Audit Profession Research Articles

Auditor Tenure and Misreporting: Evidence from a Dynamic Oligopoly Game

We estimate an infinite-horizon dynamic oligopoly model of audit firm tenure and misstatements and evaluate a policy counterfactual involving mandatory audit firm rotation. Longer tenure lowers the cost of producing audits, increasing audit quality and reducing audit fees. Thus clients are less likely to misstate and more likely to keep the incumbent audit firm as tenure increases. By reducing the value of retaining audit firms, mandatory rotation leads to large increases in auditor switches, even before the term limit, implying increases in the switching costs borne by clients. Misstatement rates increase because audit firms endogenously lower audit quality and newly hired audit firms have lower quality. Overall, the model suggests caution when evaluating the costs and benefits of government oversight over the audit profession. This paper was accepted by Suraj Srinivasan, accounting. Funding: The authors thank the financial support from the Olin Busiiness School and the Wharton School of the University of Pennsylvania. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.4944 .

Limning Auditing Indian Auditors

The boom of regulatory agencies is a common global phenomenon, and its basics are deeply rooted in national settings, leading to the setting up of specific regulators. Theoretically, auditors must demonstrate their professional prowess, skepticism, and analytical procedure, and effectively communicate audit outcomes to the stakeholders. Interestingly, the Indian audit profession is at its crossroads: constrained by scams and multiple regulators. Reform initiatives in the wake of corporate shenanigans compelled the creation of the National Financial Reporting Authority (NFRA) under Section 132 of the Companies Act, 2013. However, the accounting profession regulator, the Institute of Chartered Accountants of India (ICAI), alleges penetration of the former in its regulatory jurisdiction. Against this backdrop, adopting a descriptive approach, the current study attempts to unearth the factors leading to such face-offs for offering an amicable solution. The study concludes that the ICAI’s objections to treating the NFRA as a “super-regulator” cannot be supported. Consequently, the observation of the Committee on Experts constituted by the Supreme Court. Vesting investigating power in the NFRA could be a game changer in regulating auditors, audit firms, and audit networks. In light of the findings, the auditors could motivate to improve the audit quality substantially.

Self-regulation of audit activity: current state and development prospects

The proposed article discusses the current state and further development of the institution of audit self-regulation. The features of the system of regulation of audit activity are indicated, which, taking into account world experience, is based on a combination of regulation carried out by the Ministry of Finance of Russia, the Bank of Russia, with a self-regulation mechanism by the professional community of auditors. The features of the legal status of the self-regulatory organization of auditors are determined from the standpoint of its special functions, rights and obligations. In accordance with the legislation on audit activity, the governing bodies and specialized bodies of the self-regulatory organization of auditors, including the Committee of audit organizations in the financial market, are characterized. The provisions on the control powers of the Ministry of Finance of Russia for self-regulatory organizations are outlined. Attention is paid to assessing the real state of audit self-regulation, taking into account the negative trends that can be traced today in the field of audit self-regulation. The prospects for the development of self-regulation as “the main institution of the audit profession”, which will significantly reduce the negative trends of the current period of audit selfregulation, are determined.

Facilitating internal audit quality and improving the performance of medical clinics

IMPACT This article advances a new form of leadership—audit leadership—for cultivating internal audit quality in medical clinics. The authors document the power of audit leadership, manifested by two facets—professional and relational behaviours—for developing a work environment in which people develop interpersonal trust and psychological safety, which is conducive for internal audit quality. The authors show how managers of medical clinics can shape a work environment in which internal audit is embraced and supported in ways that can help the units to perform at higher levels. Importantly, internal audit, often viewed as an unproductive organizational function, enables learning, process improvement and is a deterrence against potential transgressions. This article will be of particular interest to financial, accounting and management scholars, as well as professional auditors, managers, accountants and financial experts.

An exploratory and analytical study of a sample of control and audit professionals' opinions on green audit techniques and methods

The purpose of the research is to identify the concepts related to green auditing because of the great importance of the environment in which we live. By producing a commodity or service and among consumers, the research has tried to answer a major question: What are the techniques and methods of green auditing? The research is based on the hypothesis that there are a number of techniques that are used to implement green auditing, and the research assumed the existence of a number of techniques and methods for green auditing, and in order to achieve the research objectives and test the hypothesis, the questionnaire was used to obtain information for the research, and the results of the research data for the adult sample were analyzed (29) individuals using the statistical program spss and relying on arithmetic averages and standard deviations. The research has concluded the great importance of green auditing because of its impact on the environment in which we live. Environmental auditing also suffers from many obstacles. In addition, green auditing is affected by economic and social factors. Likewise, the green audit process goes through three stages: the pre-audit stage, the audit stage, and the post-audit stage. All of these stages need follow-up in order to reach the desired goal. There are a number of methods and techniques to achieve green audit, including the development of regulations for work and safety requirements during the completion of tasks. Ensure that production wastes are disclosed, ensure that production wastes and others are not discharged into river water, and ensure that there are mechanisms for the purpose of treating them in appropriate ways and not discharging them randomly. The researcher recommends the need to ensure the existence of special programs for recycling. Not disposing of production waste in a random manner, as well as promoting a culture of responsibility towards society by focusing on green operations.

‘A building of shame and disgrace’ or ‘trial by media’? Media framing of KPMG Netherlands’ head office

This paper centers on the role that a material artefact—KPMG Netherlands’ head office—has played in the Dutch media’s attempt to hold the audit profession to account. It employs the literatures on news framing and the media’s social control function, to analyze how the press mobilized the building as a perceived space that epitomized extant professional conduct. Using a strategy of temporal bracketing, the paper traces how an initially weak claim against KPMG amplified and expanded after successive revelations, which ultimately triggered a criminal investigation into charges of fraud, tax evasion, and forgery. The paper shows the media’s ability to construct and enact reporting frames that suppress voices from the audit field and that set a reform agenda for both firm and profession. It also reveals the contrast between the values that audit firm offices seek to convey and those they come to embody in the eyes of the public.

Exploring the Impact of Technology Dominance on Audit Professionalism through Data Analytic-Driven Healthcare Audits

ABSTRACT Artificial intelligence (AI)-enabled tools and analytics hold the potential to radically alter audit processes by disseminating centralized audit expertise. We examine this potential in the context of data analytic-driven audits mandated to reduce fraud, waste, and abuse in a government-sponsored healthcare program. To do so, we draw on semistructured interviews with healthcare providers (i.e., auditees) subject to healthcare audits. Our work shows how use of paraprofessional auditors guided by AI-enabled tools and analytics reflects a very different audit environment. Specifically, auditees’ experiences suggest paraprofessional auditors lack specific expertise and credentials to conduct data-driven audits, apply judgment in deference to technology, and disregard the impact of AI-driven decisions on the public interest. Such experiences raise potential concerns for all audits over unbridled use of AI-enabled tools and analytics by novice-level auditors/paraprofessionals, but even more for audits conducted in contexts where adherence to professional norms is essential to minimizing public interest consequences. JEL Classifications: M42; M48.

Large Language Models: An Emerging Technology in Accounting

ABSTRACT This commentary discusses how large language models like ChatGPT hold transformative potential in accounting, including education, research, and professional auditing. In the educational sphere, the advent of ubiquitous artificial intelligence (AI) tutors could potentially solve Bloom’s Two Sigma Problem, heralding a new era of personalized learning. Accounting research stands to benefit immensely, particularly in tasks that rely heavily on natural language processing. In the professional auditing domain, the capabilities of ChatGPT to create broad outlines of risks inherent in certain accounts and assertions can enable engagement teams to create more risk-responsive audit plans. However, although the advantages are remarkable, they are accompanied by potential pitfalls that necessitate cautious navigation. Even with these challenges, AI’s impending transformation in personal and professional lives cannot be overlooked, as accounting stands on the brink of significant change. JEL Classifications: M40; M42; O33.

ANALISIS MATERIALITAS PADA PROSEDUR AUDIT VOUCHING ATAS AKUN BEBAN OPERASIONAL

In the era of society 5.0, the auditor profession will continue to exist even though the threat of AI (Artificial Intelligence) has come, bearing in mind that there are many human intelligences that cannot be replaced by any robots. An auditor needs to have an understanding of materiality, where this concept relates to how large a misstatement contained in an assertion can be accepted by the auditor so that users of financial statements are not affected by the magnitude of the misstatement. One of the applications of materiality is the vouching audit procedure. Vouching is a test carried out by the auditor to check the authenticity or correctness of the occurrence of a transaction presented in the financial statements through physical source documents. Vouching for operating expense accounts is important to do because there are many findings indicating irregularities in the presentation of operating expenses in the financial statements. The method used is a qualitative research-descriptive analysis based on the results of interviews with 4 people at Public Accounting Firms and Public ABC as samples and observations. This study aims to get answers regarding the importance of materiality in vouching audit procedures for operating expense accounts.

Examining the critical factors of internal audit effectiveness from internal auditors’ perspective: Moderating role of extrinsic rewards

An effective internal auditor can support an organization in achieving its goals and protect its assets and funds. However, to be effective, the internal auditors need to be empowered with relevant resources. This study aims at probing the influence of the empowerments (management support, external auditors' collaboration, independence, size of internal audit units, and extrinsic rewards) on the internal auditors' effectiveness, and to examin whether extrinsic rewards moderate the association between respective empowerments and the effectiveness of Jordanian public sector internal auditors'. The current work relied on 117 surveys collected from Jordan's internal audit and financial managers in the public sectors. According to the Resource-Based View (RBV), the findings show that management support, external auditors cooperation, independence, and extrinsic rewards all have a significant influence on the effectiveness of internal auditor. The of the Internal Audit Department (IAD) size was discovered to be insignificant. Also, the results have revealed partial support for the influence of the extrinsic reward as a moderator. Because of the prominence of the public sector in the Jordanian market, this current research expands on the idea of enabling internal auditor (IA) to accomplish their assigned objectives. The findings might help authorities develop new norms and legislation for the internal audit profession. These empowering characteristics may also improve internal auditors' capacity to execute their duty in saving public monies and limiting corrupt practices inside public sector organizations.

CONCEPTUAL APPROACHES TO THE IMPACT OF ARTIFICIAL INTELLIGENCE ON THE AUDIT OF STATE ASSETS

In order to understand the impact of digital and artificial intelligence on auditing, it is important for professionals to understand the forces driving the Fourth Industrial Revolution. One of these forces is the explosive growth of data that fuels digital technology. Another force is the acceleration of the pace of change, which brings additional complexity in managing trust in an environment that is becoming increasingly insecure. For example, cyberattacks are becoming more complex and large-scale. Social media also creates new risks.
 In the field of auditing, first of all we need to understand the ongoing transformations, the types of risks and controls that need to be audited. On the other hand, these trends also open up new opportunities for accounting and auditing professionals.
 There is an active platform for audit professionals to understand these changes. For example, two years ago, an Ernst & Young survey showed that 74% of executives said they had no strategic plans for artificial intelligence. A year later, exactly the same survey results showed that 73% of managers are already ready to implement artificial intelligence (AI) or plan to implement it in the next 2 years. The second statistic provided by the World Economic Forum shows that 30% of every corporate audit will be performed by artificial intelligence by 2025. Finally, the OECD has counted more than 200 ongoing public sector audit blockchain initiatives in 46 countries.
 They show the importance of being prepared for this changing environment. To deal with these challenges, audit and finance professionals need to understand (i) how “what” they have to analyse is changing, (ii) the new risks that are emerging, (iii) the new opportunities offered by these disruptive technologies.

The Effect of Auditor Ethics and Auditor Professional Skepticism on Audit Quality with Remote Audit as a Moderation Variable

The increasing demand for professional public accounting services requires the public accounting profession to improve its performance to produce audits that are reliable, used, and trusted by interested parties. This study aims to identify and analyze the effect of auditor ethics and professional skepticism on audit quality with remote audit as a moderating variable. This study uses primary data obtained from questionnaire data distributed to external auditor respondents who work at a Public Accounting Firm in the South Jakarta Region. The sampling technique used purposive sampling. Multiple linear regression analysis techniques using SmartPLS 3.2.9 with a significance level of 5%. The results of this study indicate that partially, auditor ethics and auditor professional skepticism have a positive and significant effect on audit quality, while remote audit variables cannot moderate the influence between auditor ethics and auditor professional skepticism on audit quality.

The Effect Of Accountability, Integrity, Auditor Expertise, Auditor Professional Skepticism, Due Professional Care, Time Budget Pressure And Audit Fees On Audit Quality

Research Purposes Aims to determine how much influence accountability, integrity, auditor expertise, auditor professional skepticism, due professional care, time budget pressure, and audit fees have on audit quality. Research Methods All auditors who work at the Public Accounting Firm (KAP) Semarang Central Java are the population of this study. A total of 13 public accounting firms with 64 auditors became the research sample. With the help of SPSS version 26, multiple linear regression analysis was performed on the data. Research Results and Findings, The results of hypothesis testing show that integrity, auditor professional skepticism, due professional care, and time budget pressure do not affect audit quality. Meanwhile, accountability, auditor expertise, and audit fees have a positive effect on audit quality.

Effective methods for detecting fraudulent financial reporting: practical insights from Big 4 auditors

PurposeUsing a qualitative grounded theory approach, this study explores the methods experienced external auditors use to detect fraudulent financial reporting (FFR) during standard audits.Design/methodology/approachSemi-structured interviews were conducted with 24 experienced external auditors to explore the methods they used to detect FFR successfully during standard external audits.FindingsThe authors find 58 methods used for FFR detection, out of which the following methods are frequently used and help in detecting more than one type of FFR: (1) specific analytical procedures, (2) positive confirmation, (3) understanding of the client's business and industry, (4) the inspection of specific documents, (5) a detailed analysis of the audit client's anti-fraud controls and (6) investigating tip-offs from suppliers, employees and customers.Research limitations/implicationsBased on the grounded theory approach, the authors theorise that auditors must return to the basics and focus on specific audit procedures highlighted in this study for effective fraud detection.Practical implicationsThe study provides practical guidance, including 58 methods used in audit practice to detect FFR. This knowledge can improve auditors' skills in detecting material misstatements due to fraud. Besides, analytical procedures and positive confirmation helped external auditors in this study detect all forms of FFR, yet they are overlooked in the external audit practice. Therefore, audit firms should emphasise the significance of these audit procedures in their professional audit training programmes. Audit regulators should advise auditors to consider positive confirmation instead of negative confirmation in financial audits to increase the likelihood of FFR detection. Moreover, audit standards (ISA 240 and SAS 99) should explicitly require auditors to conduct a detailed analysis of the client's anti-fraud controls.Originality/valueThis is the first study to identify actual, effective methods used by external auditors in detecting FFR during the ordinary course of an audit.

Preconditions for the development of organizational knowledge ecosystem inside an audit firm

The paper aims to present key preconditions for the development of organizational knowledge ecosystem inside an audit firm. The audit activities represent a specific context for knowledge management, especially what concerns knowledge sharing and generation of new knowledge in organizational environment of formal rules and standards. We present the survey of audit firm employees (68) and their management by discussing the key challenges related to the dynamic knowledge sharing and new knowledge creation inside an audit firm. The paper investigates the nature of knowledge within an audit firm and analyses the cultural and structural aspects of KM practices that may lead to the emergence of ecosystem for sharing the existing and generating new knowledge. The paper adopts the intra-organizational perspective to knowledge ecosystem. The audit firm operates as knowledge organization that, despite its strong formal side, is a complex dynamic system of knowledge professionals, who form the different communities of practice inside the firm. Research presented in this paper helped identify the key challenges and opportunities for the emergent knowledge partnerships inside the professional audit firm. The key cultural preconditions behind the effective knowledge ecosystem - trust-based relations, organizational culture, positive horizontal and vertical relations, and strong intrinsic motivation to share knowledge - are in place. Research findings also reveal a good fit between the employee expectations and organizational practices. However, certain challenges need to be addressed, such as bringing out and embodying the tacit knowledge of employees, and the need for continuous upgrading of the processes of knowledge creation and integration. To establish an effective and sustainable knowledge ecosystem inside the professional services firm, the paper argues for striking a delicate balance between the formal and informal parts of organization, as well as its KM system.

RETHINKING INTERNAL AUDIT: GOVERNANCE NEEDS GARDENING

It is a fact that the world is not on track to meet the Sustainable Development Goals by 2030. The alarm bell is ringing. And yet, we do not seem to be hearing it loud and clear. Governance is more than the third letter of ESG, it is the overarching concept. The acronym ESG is misleading. New and Sustainable Corporate Governance, say Governance 2.0, is a promising path. Governance needs strengthening (gardening) to help prevent failure. Internal audit can do more. Internal audit can do better. The purpose of this article is to help promote the idea that internal audit needs to think and behave differently to play a fuller, rounder and more effective role in improved governance, supporting sustainability, and the vital drivers for enhanced ESG practices, whether we like that term or not. Some of our old mantras may be less applicable in the volatile and demanding world we are increasingly moving in to. Effective future internal auditors must break free from some of our traditional constraints and limitations. Thinking, behaving, and working differently, as well as rethinking internal audit, are needed to fully exploit the value proposition of the internal auditing profession. The positioning of internal auditors as Gardeners of Governance can help the profession to become more impactful as enablers of learning and change, and help prevent governance failures. Like a garden, governance is never “done”.

Pengaruh Independensi, Kompetensi, dan Profesionalisme Auditor terhadap Kualitas Audit:

In order to determine the effects of auditor independence, auditor competence, and auditor professionalism on the audit quality conducted by individuals working for Public Accounting Firms (KAP) that are officially listed in the Indonesian Institute of Public Accountants (IAPI) in Surabaya, this study will examine these factors. This study used a quantitative technique and a sample of 63 people that was selected using the Slovin formula and the fundamental random sampling methodology. The distribution of questionnaires was the main way that data were gathered for this study. The approaches for data analysis in this study employed partial least square (PLS) data management software. The results of this study show how professionalism, independence, and competency affect audit quality. As independence, skill, and professionalism rise, the audit quality rises.
 Keywords: Audit Quality, Independence, Competence, Professionalism

The effect of auditor's competence, experience, professional ethics, and auditor's professional skepticism on the auditor's ability in detecting fraud

The Internal Auditor in Higher Education is the Internal Supervision Unit which is a Lecturer with Additional Tasks appointed by the Higher Education Leader whose task is to assist the leader in supervising, evaluating, and reviewing non-academic activities. This study analyzes the influence of competence, experience of auditors, professional ethics, and professional skepticism of auditors on the ability of auditors to detect fraud (Survey of SPI Members of State Universities in Indonesia). This study used a questionnaire survey method with the number of respondents 47 people. The data is processed using smart PLS 3.0. The results of the study indicate that in the SPI PTN members, only Competence affects the Auditor's Ability to Detect Fraud, while the other variables are Auditor Experience, Professional Ethics, and Auditor Professional Skepticism have no effect.

Influence of Auditor Professionalism and Competence on the Quality of Internal Audit

This thesis entitled "The Effect of Professionalism and Auditor Competence on the Quality of Internal Audit Study at the Bandung Regency Housing, Settlement and Land Office" this research is a quantitative research, which aims to find out: 1) The magnitude of the influence of auditor professionalism on the quality of internal audit, 2) The magnitude of the influence of auditor competence on the quality of internal audit, and 3) The magnitude of the influence of audit quality on the quality of internal audit. The sampling technique used was the distribution of questionnaires with a total of 30 respondents.Tests conducted in this study include validity tests, reliability tests, classical assumption tests (normality tests, heteroscedasticity tests and, multicolonicity tests), simple linear regression, determination coefficient tests and t tests processed using the help of SPSS (Statistical Product and Service Solutions) software for Windows version The results of this study show that 1) There is an influence of auditor professionalism on the quality of internal audit. 2) There is an influence of auditor competence on the quality of internal audit. 3) There is an effect of audit quality on the quality of internal audit.

Quo Vadis Internal Audit Professional Standard In The Public Service Agency

Abstract—Auditor is a profession that is highly regulated. One of the regulations that guides the internal auditor profession is the internal audit professional standard. In the public domain, the Association of Indonesian Government Internal Auditors has compiled the preparation of Government Internal Audit Professional Practices and Indonesian Government Internal Audit Standards. The Public Service Agency places itself in a unique position as a state-owned institution that manages the nation's indivisible assets. BLU manages APBN funds as well as recruits professionals who have specific expertise in their fields. The purpose of writing this paper is [1] to obtain information on what the actual position of the SPI profession is at BLU in terms of changing the framework and standards used as work guidelines in the implementation of internal audits; [2] To obtain information on the implementation of audit standard applications in Public Service Agencies and what are the obstacles in terms of its implementation, and [3] To obtain information on how best to apply standard audits in Public Service Agencies. The results of the study show that in the personal aspect, a standard is able to provide guidance on how to act or behave in everyday life, while in the professional aspect, a standard is a mandatory component that must be used by professionals in carrying out their practice. In the private sphere, internal auditing standards have been formulated by the IIA. One part of the IPPF is the Internal Auditor Professional Standards. This standard is an important and essential part in realizing the role and performance of internal auditors both individually as professionals and by the internal audit unit as an organ within the company. In the public domain, the Association of Indonesian Government Internal Auditors has compiled the preparation of Government Internal Audit Professional Practices (KP3IP) and Indonesian Government Internal Audit Standards. SAIPI must be applied by APIP leaders and Auditors in all internal control activities, including audit activities as referred to in article 53 of Government Regulation number 60 of 2008. BLU is an institution engaged in the public sector (APBN funding and state financial accountability) but also engaged in private sector (business process). The 'hybrid' mechanism places the internal oversight unit in a unique position. On the one hand, BLU auditors must function as a guarantee to examine aspects of internal control over the use of state finance, but on the other hand, many BLU auditors are not civil servants (Non PNS). Currently there is no confirmation or standard setting that must be adhered to by institutions such as public service agencies. Another aspect that becomes capital in the status of BLU auditors is confirmation whether they are APIP or outside the division as APIP. Auditing standards will protect the auditor as well as the institution (client) being audited. The presumption that the internal auditor is not optimal with the many conditions or findings of the external auditor can actually be overcome by having audit standards. Auditing standards will protect internal auditors if cases occur in internal institutions, both irregularities and fraud. Internal audit standards comprehensively guide internal auditors in carrying out their functions for both the insurance function and the consulting function.