon. The four-month comment period ended on March 14, 2013. This commentary summarizes the contributors' views on this exposure draft.Data Availability: The exposure draft and other related information are available at http://www.ifac.org/publications-resources/international-standard-auditing-isa-720-revised-auditor-s-responsibilities-re

A meta‐analysis of the determinants of modified audit opinion decisions

PurposeThe purpose of this paper is to provide a meta‐analysis of the effect of: auditor and audit‐related variables; and firm‐specific variables on auditors' propensity to issue modified audit opinions. Auditor and audit‐related variables include Big N affiliation, audit firm industry specialization, audit firm and audit partner tenure, provision of non audit services and audit report lag. Some of the important firm‐specific variables include firm size, leverage, and profitability.Design/methodology/approachThe Stouffer combined test is employed as the meta‐analysis technique for this paper. The test produces a z‐statistic that can be used to test the direction and significance of the effect of the hypothesized variables on the propensity of auditors to issue modified audit opinions. A total of 73 published studies are aggregated from 1982 to 2011.FindingsMeta‐analysis result reveals that the effect of audit and auditor‐related variables on audit opinion decisions is far from conclusive. Big N affiliation and audit report lag variables are found to be positively related while the association between non‐audit fees and modified audit opinion decisions is negative. However, the significant effect of non‐audit fee variable is found only in non US studies. Evidence on the effect of firm‐specific variables on auditors' propensity to issue modified audit opinions is broadly consistent with hypotheses formulated in the published studies.Practical implicationsMeta‐analysis statistically aggregates results across individual studies and corrects for statistical artefacts like sampling and measurement error and, thereby, provides much greater precision with respect to the findings, compared with narrative reviews. The findings should be relevant for the current project on audit reporting initiated by the International Auditing and Assurance Standards Board (IAASB).Originality/valueAudit opinion formulation is a complex procedure that culminates in the issuance of appropriate audit opinions. This paper adds value to the strand of audit opinion formulation research by documenting that some of the variables are more significant in explaining auditors' modified audit opinion decisions compared to other variables.

Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on the IAASB Proposal:Improving the Auditor's Report

SUMMARYRecently, the International Auditing and Assurance Standards Board (IAASB) solicited public comments on its proposal to improve the current format of the auditor's report under International Auditing Standards. This commentary summarizes the contributors' views on the various alternatives proposed in the IAASB proposal, entitled, Improving the Auditor's Report. The invitation to comment (which invited comments through October 8, 2012), with links to the proposal, is available at: http://www.ifac.org/publications-resources/improving-auditor-s-report. Our comments submitted to the IAASB appear below.

Multiple Auditing Standards and Standard Setting: Implications for Practice and Education

SUMMARY We organized a panel discussion on the roles of the multiple auditing standard setters and the implications of these multiple sets of standards for practice and education. The session took place at the American Accounting Association (AAA) Auditing Section Meeting in Savannah, Georgia in January 2012. In this paper, we discuss the roles of the various auditing standards setters (e.g., Auditing Standards Board [ASB], Public Company Accounting Oversight Board [PCAOB], International Auditing and Assurance Standards Board [IAASB]) and how the standards have diverged over time. We then present panelists' responses to questions raised during the session, which reflect differing perspectives concerning why multiple standards may be necessary, barriers to a more unified structure for auditing standards, and differences in enforcement and quality assessment. The panelists also discussed challenges posed by the existence of multiple standards for CPA firms, students, and instructors, and how these challenges may be addressed by both educators and accounting firms.

Do auditors assess inherent risk as if there are no controls?

PurposeThe purpose of this paper is to examine whether auditors interpret the risk of material misstatement (RMM) in accordance with current standards' definition of inherent risk (IR). It is argued that controls should not be presumed when assessing inherent risk and that inherent risk should be considered separate from and prior to control risk when it is practical to do so. Because auditing standards explicitly require auditors to assess IR without consideration of internal controls (i.e. control risk (CR)), RMM should not be adjusted upward for control deficiencies.Design/methodology/approachThe authors survey and interview practicing auditors to gain an understanding of current risk assessment practice. They then evaluate whether their understanding of risk assessment is in line with current standards.FindingsContrary to auditing standards' definition of inherent risk, it appears that auditors presume some level of expected control effectiveness when assessing IR and they may increase RMM in response to internal control deficiencies. Such a presumption is inconsistent with the definition of inherent risk from the Auditing Standards Board (SAS No. 107), Public Company Accounting Oversight Board (AS 8), and International Auditing and Assurance Standards Board (ISA 200). Such misinterpretation may be an inadvertent result of guidance provided by standard setters in the form of SAS No. 109 from the ASB, AS 12 from the PCAOB and ISA 315 from the IAASB, which suggest combining IR and CR into RMM.Research limitations/implicationsThe research is limited both by the small sample size and the small number of risk factors investigated.Practical implicationsIf auditors presume a level of controls in assessing inherent risk, they may reduce audit effectiveness by estimating a lower RMM than is appropriate.Originality/valueThis study presents insights on the interpretation and assessment of audit risk in audit environments where inherent risk is no longer automatically set to be at the maximum. Namely that due to the definition of inherent risk, control information should have a unidirectional downward effect on the risk of material misstatement.

Assurance of sustainability reports

PurposeThe International Auditing and Assurance Standards Board (IAASB) is currently in the process of revising International Standard on Assurance Engagements (ISAE) 3000. The purpose of this paper is to review the implications of this revision process for providing assurance on sustainability reports, and identify policy‐related research opportunities associated with this review.Design/methodology/approachThe paper takes the form of a conceptual and critical review of standards development, and archival analysis of ISAE 3000 exposure draft responses.FindingsIn the revision of ISAE 3000, concerns have been expressed by a number of parties around the distinction between reasonable and limited assurance, the procedures necessary in properly undertaking a limited assurance engagement and the structure and content of a limited assurance report. These concerns can be addressed by appropriate research initiatives which can inform these policy issues.Research limitations/implicationsResearch opportunities are identified, in particular the use of experimental design to examine implications of changing the requirements of the procedures for limited assurance on assurance practitioners and of changing aspects of the assurance report on the level of assurance conveyed by limited assurance reports.Practical implicationsThe paper contains a review of the standard‐setting process and has implications for assurance providers of sustainability reports, standard setters and regulators.Originality/valueThe paper provides an update of relevant standards for assurers of sustainability reports and review and appraisal of issues raised in the recent revision process of ISAE 3000.

The Competitive Market for Assurance Engagements on Greenhouse Gas Statements: Is There a Role for Assurers from the Accounting Profession?

SUMMARYIn response to current and increasing demand for assurance on greenhouse gas statements, the International Auditing and Assurance Standards Board (IAASB) released an exposure draft of a new assurance standard, ISAE 3410 “Assurance on a Greenhouse Gas Statement” (IFAC 2011), to provide comprehensive guidance on these types of greenhouse gas (GHG) assurance engagements. Internationally, approximately 50 percent of GHG statements are independently assured. The related assurance market is competitive, with the accounting profession and those outside the profession currently holding approximately equal shares. This paper highlights the characteristics of GHG assurance engagements that warrant multi-disciplinary teamwork, the unique and interdependent skill-sets that different practitioners bring to these engagements, and the market forces that create a demand for diverse providers.

Book Reviews

Book Reviews

Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on the Proposed International Standards on Auditing Revisions to ISA 315 and ISA 610

The Auditing Standards Committee of the Auditing Section of the American Accounting Association is pleased to provide comments on the Proposed International Standards on Auditing Revisions to ISA 315 and ISA 610, exposure draft (International Auditing and Assurance Standards Board [IAASB] 2010). We very much appreciate the opportunity to provide input. The views expressed in this letter are those of the members of the Auditing Standards Committee and do not reflect an official position of the American Accounting Association. In addition, the comments reflect the overall consensus view of the Committee, not necessarily the views of every individual member. We hope that our comments and suggestions are helpful and will assist in finalizing the proposed guidance. If the Board has any questions about our input, please feel free to contact our committee chair for additional follow-up.

Governance benefits of new assurance reports

The use of external assurance is one of many ways to add credibility to information. This article firstly discusses the concept of external assurance as defined by the International Auditing and Assurance Standards Board (IAASB) and its limited application to date outside the statutory financial statement audit. The article then discusses the experience of the Institute of Chartered Accountants in England and Wales (ICAEW) in applying the IAASB framework for external assurance in practice. The benefit of external assurance is primarily to enhance confidence in information for the benefit of users of information who have little control over its production. However, the benefit of external assurance potentially can extend beyond enhancing the credibility of information. Through a case study of developing an assurance reporting framework on internal control in the United Kingdom in 2006, the article firstly demonstrates the benefit of stakeholder engagement in the process. By taking part in collective decision-making over the scope of reporting and related responsibilities, stakeholders obtain a better understanding of the role of assurance reporting and thus are able to align their expectations. Collectively agreeing the basic elements of an assurance reporting framework also means that parties need not negotiate them along with other individual engagement terms, thereby saving time and cost. Secondly, where stakeholders decide to opt for an ‘assertion-based’ assurance reporting framework, management reports on its internal control procedures and their effectiveness and professional accountants opine on management assertions. This assurance process can facilitate better governance as management explicitly owns primary responsibility over the information rather than attributing it to external accountants. The article finally considers the use of external assurance reporting in a wider context. Assurance services, conducted on a voluntary basis and outside the scope of a statutory financial statements audit, can enhance the credibility of specific information that is relevant to certain stakeholders without adding unnecessary burdens to others that have little to gain from this assurance process. This may be particularly relevant to financial institutions subject to increased scrutiny because of the recent crisis in the banking sector.

Are Greenhouse Gas Assurance Engagements a Natural Domain of the Auditing Profession?

Informed by stakeholder responses to the International Auditing and Assurance Standards Board’s (IAASB) Consultation Paper on their draft international standard for assurance on greenhouse gas (GHG) statements, this paper explores the question of whether GHG assurance engagements are a natural domain of the auditing and assurance profession. It is argued that there will be scope in the GHG assurance market for services led by different professionals depending on the nature of the engagement and clients’ cost-benefit analyses. Potential responses to the issues raised in the Consultation Process with regards the engagement partner, engagement teams and the use of the IAASB’s standards by parties other than professional accountants are also canvassed.

Developing an International Assurance Standard on Greenhouse Gas Statements

SYNOPSIS: Worldwide public concern over climate change and the need to limit greenhouse gas (hereafter, GHG) emissions has increasingly motivated public officials to consider more stringent environmental regulation and standards. The authors argue that the development of a new international assurance standard on GHG disclosures is an appropriate response by the auditing and assurance profession to meet these challenges. At its December 2007 meeting, the International Auditing and Assurance Standards Board (hereafter, IAASB) approved a project to consider the development of such a standard aimed at promoting trust and confidence in disclosures of GHG emissions, including disclosures required under emissions trading schemes. The authors assess the types of disclosures that can be assured, and outline the issues involved in developing an international assurance standard on GHG emissions disclosures. The discussion synthesizes the insights gained from four international roundtables on the proposed IAASB assurance standard held in Asia-Pacific, North America, and Europe during 2008, and an IAASB meeting addressing this topic in December 2008.

A Summary of Research and Enforcement Release Evidence on Confirmation Use and Effectiveness

SUMMARY: Confirmations are extensively used and are often perceived by practitioners to be one of the most persuasive forms of audit evidence. Yet academic research has found limitations that restrict confirmation effectiveness for many management assertions. In addition, a number of problems with false and forged confirmations are identified in Accounting and Auditing Enforcement Releases (AAERs). The Public Company Accounting Oversight Board (PCAOB) and the International Auditing and Assurance Standards Board (IAASB) have put confirmation evidence on their respective agendas. Academic research indicates that receivable confirmations can be effective evidence for the existence assertion. Low response rates, as well as respondent errors and directional bias in detecting errors, are key barriers to confirmation effectiveness. Our review of AAERs identified failure to authenticate responses, collusion between auditee management and customers, and concealed side agreements and special terms as specific problem areas. We also identify a number of research questions for future research.

Developing an International Assurance Standard on Carbon Emissions Disclosures

Governments, organizations and individuals around the world are paying increasing attention to climate change and carbon emissions. This paper argues that a new international assurance standard on carbon emissions disclosures is an appropriate response by the auditing and assurance profession to these challenges. At its December 2007 meeting the International Auditing and Assurance Standards Board (IAASB) approved a project to consider the development of an international standard or guidance for such a service. Such a development is aimed at promoting trust and confidence in disclosures of carbon emissions, including those required under emissions trading schemes. This paper assesses the types of disclosures that can be assured, and outlines the issues involved in developing an international assurance standard on these disclosures. The discussion reflects and expands upon the insights gained from four international roundtables on the proposed IAASB assurance standard held in the Asia-Pacific, North America and Europe during 2008, and an IAASB meeting addressing this topic in December 2008.