Context Of Audit Research Articles

The Reduced Rules Rule Based Forecasting Decision Support System: Details and Functionalities: An Audit Context

In execution of PCAOB audits at the Planning and Substantive Phases, forecasts of various financial account balances are often used to collect information on the veracity of the client’s final reported balances. One of the forecast methods widely acclaimed in the academic context is the Rule Based Forecasting [RBF] model of Collopy and Armstrong [C&A]. However, for the most part, the RBF has not found its way into the panoply of the auditor. In our practice-oriented experiential context, the reason for this seems to be the lack of an enabling Decision Support System[DSS] usually needed to create reliable RBF-forecasts in a timely manner needed at the Substantive Phase of the audit. Focus In this report, we detail a GUI-friendly DSS, the VBA-programming of which is based upon a 2013 revision of an updated C&A model offered by Adya and Lusk. The DSS is called: The Reduced Rules: Rule Based Forecasting: Decision Support System [RR:RBF:DSS]. We provide a comprehensive example of the RR:RBF:DSS in a PCAOB-audit context for a Caterpillar™, Inc.Ò account Panel downloaded from Bloomberg™. This example, carefully details all of the numerous User Form-Launch platforms as well as discusses the statistical and operational Rule-scoring functionalities of the RR:RBF:DSS. The RR:RBF:DSS is available as a download without cost or restrictions on its use.

Key audit matter and auditor liability: evidence from auditor evaluators in Thailand

PurposeThis study examines the effects of key audit matter (KAM) disclosures in auditors' reports on auditor liability in cases of fraud and error misstatements using evaluators with audit experience.Design/methodology/approachThe experiment is conducted using 174 professional auditors as participants.FindingsThe participating auditors assess higher auditor liability when misstatements are related to errors rather than when they are related to fraud. In addition, the results also demonstrate that KAM disclosures reduce auditor liability only in cases of fraud and not in cases of errors. Together, the results support the view that KAM reduces the negative affective reactions of evaluators, which in turn, reduce the assessed auditor liability.Research limitations/implicationsThis study did not analyze the setting in which auditors who act as peer evaluators had an opportunity to discuss the case among their peers, which may have affected their judgments.Practical implicationsThe results of KAM disclosures on auditor liability in cases of error and fraud misstatements inform auditors that, different from the auditors' concern that disclosing KAM may increase auditors' legal risk, it tends to decrease or at least have no impact on the liability judgment.Originality/valueThis study contributes to the accounting literature by adding findings on another aspect of KAM in different audit settings, particularly, in the Thai legal environment with different types of undetected misstatements. The current conflicting results on how KAM disclosures affect auditor liability warrant further investigation of this issue in other audit contexts in different countries.

Impact of Warning Messages on the Reliance Level on Decision Aids under the Framing Effect

Manuscript type: Research paper Research aims: This research empirically examined the moderating role of warning messages on the relationship between framing effect and decision aid reliance in an audit context. We test whether warning messages moderates the relationship between framing and decision aid reliance. Design/ Methodology/ Approach: The research employed a 2 x 3 experimental design involving 65 undergraduate students and 13 Accounting Profession Program students as the sample. The dependent variable is decision aid reliance which measured by Gomaa, Hunton, Vaassen, & Carree (2011) scenario. Framing effect which is manipulated as follows: (1) positive framing, (2) negative framing, and Warning messages is manipulated as follows: (1) weak warning, (2) strong warning. Research findings: It is revealed that the warning messages reduced the framing effect of the decision aid in an audit context. One of the highlighted findings in this research is that in the audit task context, both the weak and strong warning messages were considered effective in declining the bias of framing effect of the decision aid in an audit context. These results suggest that the warning message can be used in decision aid reliance to assist auditors adjusting best decisions in an audit process. Theoretical contribution/ Originality: To the best of the knowledge, the previous study only examined the debiasing effect of framing in a business context, while this paper could be the first research which tests this debiasing technic in auditing task area. Practitioner/ Policy implication: Warning message can be used as ones of the best tools where make auditor produce best decisions as long as the audit process. Research limitation/ Implication: The study didn’t use a specific measure of overreliance. It affects on the overreliance can’t be differed with reliance. Keywords: Decision aid reliance, framing effect, warning message, audit task decision. JEL Classification: M42

Analyzing An Audit Population Via Either Excel Pivot Tables and/or R Language Cluster Analysis

SUMMARYThis case provides instructors the opportunity to have students analyze an audit population via either Excel Pivot Tables and/or cluster analysis via the R programming language and RStudio free software environment. The analysis takes place in the context of audit risk analysis and planning. The case was developed with a background description based on a real company and instructor-generated synthetic data containing seeded misstatements. Analysis via Excel Pivot Tables is fairly straightforward and allows students to easily get into the underlying audit planning questions. Use of cluster analysis via R is more difficult but provides students with an opportunity to think about cluster analysis when there is no underlying basis for discrete population splits or as a population stratification methodology. Student feedback from use of the R language approach was very positive with students indicating they had a better understanding of how to apply cluster analysis in an audit context

Beg your pardon? The effect of communication costs on audit quality

We examine how language-induced communication costs affect audit quality by utilising unique data of signing auditors’ native dialects and audit adjustments in China during 2006–2011. The results show that greater language-induced communication costs lead to lower audit quality. We further find that the negative effect of communication costs on audit quality is mitigated by extended audit tenure. Our study introduces linguistics theory into auditing and is the first to investigate the empirical impact of language-related communication costs in the audit context.

External performance audit in New Zealand public health: a legitimacy perspective

PurposeThis paper aims to provide insights into how the New Zealand Office of the Auditor-General (NZOAG) legitimised the selection of topics for performance audit in the New Zealand public health sector over a 10-year period, 2003-2013, by fulfilling the key actors’ “taken for granted beliefs” of the dual roles of the NZOAG: its independence and accountability.Design/methodology/approachThis paper uses evidence gathered from interviews with representatives of the District Health Boards, the Ministry of Health (including Health Advisory Committee members) and NZOAG staff, along with publically available documentary evidence over a 10-year period. The authors draw on Suchman’s (1995) authority on institutional legitimacy to inform the research findings.FindingsThe New Zealand Auditors-General (NZAGs) get inputs from various sources such as their own audit teams, parliamentary deliberations, the Ministry of Health, the District Health Boards, media and public concerns and complaints. These sources initiate ideas for performance audits. Subsequently, the NZAGs use the recurring themes and risk assessment criteria while simultaneously consulting with the auditees (the MOH and the DHBs) and other actors, such as health advisory groups, to select topics for such audits. This signals to the key actors, such as the MOH and the DHBs, that the NZOAG is addressing the topics and concerns relevant to the former while discharging its public accountability role. Furthermore, the consultative approach acts as a catalyst, ensuring that the actors involved with public sector health service delivery, specifically the auditees, accept the selected topic. This leads to a lack of resistance to and criticism of the topic; the selection process, therefore, is legitimatised, and credibility is added to the audits. Because of the consultative approach taken by the NZAGs, the actors, including the performance auditors, continue to believe that the Office acts independently from third party influence in selecting their audit topics, elevating the NZAGs’ moral legitimacy with respect to their public accountability role.Research limitations/implicationsThe study’s focus group does not include parliamentary representatives, only representatives from the DHBs, the MOH and the NZOAG; therefore, the conclusions on effective discharge of the NZOAG’s accountability role and Parliamentary acceptance is not conclusive – the NZOAG acts on behalf of the Parliament in discharging its accountability role and the latter is also the formal recipient of the reports.Practical implicationsThe implications for practitioners and policymakers are that the use of a consultative approach to select topics for performance audit in the absence of performance auditing standards ensures auditee readiness and acceptance of such audits. This also promotes mutual benefits and “trust” between the AG and auditees. Such audits can be used to bring about efficacy in health service delivery.Social implicationsThe selected topics for audits will have an impact on citizens’ lifestyles, with improved health services delivery.Originality/valueThere is a dearth of research on who initiates the ideas for performance auditing and how the Office of the Auditor-General selects topics for such audits. This study adds a new dimension to the existing performance auditing literature. The authors reveal how the NZOAG seeks to legitimise the selection of topics for such audits by consulting with the auditees and other actors associated with public sector health service delivery, while upholding its independent status and making transparent how it discharges its accountability role within the context of performance auditing.

Determining factors of the quality of joint audit: Tunisian context

Research question: Identify the significant determinants of the quality of joint audit in the context of Tunisian companies. Motivation: Few studies have been conducted on the determinants of the quality of the joint audit in the Tunisian context. Thus, our study aimed to fill this gap. Idea: Our study aimed to fill this gap by studying Determining factors of joint auditors’ job quality in the Tunisian context. Data: Our methodology was applied to 222 Tunisian companies, 108 of which belong to the banking sector, 67 to the insurance sector, 28 whose commitment exceeds 25 billion dinars and 19 company having a consolidated balance sheet total of over 100 billion dinars. Tools: A factorial analysis was carried out followed by an internal coherence test. Then, a logistic regression, which enabled us to test the impact of each determining factor on the quality of the joint audit, was carried out. Findings: This study emphasizes the participation of several factors that enhance the quality of the joint audit. According to the predictive results of our model, it seems that the quality of the joint audit contributes to the prediction of three factors, namely competence, independence and reputation. Contribution: Our findings contribute through a better understanding of the determinants of the joint audit in a Tunisian context.

When Is the Averaging Effect Present in Auditor Judgments?

ABSTRACTAuditing standards task auditors with collecting sufficient appropriate evidence to form audit judgments. Yet, cognitive psychology documents a robust finding in which people evaluate a bundle of relevant, directionally consistent evidence as though averaging the strength of the components. In consequence, a bundle of evidence may be viewed as weaker evidence than the bundle's strongest evidence item alone. We experimentally examine whether this averaging effect occurs in an audit context, and we test a potential moderator. In three independent mini‐cases, we ask auditor participants to make judgments about going concern, internal controls, and fraud risk. We present auditors with unfavorable audit evidence relevant to each judgment, manipulating whether we present a single strong evidence item or bundle it with a weaker evidence item. We also manipulate the auditor's initial impression of the client's state. We find that experienced auditors succumb to the averaging effect, making more strongly unfavorable judgments in response to the single evidence item than the bundle, and that this bias is reduced when the observed evidence is inconsistent with the auditor's initial impression. We interpret our results as consistent with the dual‐processing theory of cognition.

Getting from Skeptical Judgment to Skeptical Action: A Field Study of Auditor Behavior

Professional skepticism is clearly an important and timely topic in the practice and regulation of auditing. In this paper, we apply Bandura’s self-efficacy construct within Social Cognitive Theory to auditor efficacy and skeptical action in an audit context. This study uses a multiple-interview design to explore the exercise of professional skepticism by experienced auditors. An auditor can be skeptical about the facts and circumstances of a client but may not always manifest that skeptical judgment as skeptical action. We adopt a social constructivist approach applied through a self-efficacy model for auditing to better understand auditors’ experience when considering skeptical action. Our evidence suggests that efficacy expectations associated with skeptical actions are increased by the presence of three primary factors: (1) the support/collectivism within the audit team (consensus), (2) the preparation/homework of the auditor (cognizance), and (3) the quality of the relationship with the client counterpart (consonance). These three themes are further illustrated by specific actions that can be taken by an auditor. The study contributes to our understanding of how auditors make decisions that influence skeptical actions during the course of the audit, the resources and strategies employed to do so, and the motivations that underlie skeptical actions.

Investigating the backstage of audit engagements: the paradox of team diversity

Purpose There has been very little qualitative “fieldwork” of audit practice. This is especially the case in relation to investigations into how audit engagements proceed. The purpose of this paper is to engage with audit practice in order to explore and explain the internal dynamics and paradoxical conditions within audit engagement teams. Design/methodology/approach The research adopts a qualitative methodology, framed around an intensive case study that involves several methods of data collection and analysis including interviews, observation and document analysis. The authors observe audit team practices, work programmes and organisation including observations of individual and teams involved in audit engagements. Findings Using the lens of paradox theory, the authors explore the backstage of audit work, where audit teams are challenged with recurring contradictory requirements and opposing demands. The authors provide insight on the complexity associated with inadequate resourcing and planning that tend to stimulate the emergence of paradoxes in audit engagement work in a government audit context. As a result, the authors identify the occurrence of cascading reduced audit quality practices (RAQP) as the teams respond to the paradoxes they face. Originality/value The authors reveal the interlinked and cumulative coping strategies, namely, downplaying responsibility and downscaling audit processes. These strategies are performed concurrently by team leaders and audit members to manage paradoxical tensions. The authors also identified superficial audit supervision as another type of RAQP performed by team leaders.

Account Screening Based Upon Digital Frequency Profiling in the Internal Audit Context: A Cartesian Distance Likelihood Triaging Protocol

A central feature in the montage of executing the internal audit, in a non-forensic context, is a random sample of sufficient size to create the evidence needed to decide whether extended investigative procedures are warranted. This is critical not only in maintaining a best practices profile for the department of internal auditing but also in “partnering” with the external auditors by assuring, in so far as possible, that the work of the internal audit group can be accepted as audit evidence by the external auditors and so conserving scarce organizational resources. In fact, this partnering is one of the long-term goals of the PCAOB for controlling the cost of the external certification audit. However, a contentious issue in sampling is: How should the internal auditor ferret out those accounts that are likely candidates for discovery sampling? This is the point of departure of our paper where we present a simple and validated protocol based upon the digital frequency paradigm introduced by Newcomb & Benford and popularized in the audit context by Nigrini to: identify accounts under audit that seem reasonable candidates for extended procedures discovery sampling testing. The protocol centers around a triage-point in Cartesian space developed from samples of account profiles reported in the literature. We validated the logic of the protocol by using a holdback sample. Finally, we have coded the account identification protocol as a Decision Support System in VBA: ExcelÔ that is available from the authors for free without restriction to its use. 
 JEL Code: M4

Helping auditors identify deception through psycholinguistics

PurposeThis paper reviews an array of psycholinguistic techniques that auditors can deploy to explore written and oral language for signs of deception. The review is drawn upon to propose some elements of a forward research agenda.Design/methodology/approachRelevant literature across several disciplines is identified through keyword searches of major bibliographic databases.FindingsThe techniques highlighted have considerable potential for use by auditors to identify audit contexts which merit closer audit investigation. However, the techniques need further contextual empirical investigation in audit contexts. Seven specific propositions are presented for empirical testing.Originality/valueThis paper assembles literature on deceptive communication from a wide range of disciplines and relates it to the audit context. Auditors’ attention is directed to potential linguistic signals of fraud risk, and opportunities for future research are suggested. The paper is consciousness-raising, has pedagogic purpose and suggests critical elements for a future research agenda.

Barriers to Transferring Auditing Research to Standard Setters

AbstractAuditing researchers have published over 24,000 academic articles (Google Scholar September 2016) since 1970. Auditing standard setters and regulators frequently describe an inability to engage with and utilize this research to make evidence‐informed standard setting and regulatory decisions. For society to benefit from the large investment in audit research, the knowledge needs to systematically and effectively transferred to auditing policymakers. We draw on the knowledge transfer literature to identify barriers to transferring academic knowledge and discuss how these concepts apply to audit standard setting. We then examine a paradigmatic example of academic knowledge transfer to policymaking: evidence‐based medicine. Based on this analysis, we propose a tentative strategy to address the barriers to transferring audit research knowledge to policymaking and sketch out potential avenues for research. We conclude with an illustrative example of how to implement a knowledge transfer strategy that is effective in systematically transferring knowledge in other policymaking settings to the context of a specific audit standard‐setting project: group audits.

AI-Enhanced Audit Inquiry: A Research Note

ABSTRACTArtificial intelligence (AI) and machine learning (ML) are transforming organizations and will soon transform auditing. Many promising areas of AI and ML are within the continuous auditing context. However, the field has yet to recognize how AI and ML can be used for audit inquiry, an essential feature of both traditional audits and continuous auditing. In this research note, we discuss the potential viability of AI-enhanced audit inquiry using “bots” that automatically generate audit inquiries as well as evaluate client responses. In addition, we discuss opportunities for future research in this specific area of automated auditing.

Big Data and changes in audit technology: contemplating a research agenda

This study explores the most recent episode in the evolution of audit technology, namely the incorporation of Big Data and Data Analytics (BDA) into audit firm approaches. Drawing on 22 interviews with individuals with significant experience in developing, implementing or assessing the impact of BDA in auditing, together with publicly available documents on BDA published within the audit field, the paper provides a holistic overview of BDA-related changes in audit practice. In particular, the paper focuses on three key aspects, namely the impact of BDA on the nature of the relationship between auditors and their clients; the consequences of the technology for the conduct of audit engagements and the common challenges associated with embedding BDA in the audit context. The study’s empirical findings are then used to establish an agenda of areas suitable for further research on the topic. The study is one of the first empirical accounts providing a perspective on the rise of BDA in auditing.

Determinants of Audit Service Quality Perceptions of Supervisory Directors in Dutch Corporations

The purpose of this study is to investigate the effect of key quality attributes in the audit context on supervisory directors’ assessment of audit quality. To this end, we identified, through survey questionnaires, audit quality attributes and dimensions (in terms of both their technical and service dimensions) based on the perception of supervisory board members in a sample of large and medium Dutch corporations. Factor analysis of the audit quality attributes produced four quality dimensions related to the core outcome of the audit service (auditor competence and independence) and five quality dimensions related to the relational (service) aspect. The paper, further, discusses the influence of these quality dimensions on the assessment of overall audit quality. The findings indicate that the technical and functional quality dimensions identified in this study do influence supervisory directors’ perception of overall audit quality. The findings have both theoretical and policy implications. Our emphasis on supervisory board members, as current de jure and de facto clients of auditors, is a unique contribution of this study. Keywords: Service Quality, Audit Quality, Supervisory Directors, Functional Quality, Technical Quality, Auditor Independence, The Netherlands To cite this document: Asmerom Atewebrhan Ghebremichael, Determinants of Audit Service Quality Perceptions of Supervisory Directors in Dutch Corporations, Contemporary Management Research, Vol.14, No.1, pp. 53-84, 2018. Permanent link to this document: http://dx.doi.org/10.7903/cmr.18037

Analytical Procedures Phase of PCAOB Audits: A Note of Caution in Selecting the Forecasting Model

The best-practices execution of PCAOB audits requires the use of Analytical Procedures at the Planning and the Substantive Phases. This often finds the auditor using the standard OLS two-parameter linear regression forecasting model [OLSR] to project account-values from the Planning Phase to balances expected at Year-End so as to effect a variance analysis at the Substantive Phase. This is the point of departure of our study. We examine the practical effect of using the OLSR model in a time-series context of the audit. Specifically, this research report provides information on the use of the OLSR model as the model of choice in the audit context compared to the ARIMA(0,2,2)/Holt model which is usually the standard choice for an exponential smoothing model in the presence of autocorrelation of data in the time-stream; autocorrelation is the usual case for longitudinal series taken in the audit. Results: We find that there are reasons to condition the selection of the forecasting model in the Analytical Procedures context based upon autocorrelation in the data-stream. When the time-stream of data exhibits autocorrelation the OLSR model fails in a statistically significant manner to capture the next or one-period ahead client value at the same rate as does the ARIMA/Holt model. This then has implications for the False Negative Investigation Error.

The impact of emotional intelligence on auditor judgment

This study seeks to identify emotional intelligence (EI) as a key factor in dealing with emotions and pressures in an audit context. In this paper, we focus on how EI may influence the relation between job pressures (i.e., time budget pressure and client pressure) and auditors' judgment. Specifically, we investigate the moderating effect of EI on auditors' third‐person assessments of an auditor's actions when subject to internal and external pressures. The results suggest that the moderating influence of EI can effectively reduce auditors' tendency to engage in dysfunctional behavior and improve audit quality. Further, moderation analysis suggests that EI is a significant mechanism that moderates the effects of different types of pressure on auditors' judgments.

Internal Audit Quality: Insights from Audit Committee Members, Senior Management, and Internal Auditors

SUMMARYWe investigate the concept of internal audit function (IAF) quality from a multi-stakeholder perspective through conducting 36 interviews with key IAF stakeholder groups: audit committee members, senior management, internal audit executives, and outsourced internal audit partners from the major accounting firms. We adapt established quality frameworks that suggest quality is a five-dimensional construct (including input, process, output, outcome, and contextual dimensions) to the internal audit context. We find that the various stakeholder groups focus on different quality dimensions in their evaluation of IAF quality. For example, the groups focus on the process dimension (internal audit executives), output dimension (audit committee members and internal audit partners), or outcome dimension (senior management and internal audit partners). We also find that the five dimensions comprise multiple indicators of IAF quality. We conduct six supplementary interviews with external audit partners to compare their insights on IAF quality to the focal IAF stakeholder groups. External auditors evaluate quality via the output dimension after an ex ante assessment focusing on the input dimension. Finally, we contribute to the IAF quality literature by developing a multi-stakeholder IAF quality framework.

PENGARUH UMUR, GENDER, DAN PENDIDIKAN TERHADAP PERILAKU RISIKO AUDITOR DALAM KONTEKS AUDIT ATAS LAPORAN KEUANGAN

ABSTRACTThis research aims to examines and proves the influence of auditor’s risk behavior generated by age, gender, and education. This is important because risk is the main focus on Professional Standard on Auditing (PSA) as auditor guidance to audit of financial statement, so it is important to examine that auditor perception and propensity to face that risk.This study is a quantitative approach, which respondents are auditors involved in the audit of financial statements in Indonesian. The data was collected using a questionnaire Ionescu & Turlea (2011). This research using age (X1), gender (X2), and education (X3) as independent variable and auditor’s risk behavior (Y) as dependent variable. Hypothesis testing was performed using multiple linear regression with a 5% significance level. The result show age has a positive and significant influence on auditor’s risk behavior, in a financial audit context, while gender and education has not significant influence on auditor’s risk behavior.