Auditing Standards Board Research Articles

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.

Audit fee determinants in small municipalities: Further evidence from Connecticut small towns

Guided by a call for research on small entities using innovative methodologies, this study is the first to analyse small municipality audit fees on a per capita basis. The research utilises a complete dataset of all 92 Connecticut municipalities that meet the study criteria and does not rely on samples or survey results. The measure of per capita was utilised to account for differences between town populations allowing for a more accurate comparison of audit fees and audit fee determinants across municipalities of differing populations. Consistent with the premise that auditee characteristics are an important consideration in audit fees, we find that when examining audit fees on a per capita basis in the subset of small municipalities: (1) smaller towns pay considerably more for audit services than larger towns, (2) towns with an ethics committee oversight function and best practices financial reporting practices have lower per capita audit fees than those that do not and (3) audit firm size, audit firm tenure and existence of audit/finance committee oversight have no significant impact on per capita audit fees. The results of this study help fill a void in the audit literature by providing insights into audit fee determinants in small municipalities by considering the added feature of a per capita analysis. The authors also sought to provide additional information for consideration in the International Auditing and Assurance Standards Board (IAASB) efforts to streamline standards for auditing of less complex entities.

Proposed international standard on auditing financial statements of less complex entities: IAASB IAAER roundtables—Breakout 2 Design, Structure, and Content

AbstractIn this commentary, we summarize stakeholder views articulated during roundtables addressing the 2021 International Auditing and Assurance Standards Board's (IAASB) Exposure Draft: Proposed International Standard on Auditing of Financial Statements of Less Complex Entities (ED LCE). In support of its mission, the International Association for Accounting Education and Research (IAAER)—together with the IAASB—organized by‐invitation roundtables bringing together audit practitioners, academics, and financial statements users. A structured agenda was followed and addressed some of the topics on which the IAASB sought views. This commentary provides a summary of views heard during the second roundtable breakout session focused on Design, Structure, and Content and provides recommendations to the IAASB regarding the way forward. A paper addressing the first breakout session on Authority and Group is available in a previous issue of the Journal of International Financial Management and Accounting.

The Importance of Clarification of Auditors' Responsibilities Under the New Audit Reporting Standards*

ABSTRACTGiven the uncertainty regarding auditors' responsibilities, standard setters considered the need for clarification of technical terms such as reasonable assurance in the new audit reporting models. The PCAOB ultimately decided to exclude clarifying language from its final standard, while the Auditing Standards Board and IAASB made such language mandatory. Given the difference in reporting models, this study investigates the role clarification of reasonable assurance plays in auditor negligence. We predict and find that, absent clarification, jurors judge auditors to be more negligent when the audit report includes a related critical audit matters disclosure than when it does not. However, consistent with our prediction, clarifying what is meant by reasonable assurance mitigates this increase in auditors' liability exposure by reducing jurors' perceptions of auditors' personal control over the misstatement at the time of the audit. Thus, our evidence suggests that the PCAOB's decision to not include such language in the new audit reporting model may have been shortsighted given the potential for clarification to mitigate a potential negative unintended consequence to auditors' litigation exposure under the new audit reporting model.

Proposed international standard on auditing financial statements of less complex entities: IAASB IAAER roundtables—Breakout 1 authority and groups

AbstractThis commentary summarizes stakeholder views voiced during roundtables on the 2021 International Auditing and Assurance Standards Board's (IAASB) Exposure Draft: Proposed International Standard on Auditing of Financial Statements of Less Complex Entities (ED LCE). For EDs, IAASB's due process includes seeking stakeholder views in a formal consultation format on a specified number of issues deemed relevant to further improve the proposed standard. Following its mission, the International Association for Accounting Education and Research—together with the IAASB—facilitated roundtables linking audit practitioners, academics, and financial statements users. The three roundtables followed a structured agenda including the same (but not all) topics on which the IAASB seeks views. In this commentary, we summarize views heard during the first roundtable breakout session focused on authority and groups and provide recommendations to the IAASB regarding the way forward.

Key audit matters and debt contracting: evidence from China

PurposeIn an effort to make audit reports more informative to users, the Public Company Accounting Oversight Board and the International Auditing and Assurance Standards Board adopted a standard that requires auditors to disclose key audit matters (KAMs). This paper aims to explore the impact of the risk information provided by KAMs on corporate debt contracting.Design/methodology/approachIn China, the KAM standard went into effect for A + H cross-listing companies in 2017 and became mandatory for all listed companies in 2018. This study takes this as an exogenous shock to examine the impact of the KAM disclosures on debt contracting. This study also designs a path analysis to open the “black box” between the risk information in KAMs and the risk perception of creditors. Moreover, This study conducts a textual analysis on the KAMs information based on samples after the release of the KAM standard.FindingsThis study conducts difference-in-difference tests and find that the KAM disclosures decrease interest rates and increase the proportion of long-term debt. Path analyses reveal that the KAM disclosures lead to more favorable debt characteristics through decreasing information asymmetry. This study also finds that the more KAMs are disclosed, the more favorable debt characteristics are and that different categories of KAMs have different effects on debt contracting.Originality/valueThis paper highlights the benefits of KAM disclosures, which are consistent with the convergence argument of risk information disclosures. Investors’ reactions to KAMs are mixed because of the differences in how professional investors and nonprofessional investors interpret information. This study provides evidence of incrementally informative nature of KAMs from the perspective of debt holders, who are professional information users.

Comments of the AFAANZ auditing and assurance standards committee on proposed international standard on auditing ISA for LCE

AbstractThe International Auditing and Assurance Standards Board (IAASB) issued for public comment Proposed International Standard on Auditing for Audits of Financial Statements of Less Complex Entities (ISA for LCE). The Australian Auditing and Assurance Standards Board (AUASB) and New Zealand Auditing and Assurance Standards Board (NZAuASB) also called for comments. The Auditing and Assurance Standards Committee of the Accounting and Finance Association of Australia and New Zealand (AFAANZ) prepared a submission, based on the findings reported in extant research, informing a number of the questions asked by the IAASB (and AUASB/NZAuASB). This commentary presents the formal submission made to the IAASB.

The emergence of audit data analytics in existing audit spaces: findings from three technologically advanced audit and assurance service markets

PurposeThe purpose of this exploratory study is to better understand the interactions between external auditors, their audit clients and audit regulators when considering the supply of and demand for high-level audit technology. The authors examine the developed markets of Australia, New Zealand and the UK to better understand: how high-level audit technology has started to become embedded into existing audit spaces and any emerging issues this technology has created for the audit profession.Design/methodology/approachThrough the theoretical lens of the socio-technical (ST) systems of innovation theory, the present study involved semi-structured interviews with 25 stakeholders in Australia and New Zealand from 2019 to 2020 and 21 stakeholders in the UK from 2016 to 2018.FindingsAdvancements are revitalizing the technologies of not only the external auditors and their firms but also of their audit clients. Although the audit model is changing, external auditors are reported to be reluctant to fully engage with new audit technologies. In this setting, the authors find audit rules are yet to become embedded in the objects or practices of ST systems and that keeping up with the pace of change for regulators and standard setters is a major challenge.Practical implicationsThe findings of this study raise call for regulators to be more up to speed with these new technological changes, as audit standards need to be amended accordingly. Although the International Auditing and Assurance Standards Board deliberates, both clients and auditors need to lobby for specific audit data analytics regulations.Originality/valueThe present study provides perspectives about new audit practices that emerge due to high-level technological advancements and then embed themselves into existing audit spaces. The authors draw on several different stakeholder groups, not just the Big Four firms. The ST systems theoretical lens we adopt better helps us understand how audit firms at the organisational level are adapting to these new technological changes in existing audit spaces.

The effects of person‐specific, task, and environmental factors on digital transformation and innovation in auditing: A review of the literature

AbstractThis study reviews literature examining digital transformation in the external audit setting. Our review will inform the standard‐setting initiatives of the International Auditing and Assurance Standards Board (IAASB) related to the use of technology in auditing. We identified 36 articles on digital transformation in the external audit published between 2000 and 2021 across 20 journals ranked A*, A, B, and C on the Australian Business Deans Council (ABDC) 2021 Journal Quality List. We also identified 18 advanced working papers. These articles cover conceptual frameworks and archival, experimental, interviews, case studies, and survey research methods. Fifty percent of the published articles appear in A* or A journals, of which nine were published in one of the premier six accounting research journals (i.e., A*) since 2020. This trend is a promising sign that there appears to be increasing interest in publishing digital transformation‐related research in these general interest journals. We use the Bonner judgment and decision‐making framework, coupled with the four primary data analytic tools, to organize and evaluate the literature. This study examines descriptive and diagnostic analytics; more complex techniques, such as predictive and prescriptive, are not as prevalent. Further, existing research insufficiently addresses how data analytic tools impact auditor judgment and decision‐making, providing multiple future inquiry lines.

The use of data analytics in external auditing: a content analysis approach

PurposeThis study examines the perceptions of interested stakeholders on the factors affecting the use of data analytics (DA) in financial statement audits. Response letters submitted by stakeholders of the auditing services to the International Auditing and Assurance Standards Board's (IAASB) Data Analytics Working Group (DAWG) served as sources for analysis.Design/methodology/approachThe modified information technology audit model was used as a framework to perform a direct content analysis of all the 50 response letters submitted to the DAWG.FindingsThe analysis showed that a range of attributes, such as the usefulness of DA in auditing, authoritative guidance (auditing standards), data reliability and quality, auditors' skills, clients' factors and costs, were the factors perceived by stakeholders to be affecting the use of DA in external auditing.Research limitations/implicationsThis study is subjected to the limitations inherent to all content analysis studies. Nonetheless, the findings offer additional insights about potential factors affecting the adoption of DA in audit practices.Originality/valueThe data noted in the published statements highlighted the perceptions of a range of stakeholders with regards to the factors affecting the use of DA in auditing.

Study of the Provisions Concerning the Audit of Less Complex Entities Financial Statements

The International Auditing and Assurance Standards Board (IAASB) has decided to issue a new International Standard on Auditing for the audit of less complex entities. It should be noted that, based on the analysis of the audit services market, examining the criteria for classification of entities in the Republic of Moldova, we can see that micro and small enterprises can be classified as less complex enterprises. This article analyses the market of audit services and the development trends of micro and small enterprises in Moldova. The author analyses the provisions of the ISA project (Information Sharing Agreements) for the audit of the financial statements of less complex entities in the projection to the realities of the Republic of Moldova. Analysing the regulatory and legislative framework of the Republic of Moldova regarding the audit, the author proposes a series of changes that would lead to its improvement.

AN ANALYSIS OF THE BORSA ISTANBUL MANUFACTURING COMPANIES ON THE KEY AUDIT MATTERS

The key audit matters (KAM) have been included in the independent audit process recently and are recognized as an application to make the independent audit process more effective. Above all, the global financial crises experienced, and the complex nature of the financial transactions have revealed new quests in the audit process. In this context, the International Auditing and Assurance Standards Board (IAASB) published the "Communicating Key Audit Matters in the Independent Auditor's Report" (ISA 701) standard to make the independent audit process more efficient and meet the expectations of the stakeholders. By this article, the Public Oversight, Accounting and Auditing Standards Authority has published the independent audit standard 701, which includes the communicating of key audit matters in the independent auditor's statement. With the publication of the standart, identifying key audit matters in the audit process and specifying them in statements has also started. In this study, the audit reports (key audit matters) prepared by independent audit firms since 2017 when the mentioned standard came into force were analyzed within a three-year process, unlike previous academic studies in the BIST Manufacturing sector. In this respect, the study has addressed the development of key audit matters over three years and comparatively analyzed the change/transformation of key audit subjects in independent audit statements over the years on a company basis.

Tacit knowledge sharing in small audit firms and audit quality inputs: the antecedent effect of auditors’ social capital

PurposeDrawing on the International Auditing and Assurance Standards Board (IAASB) audit quality framework and related knowledge management literature, this study aims to examine the influence of tacit knowledge sharing on audit quality inputs within small audit firms’ realm. It also investigated auditors’ social capital antecedent effect via tacit knowledge sharing on audit quality inputs.Design/methodology/approachAn integrated model was developed to depict the study constructs’ relationships. The model was then tested using the partial least squares structural equation modelling based on data collected from auditors belonging to small audit firms in Jordan.FindingsThe results indicate that tacit knowledge sharing influences positively the auditors’ values, ethics, attitudes, experiences, skills and knowledge (i.e. audit quality inputs). This finding implies that active tacit knowledge sharing within a small audit firm is a strong driver for audit quality through improving its inputs. The results also demonstrate that structural, relational and cognitive social capital indirectly affect audit quality inputs through tacit knowledge sharing. Accordingly, social capital can be viewed as an audit firm resource that can smooth auditors’ tacit knowledge-sharing progress.Originality/valueThe IAASB encourages audit firms to explore ways to boost audit quality. This study offers empirical evidence on the influence of tacit knowledge sharing on audit quality inputs as a way to boost audit quality. It also offers insights into the value of social capital dimensions and indicates the driving forces to make auditors willing to engage in tacit knowledge sharing and, as a result, improve audit quality inputs.

Sustainable corporate governance and new auditing issues: a preliminary empirical evidence on key audit matters

PurposeThis paper aims to investigate the relationship between the quality of internal corporate governance mechanisms and the audit issues disclosed by external auditors in their report, assuming the beneficial effect related to the adoption of a sustainable corporate governance system.Design/methodology/approachThis paper investigates the impact of the International Auditing and Assurance Standards Board’s ISA 701 in the European context as a new auditing principle supporting the key audit matters (KAMs) in reporting and disclosing auditing activities. The analysis is carried out through a quantitative methodology using a sample composed of non-financial companies listed on the Italian Stock Exchange.FindingsEmpirical findings highlight that firms having a high quality and sustainable corporate governance system tend to have fewer KAMs arising from the audit process and then disclosed in the audit report. To ensure the reliability of the empirical analysis, the authors controlled for a set of variables that could affect the audit function and for the mediating role of the overall business complexity (as proxied by the firm size).Originality/valueThis study is of interest to academics, practitioners and regulators, as it highlights the role of a higher quality internal corporate governance on the perceived corporate riskiness and complexity. It contributes to the recent debate on sustainable corporate governance, corporate sustainability and auditing streams.

Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on the Discussion Paper:Fraud and Going Concern in an Audit of Financial Statements: Exploring the Differences between Public Perceptions about the Role of the Auditor and the Auditor's Responsibilities in a Financial Statement Audit

SUMMARYWe commend the International Auditing and Assurance Standards Board (the Board) on its efforts to determine “whether the auditing standards related to fraud and going concern need to be updated to reflect the rapidly evolving external reporting landscape.” We especially commend the Board on the timeliness of the call for input into these issues in that there is sufficient time to conduct research to further inform questions raised in the Discussion Paper and the questions that will inevitably arise as deliberations continue and progress is made on the project. We note below insights from the extant research literature as they relate to the questions posed in the Discussion Paper, but there remain many unanswered questions. We believe that many members of the Auditing Section of the American Accounting Association stand ready to work with the Board and other stakeholders to inform deliberations in this area.Data Availability: Information about and access to the Discussion Paper are available at: https://www.iaasb.org/publications/fraud-and-going-concern-audit-financial-statements.

Portuguese for Audit and Accounting: Variability in the Monomial Structure

. The paper considers Portuguese for Audit and Accounting as a specific domain of knowledge and studies the terminological expressions, or terminological collocations, subject to Chernovaty’s classification of terms, or according to Chaika (2019, 2020), linguistic monomials as set term clusters in relevant terminologies, or languages for specific purposes (LSP). In order to demonstrate the application of methodology, this time it is Portuguese for Audit and Accounting, which serves to meet the objectives of the current study. The paper aims to reveal certain approaches to analyse the structure of the monomial in linguistics. Such approaches vary from the structural analysis of the set term cluster (monomial) by the number of components / elements in the structure, morphological class of the head term in the monomial structure, to their role in a sentence under a professional setting, as well as syntactic patterns as basic units of syntax, which are logically, grammatically, and semantically arranged. The result is unique inseparable conceptual (semantic) value of such monomials in Portuguese for Audit and Accounting. The list of approaches to study and analysis of the designated field and the respective material is not exhaustive. The examples of monomials in Portuguese for Audit and Accounting are selected from the Glossary of Terms, the Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements validated by the International Auditing and Assurance Standards Board (IAASB). It is revealed that distinct similarities identified in the course of work with Portuguese for Audit and Accounting may take to relevant classifications attributable with the same set of criteria for the Ukrainian, English, German, Spanish languages as representatives of the Slavic, Germanic, and Romance families. The further prospect lies in performing comparative and contrastive analyses of the mentioned language material in respective LSP corpora.

Comments of the AFAANZ Auditing and Assurance Standards Committee on Proposed International Standard on Auditing 600 (ED 600)

AbstractThe International Auditing and Assurance Standards Board (IAASB) issued for public comment Proposed International Standard on Auditing 600 (Revised) ‘Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors) (ED 600). The Australian Auditing and Assurance Standards Board (AUASB) and New Zealand Auditing and Assurance Standards Board (NZAuASB) also called for comments. The Auditing and Assurance Standards Committee of AFAANZ prepared a submission, based on the findings reported in extant research, responding to a number of the questions asked by the IAASB (and AUASB/NZAuASB). This commentary presents the formal submission made to the IAASB (and AUASB/NZAuASB).

Not all experts are equal in the eyes of the International Auditing and Assurance Standards Board: On the application of ISA510 and ISA620 by South African registered auditors

Not all experts are equal in the eyes of the International Auditing and Assurance Standards Board: On the application of ISA510 and ISA620 by South African registered auditors

NIA 701- EXPERIENCIAS EN ESPAÑA Y REINO UNIDO: DESAFÍOS PARA LOS AUDITORES INDEPENDIENTES EN CHILE

La presente investigación analiza la experiencia de divulgación de asuntos claves de auditoría (en adelante, ACA) bajo la norma internacional de auditoría NIA (701) aprobada en Europa el 1° de enero 2015 por el Consejo Internacional de Normas de Auditoría y Aseguramiento (IAASB). La metodología es descriptiva sobre el contenido de una muestra por conveniencia de 94 ACA en España y 160 ACA en Reino Unido para los períodos 2017 y 2018. El carácter exploratorio se debe a que es un fenómeno poco estudiado en Chile, y es longitudinal porqueconsidera el análisis de información de dos períodos consecutivos. El resultado de esta investigación muestra una tendencia en ambos países de mayor comunicación de ACA en la industria de manufactura. En España por ejemplo, el ACA “Deterioro de Valor” es divulgado mayoritariamente en la industria de manufactura, mientras que en Reino Unido el ACA fue “Provisiones, pasivos contingentes y otras provisiones contables”, para las industrias de Retail (primer lugar) y de Transporte (segundo lugar). Dado este estudio, es previsible quelos auditores independientes en Chile tenderán a informar los mismos conceptos de riesgos significativos ACA en estructuras de industrias similares y/o iguales, conforme ha sido la experiencia en Europa.

Risk Assessment of Safety Management Audit Based on Fuzzy TOPSIS Method

According to the International Labor Organization (2017), the lack of awareness of safety management leads to 3,000 deaths every day, two every minute, and caused economic losses of 4 percent of global GDP. Also, according to the ILO, 600,000 lives would be saved every year if the available safety management system was used. Therefore, it is necessary to strengthen the audit of safety management and evaluate the risks in the process, which will be conducive to the design of effective safety management methods and reduce the frequency of accidents. Technique for Order Preference by Similarity to an Ideal Solution (TOPSIS) is a common method for audit risk assessment, but in practice, evaluation results obtained using this method are ambiguous as the method relies on individual judgment. Thus, we used the interval-valued intuitionistic fuzzy uncertain language to improve the classical TOPSIS. In this paper, the safety management audit risk evaluation model is structured based on the modern audit risk model from International Auditing and Assurance Standards Board (IAASB). The improved TOPSIS is applied to assess the safety management audit risk from a general perspective. A company is used as the research object to verify safety management audit risk and ranking results of this study. Our empirical results are expected to help companies build future safety management strategies, ensure the safety of the production process, and also realize the sustainable development.