Audit Decision Research Articles

Are auditors insulated to positive client news? Evidence from audit fees and going‐concern opinions

AbstractThis paper investigates if and how auditors consider positive news, related to their clients, when making audit decisions. Using a large sample of US listed companies, we find that auditors charge lower audit fees and are less likely to issue going‐concern opinions when there are a higher number of positive news items related to their clients. Additional analyses show that the influence of positive client news on audit decisions varies with news characteristics, client size, auditor tenure, and auditor size. We also find some evidence that auditors' reactions to positive client news varies with the topic of news, and positive client news has implications for financial reporting quality and accuracy of going‐concern opinions. Collectively, these findings suggest that the media affects auditors' business risk and that auditors are not insulated to positive news.

Professional skepticism and audit judgment: The moderating effect of audit experience

An entity's financial performance, position, and cash flows are structurally represented in financial statements, which also capture management's accountability for financial resources. To safeguard the credibility of financial information and bolster public trust, the public accounting profession is instrumental in rendering opinions on the reliability of these financial statements. To validate these financial statements and form views about the fairness of the financial information given, independent auditors conduct an audit procedure. The assessment of financial statements is greatly impacted by the audit judgment, which is an essential part of the auditing process. The impact of professional skepticism on audit judgment is investigated in this study. This study also investigates auditor experience's potential to function as a moderating variable. A total of 76 auditors from public accounting companies registered in Bali Province were the samples evaluated. Purposive sampling was used in this study to choose the sample, and auditors with at least a year of experience were required. Both linear regression and moderated regression analysis (MRA) are the analysis methods employed. The analysis's findings demonstrate that professional skepticism improves audit judgment. The association between audit judgment and professional skepticism cannot be mitigated by audit expertise. The results imply that the relationship between professional skepticism and the caliber of audit judgment is not always strengthened by auditor experience. It appears that both seasoned and inexperienced auditors are capable of exhibiting professional skepticism and rendering sound audit decisions.

The Influence of Financial Distress, Audit Firm Size, and Company Size on the Acceptance of Going Concern Opinions

This study investigates the factors influencing the acceptance of going concern opinions (GCOs) among real estate companies listed on the Indonesia Stock Exchange (IDX) during the period from 2018 to 2021. The primary aim is to explore the relationship between financial distress, audit firm size, and company size with the issuance of GCOs. Employing a qualitative research design, the analysis utilizes financial statement data to explore the relationships between financial distress, company size, and audit firm size on GCO issuance. The findings reveal that financial distress, as measured by the Altman Z-score, significantly increases the likelihood of receiving a GCO. Additionally, company size, represented by total assets, positively correlates with GCO acceptance, indicating that auditors are more likely to scrutinize larger firms. In contrast, the study finds no significant effect of audit firm size on GCO acceptance, suggesting that the financial conditions of the companies themselves are the primary determinants of auditor decisions regarding GCOs. These insights highlight the importance of financial health and transparency in maintaining stakeholder confidence in the real estate sector. The research contributes to the understanding of audit dynamics within Indonesia's real estate market and provides implications for corporate governance and regulatory frameworks. Future studies are encouraged to examine the qualitative aspects of the audit process and the decision-making criteria of auditors concerning GCO issuance.

Do high‐centrality CEOs influence audit outcomes?

AbstractUsing insights from the social network theory which posits that individuals with high network centrality have influence and power within their social networks, we argue that CEO network centrality increases the CEO bargaining power in audit fee negotiations. We find that audit fees are lower in firms managed by CEOs with high network centrality. We also find that high‐centrality CEOs do not negotiate audit fees at the expense of lower‐quality audit services. We further document the influence high‐centrality CEOs have on the audit decisions of their social peers within the network. For example, we show that less central (i.e., peripheral) CEOs are likely to hire auditors that do work for firms with CEOs enjoying high levels of network centrality. Together our findings suggest that high network centrality reflects a bargaining power CEOs can use to lower their audit fees.

The Influence of Skills, Experience and Gender on Audit Decisions (Empirical Study of Mr RI Representatives in Jambi)

This study aims to determine the impact of experience, expertise, and gender on audit judgment (an empirical investigation conducted at BPK RI representatives in Jambi). The study's population consisted of BPK RI Representatives from Jambi Province. The study's sample was a saturated sample, which is a sampling strategy that uses the entire population as a research sample, with 67 respondents and a questionnaire return rate of 61. This study technique makes use of quantitative methods. This study uses primary data from questionnaires given to respondents. The results of the study show that competence has a big influence on audit judgment. This indicates that an auditor's level of knowledge will improve audit judgment and that experience has a significant impact on audit judgment. This proves that the variable of gender has no appreciable effect on the audit judgment; the audit judgment increases with the auditor's experience. audit judgment

The Impact of Audit Committee Strength on the Influence of Management Team Likeability

ABSTRACT The dynamics of the auditor-client interaction can provide cues and information that may affect audit quality beyond the collection of evidence. However, more research is needed to understand how certain cues from these interactions might factor into auditor decisions. Using the Elaboration Likelihood Model as a theoretical framework, we provide insight into how auditors use client management team likeability in their audit judgments. Our results suggest that audit committee strength influences auditor elaboration, thereby shifting how auditors use likeability as an information cue. We find that, when there is a weak (strong) audit committee, auditors use less (more) elaboration, which causes their inventory write-down judgments to be more (less) influenced by unlikeable client management teams. Moderated mediation analyses support the Elaboration Likelihood Model, providing a starting point for future research to examine other auditing judgments that could be affected by this theory. Data Availability: Data are available at http://www.osf.io/ under doi number 10.17605/OSF.IO/8VZKQ.

Management changes drive auditor switching in Indonesian companies

This study investigates the influence of audit opinions, management changes, and company growth on auditor switching, with financial distress as a moderating variable, in transportation and infrastructure companies listed on the Indonesia Stock Exchange from 2018 to 2021. Using purposive sampling, 48 companies were selected, resulting in 192 data points analyzed using Partial Least Square (PLS). Results show that management changes significantly impact auditor switching, while audit opinions and company growth do not. Financial distress does not moderate these relationships. The findings underscore the importance of management changes in auditor decisions and suggest further research should explore additional factors and extend the study period for more comprehensive insights. Highlight: Management Changes: Significantly impact auditor switching. Audit Opinions and Growth: No significant effect on switching. Financial Distress: No moderating effect on studied relationships. Keyword: auditor switching, management changes, financial distress, audit opinions, company growth

Professional Scepticism, Auditor Experience, and Self-efficacy on Audit Judgement

In the performance of all audit tasks, auditors must adhere to pre-determined standards. In Indonesia, there have been cases of fraud related to auditors, including the case of fraud at SNP Finance in 2018. Such situations can arise due to incorrect audit judgment. Factors that may impact audit judgment include professional skepticism, auditor experience, and self-efficacy. A quantitative approach is used in this research. The study population consisted of auditors at public accountant firms in Bandar Lampung. During data collection, questionnaires were administered directly to external auditors. The data were analyzed using SmartPLS. The study revealed new evidence suggesting that professional skepticism only has a limited effect on aiding auditors in their audit judgments, even when combined with extensive auditor experience. This limitation can occur when the auditor has a short working period. Conversely, self-efficacy has been shown as a beneficial factor in helping auditors make well-informed audit decisions. Keywords: professional skepticism, auditor experience, self-efficacy, audit judgment

Research on Building System of Audit Evidence Integration Model Driven by Computer Big Data

The database, data warehouse, model base and knowledge base are initially conceived based on the existing audit decision support system, t. Standardize the data in the two aspects of database and data storage, transform all kinds of structured data into a general DSS supported data structure, and summarize the information required in the audit process and the circulating business data according to the four aspects of audit purpose, audit risk, audit evidence and audit importance. This provides data support for constructing pattern library and knowledge base. In the pattern library, the paper designs and stores common patterns, which breaks the situation that CPA relies on computer to make decisions in independent audit. Through the research of knowledge expression and reasoning mechanism, the existing examples and existing knowledge are converted into knowledge format that can be recognized by machines for easy use. The paper makes an empirical study on the audit decision support system of purchasing and payment.

Following the crowd? Peer influence on voluntary bank audits

AbstractWe examine whether peer audit choices influence a bank's decision to obtain an audit voluntarily. We find that the likelihood of a bank voluntarily obtaining an audit is significantly associated with the audit decisions of peers. The relation is stronger when the peers are more salient due to closer geographic proximity, similarity in loan portfolio, and similarity in size. In addition, we find that peer influence on a bank's audit decision is moderated by the bank's existing level of assurance. Specifically, banks already obtaining a lower level of assurance are less likely to begin an audit in response to peer influence. We also find no evidence that peer influence extends to banks' decisions to cease obtaining an audit. Overall, our findings are consistent with peer influence significantly influencing banks' decisions to begin obtaining an audit.

Pengaruh Gender, Locus of Control, Kompleksitas Tugas, dan Pengalaman Auditor Terhadap Audit Judgement

An auditor is a profession whose job is to reveal the truth of the information contained in a company's financial reports. Audit judgment is the auditor's decision on an idea, opinion, event, status and others that will influence the audit opinion. This research was conducted with the aim of obtaining empirical evidence regarding Gender, Locus of Control, Task Complexity, and auditor experience in the Application of Audit Judgment. This research uses primary data with a sample of internal auditors representing BPKP DKI Jakarta Province. The sampling technique in this research used convenience sampling with 70 respondents. Hypothesis testing in this research uses Structural Model Partial Least Square (SEM-PLS) using SmartPLS 3.0 software. Based on the results of the analysis in this research, it can be concluded that: (1) gender has a negative effect on audit judgment, (2) locus of control has a positive effect on audit judgment, (3) task complexity has a negative effect on audit judgment, and (4) Auditor Experience has a positive effect on audit judgment.

ANALYSIS OF FINANCIAL FACTORS AND NON-FINANCIAL FACTORS AFFECTING AUDITOR SWITCHING

This study aims to determine the effect of monetary and non-monetary components on voluntary auditor turnover. Management, board, and audit committee quality are examples of non-financial impacts. Factors such as business growth, financial problems, profitability, and liquidity are included in the assessment of financial elements. Auditors can be replaced by law or voluntarily. Quantitative methods are used in this research. Specifically, this study will investigate manufacturing companies in the food and beverage industry during the period 2018-2022. Random selection of 14 companies is used as a sample method. The data analysis method used is logistic regression analysis. The results showed that the factors of management quality, board of commissioners, and audit committee did not have a significant impact on the auditor's decision to voluntarily resign. Financial crisis, profitability, and liquidity have no positive impact on voluntary auditor turnover. However, company growth has an influence on voluntary auditor turnover.

Employee education, labor protection intensity and auditor risk perception.

Prior literature finds senior executives can influence auditor decision making. However, few studies have discussed the impact of employee's personal characteristics. Our research aims to fill the above research gaps by examining the impact of employee level education on audit costs. Taking A-share listed companies in Shanghai and Shenzhen from 2006 to 2021 as the research object, this paper examines the impact of employee education on audit fees. It is found that highly educated employees can effectively reduce the audit fees borne by the company, but the implementation of the Labor Protection Law weakens this inhibitory effect. In the case of low marketization level and weak Confucian culture intensity, employee education level has a more significant inhibitory effect on audit fees of listed companies. This study provides a basis for empirical research on the impact of employee attributes on auditor decision making, provides a new research perspective on the impact of labor protection law at the corporate micro level, and enriches the theoretical research on corporate governance rooted in traditional Chinese culture. We contribute to the practice that implications for evaluating the effectiveness of adopting labor protection.

Do Banks in Saudi Arabia Manage Earning Using Discretionary Components?

This study aimed to examine whether banks in Saudi Arabia used discretionary components for loan and investment portfolios in managing earnings as this study was conducted on all banks registered on Saudi Arabia Stock Market (TASI) for the period 2013-2022. The study also aimed to determine the impact of the discretionary component of the allocations for loan losses on both profitability metrics and market metrics. To achieve objectives of the study, two metrics were used as proxies for managing earnings. The first metric used both the discretionary components of the allocations for loan losses and the realized gains and losses of investment portfolio. The second metric used only the discretionary component of the allocations for loan losses of the credit portfolio. The study relied on the quantitative approach as the study used regression models and correlations to test the study’s hypotheses. The results of the first metric of earnings management indicated that the determinants of earnings management were financial leverage, total assets, net operating profit, GDP growth rate, while the capital adequacy ratio was not one of the determinants of earnings management. The results of the second metric of earnings management indicated that the discretionary component of the allocations for loan losses had positive impacts on return on assets, return on equity, earnings per share, share price and annual share returns. That is, investors realized that the allocations for loan losses contained a discretionary component that will be converted into future earnings and cash flows, and investors look at the discretionary component positively. According to the signal theory, Saudi banks used the allocations for loan losses to transmit positive signals about the levels of the profits in the future. The results of this study have significant implications on the decisions of investors, supervisory authorities, bank managers and external auditors.

Internal Audit Decision Making and Belief Adjustment Model

This research aims to examine the disparities in audit choices between auditors who are exposed to positive news followed by negative news and those who are exposed to negative news followed by positive news. The investigation focuses on the End of Sequence presentation pattern as well as the lengths of information series (short and long). The study employed a mixed-design experimental approach, incorporating both between-subjects and within-subjects elements. The participants in the research comprised 124 undergraduate students from Accounting Hayam Wuruk Perbanas University. The results reveal that there is no distinction in audit decisions between participants who first receive positive news followed by negative news, and those who receive negative news followed by positive news in the End of Sequence presentation pattern. It also demonstrates that the arrangement of evidence (positive news followed by negative news or vice versa) and the length of information series (short or long) do not influence the decision-making of internal auditors in relation to the End of Sequence presentation pattern. Overall, the study findings refute the hypothesis proposed by Hogarth and Einhorn (1992) regarding the belief model revision, as they fail to support the notion that the End of Sequence presentation pattern induces primacy effects.

The Influence of Professional Commitment and Rationalization-Discrediting Interventions on Unethical Audit Decisions

SUMMARY Individuals often engage in a rationalization process to self-justify questionable conduct. However, as “gatekeepers” to the market, it is vitally important for professional auditors to avoid such practices. Recognizing that some individuals may be more prone to rationalize than others, we first identify an important subset of professional auditors that we expect is more susceptible to rationalizing unethical behavior: those with low professional commitment. We then examine whether rationalization-discrediting interventions can mitigate such behavior among this auditor subset. Specifically, we developed interventions geared toward discrediting some of the most commonly-used rationalizations found in practice in order to promote a more ethical mindset and reduce unethical behavior. Using professional auditor participants, our results confirm that auditors with low (high) professional commitment are more (less) likely to accede to unethical requests from superiors. Further, among those with low professional commitment, our rationalization-discrediting interventions were effective in reducing unethical intentions.

EFFECT OF AUDIT STANDARD COMPLIANCE, DIGITAL AUDIT, TIME BUDGET PRESSURE ON RED FLAG AND AUDIT DELAY

The purpose of this study was to test the ability of red flags as mediation of audit delay. This research was conducted because it is to test that red flags are signs of fraud or indications of fraud that auditors must pay attention to avoid audit delay. A total of 40 questionnaires were distributed to auditors from junior to partner level, but only 37 questionnaires were returned and processed. Hypothesis testing in this study uses analysis with the SmartPLS application with the Outer Model and Inner Model Test. The results showed that red flag is a mediation showing that red flag has a significant effect on audit delay. This shows that in the presence of red flags, auditors must be more careful and take immediate action to prevent audit delay through the variables tested, namely, Audit Standards Compliance, Digital Audit, Time Budget Pressure. Audit delay can occur due to red flags so that the auditor's decision to make a decision to provide an opinion will take a longer time.

Dampak Penerapan Masalah Audit Utama di Indonesia

Disclosure of the value of the main audit issues or also called Key Audit Matters (KAM) is determined from the quality of audit information, this study aims to provide an understanding of the main audit issues so as to obtain communicative value. The research was carried out with the publication of the Draft Auditing Standard Exposure (SA) regarding the adoption of ISA 701 containing on Communicating Main Audit Matters in the Independent Auditor's Report. This study examines whether ISA 701 issued by the International Auditing and Assurance Standards Board is able to influence the auditor's decision. Research also provides information related to what is the cause of the decrease in the communicative value of disclosing major audit issues. The results of the study indicate that there is support for the implementation of SA 701 which is planned in Indonesia because this is related to an increase in the communicative value of the auditor's report. The research will be useful in preparing for the implementation of SA 701 for auditors and report users in interpreting disclosures from KAM which will support the implementation of SA 701 in Indonesia.

Dampak Penerapan Masalah Audit Utama di Indonesia

Disclosure of the value of the main audit issues or also called Key Audit Matters (KAM) is determined from the quality of audit information. This study aims to provide an understanding of the main audit issues so as to obtain communicative value. The research was carried out with the publication of the Draft Auditing Standard Exposure (SA) regarding the adoption of ISA 701 containing on Communicating Main Audit Matters in the Independent Auditor's Report. This study examines whether ISA 701 issued by the International Auditing and Assurance Standards Board is able to influence the auditor's decision. Research also provides information related to what is the cause of the decrease in the communicative value of disclosing major audit issues. The results of the study indicate that there is support for the implementation of SA 701 which is planned in Indonesia because this is related to an increase in the communicative value of the auditor's report. The research will be useful in preparing for the implementation of SA 701 for auditors and report users in interpreting disclosures from KAM which will support the implementation of SA 701 in Indonesia.

Developing the effectiveness of professional audit judgment based on the mindfulness of auditors

Judgment in the auditing profession as a subjective criterion in the decisions of auditors has a significant role in improving the quality of decision support for analysts, shareholders, and investors in the capital market. Therefore, recognizing the qualitative characteristics in this area can help the theoretical development of improving the quality of auditors' professional judgments. The purpose of this study is to develop the effectiveness of auditing professional judgment based on the mindset of auditors. In this study, to identify the components (auditing professional judgment) and research propositions (themes of auditors' mindfulness), meta-synthesis analysis was used with the participation of 12 experts and experts in the field of accounting and financial management at the university level. In the quantitative part, the identified components and propositions in the form of matrix questionnaires were evaluated by interpretive analysis by 18 auditors with work experience and a level of technical and specialized knowledge. The results showed that the statement of inferential mindfulness is the most influential theme of intuitive judgment in auditing, which can cause auditors to perform more effectively in professional judgment. This result suggests that inferential mindfulness is a factor in intuition in professional judgment.