Audit Judgment Research Articles

The Effect of Nature of Critical Audit Matters and Outcome Indication on Investors’ Decisions

ABSTRACT Two aspects of critical audit matter (CAM) disclosure are (1) whether it relates to complexity in audit judgments (complex CAM) or uncertainty in underlying management estimates (uncertain CAM) and (2) whether an indication of the outcome of audit procedures performed to address the CAM is included in the disclosure. We use two controlled experiments to examine the joint effects of CAM nature and the presence of a CAM outcome indication on investors’ judgments of investment attractiveness. In the first (second) experiment, we used a stronger (weaker) outcome indication, which provides stronger (weaker) conclusions about the audit procedures performed to address the CAM. We find that the provision of a stronger (weaker) outcome indication increases investment attractiveness judgments to a greater (an equal) extent for an uncertain CAM than for a complex CAM. Data Availability: Please contact the authors.

Summary of Audit Judgment from Auditor Experience, Task Complexity, Professional Skepticism, and Goal Orientation

The goal of this study was to gather empirical evidence about the effects of auditor experience, task complexity, professional scepticism, and goal orientation on audit judgement. This study's population and sample included 35 respondents, all of whom worked as auditors for the South Sumatra Inspectorate. Questionnaires on a Likert scale of 1 to 5 were distributed directly to auditors to collect data. The data is analysed using Structural Equation Modelling using Partial Least Squares (PLS) and SmartPLS 4.0. The findings of this study revealed that auditor experience and professional scepticism have a favourable and significant effect on audit judgement. Meanwhile, task complexity and goal orientation have a positive but not statistically significant effect on audit judgement. Additionally, auditor experience, task complexity, professional scepticism and goal orientation influence audit judgement at the Inspectorate of South Sumatra Province by 50.6%.

Ambiguity in international financial reporting standards (IFRS) and its impact on judgments of auditors

PurposeThis paper aims to conduct an experiment that investigates the effect of the ambiguity present in international financial reporting standards (IFRS) on the judgments of auditors. This paper also examine the effects of the personality trait of ambiguity tolerance on judgments of auditors.Design/methodology/approachThis paper conduct an experiment in which experienced Australian-based auditors are placed in hypothetical revenue recognition and lease classification decision contexts. The participants are members of the Australian accounting profession who are familiar with applying IFRS.FindingsThis paper find support for the perception that when the relevant IFRS are more ambiguous, auditors make less aggressive reporting judgments compared to when the IFRS are less ambiguous. The results also unveil a novel finding that auditors who are more tolerant of ambiguity are likely to choose the accounting treatment that best reflects the economic substance of a transaction when interpreting IFRS compared to those who are less tolerant of ambiguity.Practical implicationsThese results would be of interest to policymakers and accounting researchers as they continue to contemplate a shift to more principles-based IFRS.Originality/valueTo the best of the authors’ knowledge, this study is the first to examine the influence of an individual’s ambiguity tolerance on financial reporting quality in jurisdictions that have adopted IFRS.

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

Does Distrust Matter More than Trust? How Audit Judgment Is Influenced by Inconsistent Evidence

Does Distrust Matter More than Trust? How Audit Judgment Is Influenced by Inconsistent Evidence

PENGARUH AUDIT KNOWLEDGE, AUDIT EXPERIENCE, SELF-EFFICACY TERHADAP AUDIT JUDGEMENT: PERAN KOMPLEKSITAS TUGAS SEBAGAI VARIABEL MODERATING

This study aims to examine the effect of Audit Knowledge, Audit Experience, Self-Efficacy on Audit Judgement with Job Complexity as an Moderating Variable. This type of research is quantitative research. The data used in this study is primary data. The population in this study are all auditors at Public Accounting Firms in the City of Jakarta and the sample of this study are auditors who had worked for more than one year and had carried out audit tasks. Data was obtained from 155 respondents. The analysis used is a multiple linear regression analysis method. The results of the analysis show that Audit Knowledge, Audit Experience, Self-efficacy have a positive effect on Audit Judgement. Job complexity weakens the influence between Audit Knowledge and Self-efficacy on Audit Judgement. However, Job Complexity strengthens the influence of Audit Experience on Audit Judgement.

Examining the Locus of Control, Auditor Experience, Self-Efficacy and Task Complexity for Audit Judgment

This research goals to specify The Influence of Locus of Control, Auditor Experience, Self-efficacy and Task Complexity on Audit judgment (Empirical study at KAP in Pekanbaru and Padang). This research method use quantitative research method. The occupant in this research are auditors in the Pekanbaru and Padang areas. The sample in this study was 39. Data analysis was brought out use classic contention tests and hypothesis examine using the lots of regression method. The difference between this study and the reference journal (Yowanda et al. 2019) is the location of the study, the variables used and the year of the study. Based on the research yields, it shows that The Auditor's Experience, Self-efficacy and Task Complexity have an influence on Audit judgment in the Pekanbaru and Padang areas, while the Locus of Control variable hasn’t clout on Audit judgment in the Pekanbaru and Padang areas.

The effects of a client's social media disclosure and audience engagement on auditor judgment

The rapid rise of social media enables companies to disclose information to the public instantly. Thus, auditors may initially receive client information via a client's social media account instead of through private, client-to-auditor communication. Drawing on Social Penetration Theory, we conduct an experiment to investigate how a client's initial disclosure via social media (versus private disclosure) and audience engagement of the client's posts (e.g., number of “likes,” “replies,” and “reposts”) affects auditors' perception of the auditor-client relationship and their evaluation of the client-provided information. We find that when auditors initially receive client information via social media with high audience engagement, they are less willing to accept the client's preference than when the same information is disclosed privately or publicly with minimal audience engagement. Our findings are consistent with auditors perceiving client disclosure via social media with high audience engagement as a significant violation of their communication expectations such that their relational closeness with the client weakens and causes them to respond critically. We contribute to the literature on the use of social media for corporate disclosure, which has implications for the auditor-client relationship and audit quality.

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.

Behavioral aspects of auditor's professional judgment and professional skepticism

The paper examines the behavioral aspects of auditing in the context of auditor’s independence, auditor’s professional judgment, and professional skepticism. Over the past 50 years, in the researches of foreign scientists, the issues of accounting and auditing have been considered through the theory of behavioral accounting. On the other hand, in the studies of Ukrainian scientists, behavioral accounting in accounting and auditing was almost not considered. The main meaning of the theory of behavioral accounting is not to consider accounting and auditing exclusively in numbers, but to consider that accountants and auditors are people with a specific profession who behave according to their feelings and thoughts. It is customary to consider the concept of behavioral accounting according to the following topics: the influence of accounting information on behavior, management control, audit, ethics. Behavioral aspects of the auditor's independence, which are influenced by an auditor's personal prejudices and the auditor-client relationship, are studied. Auditor’s independence is considered in two dimensions - organizational independence and operational independence. E.g., independent auditors may face the problem of conflicting interests of the public and clients. Behavioral aspects of negotiations between the auditor and the client are also considered. The negotiation tactics used by the participants matter. It can be a yielding tactic, or a tactic of disputes. In particular, in the study of accommodating tactics, it was found that both auditors and clients reciprocated the accommodating negotiation tactics. There are many models of professional skepticism that have been summarized. Nelson and Hurtt's models are considered, the two fundamental components of which are professional skeptical judgment and professional skeptical action. Auditors should exercise professional skepticism, making judgments based on audit evidence without being influenced by clients.

Auditor's professional judgment and opinion

The paper is devoted to such an actual problem in the field of audit activity as professional judgment and an auditor's opinion. A proper clarification of the logical content of these concepts significantly affects the effectiveness of the audit according to requirements of International Standards on Auditing (ISA). To date, in scientific publications the various approaches to the interpretation of the given concepts are expressed. A significant part of the authors is limited to general definitions and only some of them make attempts to substantiate their research with the laws and categories of logic. At the same time, native authors in every possible way avoid a full-fledged logical definition of content of the concept "auditor's opinion". The main reason is that there is an unsuccessful translation from English terminology into Ukrainian. In some cases, the term "opinion" has been translated as "opinion", and in others it has been called "conclusion". Therefore, if the term "opinion" is preferred, it turns out that the audit begins with an auditor's opinion and ends with it. An auditor's opinion fully encompasses such forms of logical thinking as concepts, judgments and inferences. The paper not only shows the misinterpretation of the concepts of "professional judgment" and "auditor's opinion" in a number of scientific studies. Also it is proposed the own vision of the cognition process in the auditing field based on the laws of general and dialectical logic. A related scheme of an auditor's professional judgment is given. From this scheme it can be seen that the opinion of a professionally competent auditor from the very beginning of the audit is being transformed through rationale into the concepts and requirements of the ISA. Further, an auditor's rationale is being transformed into judgments and conclusions. Based on them, as a result of proving or proving and planning, the specific conclusions of an auditor are formed as a report. The paper states that an auditor's professional judgment, like the professional judgment of other specialists, is subordinated to the general laws of logic. Its specificity lies in the fact that it is carried out with professional skepticism in conditions of uncertainty and risk and is subject to the requirements of legislation and ISA.

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

A Tale of Two Intermediaries: Investment Banker-Auditor Social Ties and IPO Quality

SUMMARY Firms undertaking an initial public offering (IPO) appoint investment bankers and auditors to certify information disclosed to investors. We find that social connections significantly increase the likelihood that the bankers and auditors become involved in the same IPO deal. Although some theory and evidence suggests that information transferred via social networks may enhance economic agents’ performance, other research implies that such links may admit bias into auditor judgment or impair their independence. Empirically, we find that IPO firms report higher discretionary accruals when bankers and auditors are socially connected. We also document that banker-auditor social ties are associated with lower earnings credibility and worse post-IPO performance. However, auditors benefit from social connections with bankers by attracting higher fee premiums and securing more future IPO audit businesses.

Are Auditors Biased? The Effect of Anchoring and Adjustment Heuristics on Auditors’ Judgment

Objective –The objective of this paper is to illustrate one of the crucial factors that affect auditors in making their judgment which can lead to systematic error. This paper provides background on how heuristics and biases can affect the judgment of auditors to increase the awareness of the anchoring and adjustment heuristic on audit judgment.Methodology –This research is a 2 x 2 experimental study which analyzes the employment of anchoring and adjusting bias of auditor in the process of making their audit judgment. This research employed three (3) experimental questions on 100 auditors in Surabaya, Indonesia, with experiences ranging from 0-8 years.Results –The result indicates that is evident that anchoring and adjustment heuristic exist and affect auditors’ judgment. The findings also indicates that experience influence auditors’ judgment whereas gender does not have such effect on auditors’ judgment. However, experience and gender can moderate the effect of anchoring and adjustment heuristic on auditors’ judgment.Research limitations/implications –The experimental questions used were simplified abstractions compared to the complex analytical reviews auditors typically encounter. Additionally, the sample size, consisting of 100 auditors, may limit the generalizability of the findings. The study exclusively focused on differences in auditor judgment influenced by anchoring and adjusting, without exploring potential contributions from other heuristic factors. Lastly, gender was categorized broadly as male and female, without further differentiation based on specific gender characteristics.Novelty/Originality –Its originality lies in adding moderation variable of gender and experience. While prior research has explored the impact of behavior on audit judgment to enhance decision-making in auditing, none have investigated anchoring and adjustment heuristics while considering the moderating factors of gender and experience.

Digital transformation in Vietnam: the impacts on external auditors and their practices

Purpose This study aims to explore some perceptions related to the suggestion that external auditors will be replaced by audit technologies that use artificial intelligence (AI) tools to make audit judgements when performing the financial statement audits. Digital transformation is revitalising the technologies used by external auditors and their firms; thus, the authors seek to understand what challenges this creates for the auditing profession in Vietnam. Design/methodology/approach Through the theoretical lens of new institutionalism theory, this study uses a qualitative approach involving 20 semi-structured interviews conducted with external auditors in Vietnam during 2022. This sample includes the global Big Four, global mid-tier and smaller local Vietnamese audit firms. Findings The findings indicate that there is resistance or disagreement with the suggestion that in the future audit technologies using AI tools can replace humans (external auditors). The role of external auditors in the professional services sector will gradually be changed by audit technologies; however, external auditors are unlikely to be replaced by audit technologies that use AI tools based on the responses of the participants. Strict institutional rules that exist in Vietnam would prevent the replacement of (human) external auditors. In the future, external auditors may take on new roles as consultants, with unique skills in classifying and processing data for decision-making processes; however, they will not be completely replaced by technology in the audit space. Research limitations/implications This study has limitations that it is based on the data collection from a single developing country, Vietnam; therefore, the generalisability of the findings is limited to Vietnam. Also, the authors sought insights into the future of external audits in Vietnam. Practical implications This study highlights the changing role of auditors and institutions. Thus, policymakers, external auditors and auditees in other developing countries would find the findings helpful. Originality/value This study provides new perspectives, particularly from local Vietnamese firms, about audit practices that emerge due to high-level technological advancements and then embed themselves into existing audit practices in an emerging economy. Prior studies tended to focus on the global Big Four firms, thus this study contributes by sharing the perceptions of the smaller practitioners also.

PENGARUH PREFERENSI KLIEN, PENGALAMAN AUDITOR, DAN INDEPENDENSI AUDITOR TERHADAP AUDIT JUDGEMENT PADA KANTOR AKUNTAN PUBLIK DI KOTA PEKANBARU

The purpose of this study is to analyze the effect of client preferences, auditor experience, and auditor independence on audit judgment at a public accounting firm in Pekanbaru City. The population in this study are all Public Accounting Firms located in Pekanbaru City which are registered in the Directory of the Indonesian Institute of Certified Public Accountants (IAPI). The type of research conducted is quantitative research. Data was collected by distributing questionnaires which were filled out directly by all auditors working at the Public Accounting Firm in Pekanbaru City. Then the data obtained were analyzed using multiple linear regression analysis techniques, descriptive statistical test, classical assumption test, coefficient of determination test, t test, and f test. The results showed that simultaneously client preference, auditor experience, and Auditor Independence had a significant effect on audit judgment at the Public Accounting Firm in Pekanbaru City. Partially, client preference has a significant effect on Audit Judgment, Auditor Experience has a significant effect on Audit Judgment, and Auditor Independence has a significant effect on Audit Judgment at Public Accounting Firms in Pekanbaru City.

Increasing the Credibility of Public Accountants: A Research Framework

Numerous financial scandals worldwide have tarnished the public accounting profession. Individuals involved even hailed from reputable public accounting firms. This prompts community inquiries into the performance of the profession. We formulate a research framework to enhance public trust or credibility in the public accounting profession. This article aims to conceptually explore matters that can affect the credibility of public accountants. This article leverages various existing concepts, theories, and research to construct a research framework. Based on this framework, we estimate that professional ethics, audit judgment, and locus of control can affect the credibility of public accountants. We realize the importance of public accountant in carrying out their duties to be (1) adhering to professional ethics, (2) delivering dependable audit judgments, and (3) maintaining a strong locus of control for optimal performance. Researchers can use this framework as a reference in developing studies related to the credibility of public accountants.
 Keywords: audit judgment, public trust, public accountant, financial scandal

The Influence of Audit Evidence Framing on Auditors’ Judgment

ABSTRACT Framing effects are a phenomenon where individuals respond differently to equivalent information presented in a positive or negative manner. Whether framing effects within audit evidence affect auditor judgment is unknown. We conduct a simulated client inquiry experiment to investigate whether the framing of an inquiry evidence item (positive versus negative) and the timing of the frame within the inquiry evidence series (at the beginning versus end) influences auditor judgment. More consistent with attribute framing than belief-adjustment predictions, our findings suggest a primacy effect where participants who receive a positive frame at the beginning of the inquiry are less likely to change their initial assessments of misstatement than participants who receive a “neutral” perspective (i.e., both positive and negative frames simultaneously). Our results imply that positively framed initial evidence, relative to other settings, may constrain auditors’ consideration of subsequent evidence when making judgments about the account in question. Data Availability: Data are available from the authors on request.

Audit judgment through time budget pressure, quality of sleep, and ego depletion

This study aims to investigate whether time budget pressure, sleep quality, and ego depletion affect the quality of audit judgment. A quantitative approach was used to collect data from 100 auditors working in both Big Four and Non-Big Four accounting firms. We tested the hypothesis using the Sequential Equation Model-Partial Least Squares (SEM-PLS) technique. The results of this study showed that time budget pressure and sleep quality do not have a significant impact on audit judgment. However, ego depletion has a negative impact on audit judgment. These findings can be beneficial in two ways. Firstly, the study provides an early warning to the human resources department or partner of a public accounting firm about the current phenomenon among auditors. Secondly, other researchers who are interested in exploring factors influencing audit judgment during the high season or peak season can benefit from this study.

Analyzing the Factors That Affect Auditor’s Judgment and Decision Making in Lebanese Audit Firms

The exercise of audit judgment is essential because it is impractical to perform an audit on all types of evidence. These types of evidence are considered in forming an opinion on audited financial statements, making audit judgment a determinant of the audit’s outcome. The objective of this research is to analyze the factors that affect an auditor’s judgment and decision making (JDM) during an audit. This study used an exploratory research design, with the factor analysis approach as its methodology. However, the data were collected using the questionnaire method. The questionnaire was sent to all member auditors of the Lebanese Association of Certified Public Accountants (LACPA). A total of 310 completed questionnaires were collected and analyzed. The data analysis findings indicate that the auditor’s JDM throughout the audit process is affected by three factors: personal, task, and environmental factors. The auditor’s personal factor becomes the dominant factor because it has the largest eigenvalue of 7.949. These findings demonstrate the complex and diverse nature of auditor judgment, highlighting the significance of considering audit JDM factors. Therefore, auditors may improve their abilities to make informed and effective judgments throughout the audit process by acknowledging the importance of personal, task, and environmental factors.