Audit Costs Research Articles

Robotic Process Automation (RPA) as a technological tool for automating the execution of audits

The purpose of the research was to analyze the Robotic Automation of Processes as a technological tool aimed at automating auditing processes. It is a technological alternative that uses robots called bots, which are configured in a simple way and enable a digital transformation in which they can learn and imitate tasks, which are then executed automatically. Regarding the study methodology, it was a documentary research, carried out through a review of documents, scientific articles, research, web pages, among other sources. Among the main audit activities that can be performed with the application of robotic automation of processes are identified reconciliations, queries to identify the accounts to be reconciled, trial balances, list of transactions, comparison of the lists with the consolidated reports. Similarly, analytical processes can be performed, such as starting the session with working papers of previous audits, queries to identify audited amounts; internal control processes such as population tests, purchase orders, documents and invoices, verification of prices against quantity of items, generating alerts when deviations occur. Finally, there are several advantages of this technology, such as the possibility of performing advanced data analysis, considerable reduction of audit costs, due to the reduction of human errors and therefore greater productivity, since the optimization of processes allows the staff assigned to the execution of the audit to focus their efforts on more strategic activities, such as the preparation of the final audit report.

The effect of IFRS convergence on risk disclosure: an investigation into the Indian accounting system

PurposeThis study aims to empirically investigate the effect of International Financial Reporting Standards (IFRS) convergence on corporate risk disclosure, with a particular emphasis on the quantity and coverage of risk information. The research also conducts economic benefit and cost analysis to investigate the economic implications that may arise from the transition to IFRS reporting.Design/methodology/approachA content analysis approach is used to measure two broader dimensions of risk disclosure, namely, risk disclosure quantity and risk topic coverage. Furthermore, using firm-fixed effect regression on a sample of 143 Indian-listed companies, this study investigates the variations in these risk disclosure dimensions before (2012–2016) and subsequent to (2017–2021) the convergence with IFRS.FindingsThe empirical results of this research demonstrate that IFRS convergence has led to a significant improvement in firms’ risk disclosure across several dimensions. Particularly, during the post-IFRS period, firms’ usage of risk-related words and sentences has considerably surged in MD&A, Notes and whole annual reports. In addition, upon IFRS convergence, firms’ risk descriptions have become more extensive and evenly distributed across risk topic categories. Moreover, the in-depth benefit and cost analysis revealed that firms reporting under IFRS benefit from decreased cost of equity capital, but they also incur a higher cost of audit fees.Originality/valueThis study contributes to the literature in two ways. First, this is the only study, to the best of the authors’ knowledge, to conduct a broader examination of the impact of mandatory IFRS convergence on corporate risk disclosure, with a major focus on quantity and coverage of risk information. Second, by conducting economic benefit and cost analysis, this study provides novel insights into the critical role of IFRS risk disclosures toward multiple economic outcomes.

Accounting Accruals, Audit Quality, and Audit Pricing

This study examines the impact of the interaction between firms' accounting choices and auditors' audit effort choices on audit pricing. In a multi-period model, I focus on a central feature of accounting: reversing accruals. I find that initial low-balling, defined as lower audit fees than audit costs, arises independently from the direction of accruals, but increases with more conservatism in the first engagement period. The reason is that a conservative accruals strategy implies understated earnings today and overstated earnings in the future, which creates a higher investor demand for auditing services in future periods. The incumbent auditor can satisfy this future demand better than any competitor, because the first-period learning cost is sunk. Thus, conservatism enhances the competitive advantage of the incumbent and increases the future quasi-rent, which is used for a higher initial low-balling discount. I further show implications of the auditor-firm interaction for fee-cutting, a common proxy for low-balling, and the frequency of modified audit opinions, a common proxy for audit quality. Thus, my model provides a theoretical foundation for the connection between high low-balling discounts, accounting accruals, and audit quality.

Remote Audit Implementation, Cost Control, and Audit Quality

The purpose of this study is to analyze the implementation of remote audits in controlling audit fees and how they impact audit quality. This research method uses qualitative methods with a phenomenologically descriptive approach. This phenomenological descriptive approach is believed to be able to describe in depth the implementation and impact of remote audit implementation. The data source in this study is a primary source that was collected based on interviews with five internal auditors at PT GMU. The research was carried out throughout May 2023. The results of this study indicate that implementing remote audits is able to control audit costs by providing cost efficiencies. Remote auditing, in principle, is able to produce good audit quality. This research provides a recommendation to consider a hybrid audit. Hybrid audits need to be carried out so that auditors are still able to maximize their audit quality without incurring large cost of audit.

The Effect of Tax Avoidance on Audit Costs

This research aims to analyze the impact of tax avoidance on audit fees in Indonesian Stock Exchange (IDX) companies in 2013-2015. This research used book-tax differences and book-tax conformity as a proxy for tax avoidance. The result of book-tax differences as a proxy of tax avoidance showed a significant effect on audit fees, indicating that the bigger the negative book-tax differences, the more the audit fees. On the other hand, the result of book-tax conformity as a proxy of tax avoidance showed that there is no significant effect on audit fees. Thus, book-tax differences is preferable to book-tax conformity as a proxy for tax avoidance. This research does a difference test of the impact of large book-tax differences and small book-tax differences on the audit fees as an additional analysis. The result showed that large book-tax differences is more significant than the other. This research also does a difference test of the impact of large positive book-tax differences and large negative book-tax differences on audit fees. It indicates no significant difference between the effect of large positive book-tax differences and large negative book-tax differences on audit fees.

Competing with precision: incentives for developing predictive biomarker tests

AbstractWe study the incentives of drug producers to develop predictive biomarkers, taking into account strategic interaction between drug producers and health plans. For this purpose, we develop a two‐dimensional spatial framework that allows us to capture the informational role of biomarkers and their effects on price competition and treatment choices. Although biomarkers increase the information available to prescribers, we identify an anticompetitive effect on the prices set by producers of therapeutically substitutable drugs. We also find that better information about each patient's most therapeutically appropriate drug does not necessarily lead to more efficient treatment outcomes.

The Use of Continuous Audit to Improve the Effectiveness and Efficiency of Internal Audit Activities: A Practical Study of Distribution Sharia Company in Indonesia

The implementation of technology has encouraged internal auditors to develop continuous audits as a practical method for obtaining useful information from a set of company electronic data related to internal audit activities at all stages. Continuous audit methods allow internal auditors to process the entire population of transaction data to identify risk and internal control weaknesses that are more likely to be the subject of an audit finding. XYZ is a distribution company that continues to expand its business with more than 200 branches in Indonesia especially in sharia business. However, a large number of branches and transactions face limited internal auditors, high audit costs, low levels of audit coverage, and potential human error, which are an obstacle. This research is a design science that proposes the use of DMADV six sigma methodology as a problem-solving method to enhance the effectiveness and efficiency of internal audit activity by applying technology and audit concept in the continuous audit system. This research revealed that the internal audit cost can decrease by 45,5% to IDR 528.000.000 and audit coverage can increase by almost double to 86,3% in a year.

Welfare‐improving tax evasion

AbstractWe study optimal income taxation in a two‐group framework where the private cost of misreporting income is positively correlated with productivity. If high‐wage types always reveal their income truthfully, then letting low‐wage types cheat leads to Pareto‐superior outcomes regardless of the audit costs (as compared to deterrence). With no cheating, redistribution takes place on first‐ or second‐best frontiers and low‐wage types always end up worse off than high‐wage types. Letting low‐wage types misreport reduces the need to recourse to second‐best mechanisms. Additionally, it increases the reach of first‐best redistribution to outcomes at which low‐wage types are better off than high‐wage types.

1258 Audit of Environmental Costs for Bariatric Face to Face Clinics: A Single Centre Study – Interim Findings

Abstract Aim The NHS has committed to delivering a net zero national health system by 2045. Patient travel accounts for approximately 20% of carbon footprint amongst resource use within outpatient appointments. The increased acceptability of digitalized healthcare during the COVID-19 pandemic has helped in reducing this. The study aims to look at the carbon cost of in-person bariatric clinics over a two-month period. Method A prospective review of all in-person bariatric clinics in a single high-volume bariatric center was carried out from October 2022 to December 2022. Patient’s postal codes were used to estimate mileage and duration of travel to the hospital via Google Maps. The Centre for Sustainable Healthcare Patient Travel Emission Calculator was used to estimate carbon dioxide emissions of different travel modes. Calculations were adjusted for the number of people attending with the patient and mode of travel. Results Between October and December 2022, there were a total of 48 in-person bariatric clinics. Of which, 87.5% traveled by car and 4.2% by bus or taxi. The total distance traveled was 2727 km, equivalent to 58.5 hours of travelling time. The total CO2 emissions and estimated travel-related costs were 277.4 kg and £534.98. Travels by car had the highest impact on travel costs and carbon emissions, followed by taxi and bus. Conclusions Significant cost and emission reduction could be potentially achieved by remote consultation rather than in-person clinics. Data collection is ongoing with the aim of collecting information from at least 100 patients.

The Impact of Director Executive Liability Insurance on Audit Pricing

On April 3,2020, the news that Ping An Insurance of China responded to Luckin Coffee's claim for director liability insurance triggered a discussion about director liability insurance. Since 2002, more and more enterprises in China buy director liability insurance. So what is the impact of director liability insurance on enterprises? Can director liability insurance play its role, reduce the risk of enterprise fraud, and then reduce audit costs? Many scholars have studied this, but they have not reached a unified conclusion. This paper analyzes the case companies and studies the impact path of director liability insurance, and finds that director liability insurance can reduce the audit pricing.

Pengaruh Fungsi Audit Internal Terhadap Fee Auditor Eksternal (Studi Empiris Pada Perusahaan Pertambangan Yang Terdaftar Di Bursa Efek Indonesia Periode 2021-2022)

The effect of the internal audit function on external auditor fees is an important consideration in determining the cost of auditing and monitoring the company. This study aims to provide empirical evidence regarding the effect of the internal audit function on external auditor fees. This type of research is a quantitative analysis using descriptive statistical methods. This study uses secondary data from the annual reports of mining companies listed on the Indonesia Stock Exchange in 2021-2022. This study uses purposive sampling method and uses simple linear regression as an analysis instrument. Based on the test results conducted using the classical assumption test and simple linear regression analysis techniques, it can be concluded that the internal audit function has no significant effect on external auditor fees. Although the results of this study indicate that there is no significant effect between the internal audit function and external auditor fees, there are also several other studies that have successfully examined that the internal audit function has a significant effect on external auditor fees.

Evaluation of ownership structure and audit-quality in the wake of the Covid-19 crisis: empirical evidence from Jordan

PurposeThis study aims to collect new empirical evidence to determine how different forms of ownership structure responded to the recent COVID-19 crisis. In light of this tragedy, it explores the relationship between ownership structure forms (i.e. block-holders, foreign, institutional and family ownerships) and audit quality (proxied by audit fees).Design/methodology/approachIn total, 3,200 firm-year observations for Jordanian enterprises covering the years 2005 through 2020 are used in an ordinary least squares regression with firm-clustered standard error to assess the hypotheses.FindingsThe regression results showed that COVID-19 strengthens the association between each type of ownership (i.e. block-holders, foreign, institutional ownership forms) and audit quality. This result reflects the need for high-quality audit services during the pandemic by such owners to improve their business decisions and limit agency-conflict issues. However, the analysis failed to find any effect of COVID-19 when it comes to family ownership. Family-controlled firms may react faster in crisis situations, and correspondingly, they do not bear high audit costs. The extended analysis covering the years 2005–2022 came to the same results.Practical implicationsThe results aid authorities in their control and management of the auditing business. The findings have important consequences for policymakers, lawmakers, regulators and the audit profession as they assess the growing issues in an uncertain economic environment. Evidence is provided that may be used to reassure investors and aid authorities as they devise appropriate remedies to the pandemic-triggered economic crisis. The findings may aid in the improvement of legislation that governs Jordan’s auditing industry. Furthermore, the results can be generalized to other Middle Eastern countries.Originality/valueTo the best of the authors’ knowledge, this is the first study to empirically evaluate how different types of ownership affect audit quality in response to a dramatic shift in auditors’ working conditions brought on by the global health calamity. In emerging economies like Jordan, this type of analysis allows for preliminary assumptions to be established about ownership status during the COVID-19 outbreak. It adds to the body of auditing knowledge by shedding light on how various kinds of ownership affect responses to adverse events. This assessment is intended to serve as the definitive testimony in the field of accounting regarding the effects of the coronavirus across various corporations’ portfolios.

Credit default swaps, investor protection, and audit cost: international evidence

PurposeCredit Default Swap (CDS) trading alters equilibrium interactive monitoring of external corporate monitors due to a possible change in private lenders' incentive to monitor client firms. This study explores how audit fees change in response to CDS trade initiation on client firms and how this effect is moderated by investor protection.Design/methodology/approachWith 6,052 cross-country firm observations, the author conducts estimations in the systems dynamic general methods of moments framework.FindingsThe author documents that audit fees rise on average after CDS trade initiations with and/or without investor protection. Meanwhile, change in auditors' risk perception result in increased audit costs when CDS trade initiation and investor protection interact. The effect of CDS trading on audit fees remain after controlling for firm, audit, and auditor features are robust to different proxies of audit cost.Practical implicationsThe need for firms in high investor protection jurisdictions to initiate CDS trade to implement policies in order to maximize their gains from investor protection activities to lessen the overall impact of any increased audit cost that may arise. Furthermore, CDS regulation may be strategically targeted to lessen the effect of increased audit costs on firms after initiation. This would ensure that the resulting increase in audit cost may not materially impact the cash or profitability position of such firms.Originality/valueThis study is distinct from previous ones by focusing on variation in private lenders incentive to monitor after CDS trade initiation after controlling for possible monitoring by short-term creditors. Given that monitoring is not costless for private lenders and CDS trading on their borrowers causes a change in this cost structure, the author documents how auditors react to such changes in incentive to monitor.

Regulatory Cost Audit Rules in Energy Sector

Regulatory Cost Audit Rules in Energy Sector

FEATURES OF THE AUDIT OF THE ACTIVITIES OF A TRADING ENTERPRISE

The purpose of the article is to study the methodology of auditing the activities of trading enterprises and its features with the aim of determining the most effective areas of auditing. The article defines the purpose and task of auditing the activity of a trading enterprise. The sources of obtaining audit evidence during the audit were identified, which include primary documents, accounting registers, reporting (financial, tax, statistical). The stages of the audit are defined: preparatory (preparation and planning of the audit), main (audit: collection and processing of information), final (preparation of a report based on the results of the audit). The peculiarities of the preparatory stage, in which important attention is paid to the system of internal control, are highlighted. Defined procedures for establishing its quality at the enterprise. Attention is focused on the factors that potentially affect the audit (organizational structure and accounting system; type of activity (wholesale trade, retail trade, wholesale and retail trade at the same time, the presence of foreign economic activity); the applied taxation system; other factors (average number of documents, which are processed per month, the number of accounting personnel, the degree of computerization of accounting, the presence of control procedures for receiving and creating documents)). Provisions regarding the planning of an audit of the activity of a trading enterprise have been disclosed. The sequence of checks for specific areas of the audit, which is carried out at the main stage (audit of fixed assets, audit of inventories, audit of costs, audit of settlements with counterparties, audit of profit formation) is considered. Typical errors detected by the auditor during the inspection are defined. The peculiarities of the final stage of the audit are disclosed. It was established that conducting an audit according to a certain methodology will provide an opportunity to take into account the peculiarities of the activity and accounting policy of trading enterprises, which will ensure the formation of an objective audit opinion.

Study on the Impact of Digital Transformation on Audit Risks of Accounting Firms: The Case of Grant Thornton

As the external environment changes, digital transformation is becoming increasingly necessary for accounting firms. Firstly the '14th Five-Year Plan' for the development of the digital economy emphasizes the importance of accelerating the digitalization of the industry. Secondly audit plays an important third-party supervisory role in the capital market and the volume of audit engagements has been growing in recent years, but the corresponding increase in audit risk due to manpower shortage, lack of time and limited resources. Finally the outbreak of the new crown epidemic reveals the problem of unenforceable on-site audits, which affects investor effectiveness and capital market efficiency. Therefore, it is important to study the impact of audit risk in accounting firms from the perspective of digital transformation to promote the digital transformation of accounting firms. In this paper, we take the example of Grant Thornton, which has a long history of development, comprehensive business lines, and is a pioneer and leader in promoting digital reform among domestic accounting firm, and is representative in digital reform. This paper firstly reveals the advantages of digital audit in the digital economy by comparing traditional audit and digital audit; secondly, it analyzes the impact mechanism of digital transformation on audit risk in accounting firms; then it examines what measures accounting firms can take to reduce audit risk, improve audit efficiency and save audit cost in the context of digital transformation. Finally, the problems of digital transformation of accounting firms are explored, and corresponding suggestions and measures are proposed. This has important guiding significance for promoting digital reform in the audit industry.

Factors Affecting the Relationship between Internal Audit and External Audit in Banks and their Impact on Strengthening the Internal Control System and Reducing the Cost of External Auditing

Factors Affecting the Relationship between Internal Audit and External Audit in Banks and their Impact on Strengthening the Internal Control System and Reducing the Cost of External Auditing

A collaborative auditing scheme with dynamic data updates based on blockchain

Cloud data auditing is essential to ensure the integrity of cloud data. The main idea of cloud auditing is to entrust the audit task to a third-party auditor (TPA) with powerful computing ability. However, TPA may lead to data leakage and become the single point of failure. Recently, blockchain has been introduced to solve these problems by TPA. However, the dynamic storage structure developed by traditional cloud storage does not apply to the blockchain. This paper proposes a blockchain-based collaborative public auditing scheme for dynamic data. We design the cloud service provider(CSP) to generate a challenge set using the latest block hash. It does not need to interact with the blockchain in the challenge phase, dramatically reducing communication overhead. In addition, considering economic factors, we allow users to seek partners to reduce audit costs. The EigenTrust model evaluates the reputation of each user's audit behaviour, effectively avoiding the probability of malicious users participating. For data update, we introduce the Pseudo Index Linked List(PIL) index management structure, which reduces the size of the index management structure to adapt to the blockchain's characteristics and makes the update operation have a constant time complexity. Through a complete security analysis and performance evaluation, we proved the security and effectiveness of the scheme.

Does the disclosure of key audit matters improve the audit quality for sustainable development: Empirical evidence from China.

In this paper, taking the 14837 annual audit reports of 4159 listed companies in Shanghai and Shenzhen Stock Exchanges from 2017 to 2020 as samples, and taking the information entropy value of KAM disclosures and the type of audit opinion as the agent indexes of the explanatory variable and the interpreted variable respectively, whether the disclosure of KAMs could improve audit quality had been empirically tested and analyzed. The results shown that: (1) The regression coefficient of information entropy value of KAMs disclosure was 0.1785, which shown a significant positive correlation, and was established at the level of 1% significance, that was to say, KAMs disclosure can improve audit quality. (2) The marginal effect coefficient was only 0.0081, which meant that there was some information redundancy in the KAMs disclosure and the enhancement effect on audit quality was weak. (3) In the robustness test, the interpreted variable was respectively replaced by audit cost (taking the natural logarithm of audit cost) and manipulated accrual profit (taking the absolute value of manipulated accrual profit), the regression coefficients of information entropy of KAMs were 0.0852 and 0.0017 respectively, which shown a significant positive correlation and were consistent with the results of the main regression test. (4) Further research shown that whether the industry in which the audited company was located and whether the audit institution was one of the international Big Four would affect the disclosure of KAMs, and then affect the audit quality in the same direction. The implementation effect of the new audit reporting standards was supported by these test evidences.

Exploring the construction of an all-round cost management system for investment control in university engineering construction

Abstract In recent years, the investment amount of university engineering construction has been increasing significantly, and the establishment of scientific and reasonable cost management system has become particularly important in the investment control of engineering construction. This paper explores the investment control of university engineering construction and designs the basic framework based on three parts: whole process cost control, full caliber cost audit and full gradient grading management. With the help of BIM, we build a cost management system, which is divided into the planning stage, bidding stage, mid-construction, until the completion of the collation of cost data, extraction and preservation of cost indicators. After establishing a full range of cost management systems, the adjacency matrix X algorithm and functions are used to calculate. The experiment proves that: the investment estimate before the project construction affects more than 75% of the overall investment, and the all-round cost management system built based on BIM can make the investment estimate accurate and stable at 75%, and the negotiation change rule based on this is to save nearly 25% of the investment funds. The comprehensive cost management system has a comprehensive and detailed grasp of the cost process of specific construction projects and specific issues during construction, fully protecting the university’s investment interests.