Corporate Audit Research Articles

Can legal construction in the securities market strengthen corporate audit quality: Evidence from the implementation of new securities act

Improving the legal structure of China's securities market depends on revising the Securities Law. Using data from A-share listed companies from 2015 to 2022, this paper uses the difference-in-differences (DID) approach to investigate the effect of implementing the New Securities Law on the audit quality of companies. The revelation shows how much the New Securities Law can improve the caliber of company audits. Furthermore, improving audit fees, risk premiums, and media concentration yields positive results. Moreover, the degree of internal control and ownership of companies has different mediation consequences. The efficiency of the recently adopted Securities Law in controlling the conduct of auditors is assessed in this paper. The study results have significant practical relevance for efficiently implementing the new Securities Law, extending the market structure for auditing services, properly preventing and regulating auditing risks, and increasing the efficiency of the capital market.

Digital transformation and corporate audit risk: Mediating effects of auditor behavior

Digital transformation has emerged as a critical factor in shaping the modern business landscape, with significant implications for corporate governance and audit risk. This study examines how digital transformation affected corporate audit risk in Chinese A-share listed companies from 2011 to 2022. Employing comprehensive empirical analyses, we discover that corporate audit risk is greatly decreased by digital transformation, with this relationship partially mediated by changes in audit fees, audit input, and audit opinions. The effects are more pronounced in state-owned firms. Our findings highlight the importance of integrating digital tools in auditing practices to mitigate risk and enhance audit quality. This study contributes to the understanding of how digital transformation influences auditor behavior and audit processes, providing valuable insights for policymakers and corporate managers in the digital era.

Analysis of the Relationship Between E-Commerce Business and Technology-Based Accounting Information Systems with Company Audit Needs

This study explores the relationship between E-commerce business operations, Technology-Based Accounting Information Systems (AIS) adoption, and corporate audit needs through a quantitative analysis approach. Drawing on data collected from 234 participants representing E-commerce firms and audit professionals, the study employs Structural Equation Modeling (SEM) with Partial Least Squares (PLS) to analyze the relationships among key variables. The findings reveal significant positive associations between E-commerce characteristics and Technology-Based AIS adoption, as well as between Technology-Based AIS adoption and corporate audit needs. Furthermore, mediation analysis demonstrates that Technology-Based AIS adoption partially mediates the relationship between E-commerce characteristics and corporate audit needs. Additionally, moderation analysis indicates that firm size and industry type moderate these relationships, with larger firms and those in technology-intensive industries exhibiting stronger associations. These findings underscore the importance of technological innovation and organizational context in shaping audit readiness and effectiveness within E-commerce environments.

Can fintech improve audit efficiency? Empirical evidence from audit fees and corporate governance

ABSTRACT Based on China’s city-level data and the panel data of A-share listed companies, this study examines the impact of fintech development on corporate audit efficiency. The empirical results indicate that fintech development accelerates enterprise digitization, thereby resulting in decreased audit fees. Additionally, this development yields positive effects on corporate governance, such as improving the quality of financial statement audits, reducing the probability of enterprise violations, and improving internal controls.

Examining belief adjusment model and framing effect on the audit materiality level decision making

The purpose of this study is to examine whether or not there is a difference in the decision-making of external auditors in determining the level of audit materiality between participants who get good news followed by bad news and those who get bad news information sequences (bad news) followed by good news (good news) with a step-by-step and end-of-sequence information presentation pattern in the positive frame or negative frame. The research method used in the research is the mixed design experiment method (between and within the subject) which manipulates the independent variables of the order of evidence (good news followed by bad news and bad news followed by good news) and framing effect (positive frame or negative frame) in the presentation pattern Step by Step and End of Sequence. Participants in this study were 150 students of the Bachelor of Accounting study program at Hayam Wuruk Perbanas Surabaya University with 300 experiment data. This study uses the normality test and the Kruskall-Wallis H test. The results of this study indicate that the Step-by-step presentation pattern can cause a recency effect when receiving information with a sequence of evidence of good news followed by bad news and bad news followed by good news both in the series, with the positive or negative frame, and the results obtained if the information is presented with an End of Sequence presentation pattern with information and a sequence of evidence of good news followed by bad news or bad news followed by good news there is no difference (no order effect) either in the framing effect (positive frame and negative frame).

Evolving trends in corporate auditing: A systematic review of practices and regulations in the United States

This systematic review delves into the dynamic landscape of corporate auditing in the United States, examining the historical underpinnings, current practices, and regulatory frameworks that shape this critical aspect of corporate governance. Corporate auditing stands as a linchpin in fostering financial transparency, ensuring accountability, and bolstering investor confidence. Over time, auditing practices have evolved in response to the intricacies of modern business, technological advancements, and the ever-changing regulatory environment. The review begins with an exploration of the importance of corporate auditing, emphasizing its crucial role in maintaining financial integrity and safeguarding the interests of stakeholders. The evolution of auditing practices unfolds as a narrative of adaptation and innovation, reflecting the need for auditors to navigate complex economic landscapes. Traditional methodologies, long considered the foundation of assurance services, are scrutinized in the context of their historical development and contemporary relevance. A significant focus is dedicated to emerging trends in corporate auditing, with a particular emphasis on technology-driven transformations. The integration of artificial intelligence, machine learning, and data analytics reshapes the audit landscape, providing auditors with powerful tools to enhance efficiency and accuracy. Additionally, the review explores the advent of remote auditing practices, examining the impact of digitalization on audit methodologies, along with the challenges and opportunities associated with this paradigm shift. Environmental, Social, and Governance (ESG) considerations emerge as a pivotal aspect of contemporary corporate audits. The review investigates the growing importance of ESG factors, the incorporation of these considerations into auditing practices, and the broader implications for corporate accountability. Regulatory responses to these evolving trends are analyzed, encompassing updates from the Securities and Exchange Commission (SEC) and international influences on U.S. auditing standards. The abstract concludes by offering a forward-looking perspective, anticipating future developments in corporate auditing and highlighting the delicate balance between tradition and innovation in this critical domain of corporate governance.

The Unintended Consequences of Audit Materiality Disclosures on Whistleblowing Intentions

SYNOPSIS Within the accounting profession, there exists disagreement about the merits of disclosing auditors’ materiality thresholds. Professional standards require materiality threshold disclosures in the United Kingdom and The Netherlands but not in the United States. Additionally, some audit firms, like PwC-Finland and PwC-Sweden, elect to disclose materiality voluntarily. Although disclosing materiality has been shown to benefit investor decision-making, prior research also suggests that client personnel may take advantage of the information to engage in earnings manipulations below the materiality threshold. We contribute to this debate by examining the influence of materiality disclosures on employee whistleblowing intentions. We conduct an experiment wherein we manipulate materiality threshold disclosure (absent or present) and earnings manipulation amount (above or below materiality). We find evidence that the disclosure of the materiality threshold significantly decreases whistleblowing intentions when earnings manipulation falls below materiality and has no effect on whistleblowing intentions for above-materiality earnings manipulation. Data Availability: The data are available from the authors.

Audit Materiality Judgments during the COVID-19 Pandemic: Evidence from the United Kingdom

Audit Materiality Judgments during the COVID-19 Pandemic: Evidence from the United Kingdom

Human Resources Perspective: Audit Fee, Internal Control, and Audit Materiality Affect Auditor Switching

Auditor switching is a topic that has garnered significant attention from researchers in the field of accounting and auditing. Auditor Switching has important implications for audit quality and auditor independence. Auditor switching is often considered a strategy or approach used by companies to promote transparency, independence, and accountability in financial reports. Hence, this study aims to analyze factors that influence auditor switching such as audit fees, internal controls, and audit materiality. 175 in-person surveys were conducted with public accounting firm auditors from Jakarta Region, Indonesia. The study revealed that auditors related to auditor switching and indicated that audit fees, internal control, and audit materiality have a significant influence on auditors switching. Auditor switching seen from the perspective of human resources has a significant impact on the human resources of public accounting firms. The ability of public accounting firms to recruit and retain talented professionals, and public accounting firms need to attract and retain skilled auditors to provide quality services to their clients. Public accounting firms invest significant resources in training and developing their auditors to ensure they possess the necessary knowledge and skills.

Auditor Materiality Disclosures and Investor Trust: How to Address Conditional Risks of Disclosure Mandates

ABSTRACT This study contributes to the literature examining the benefits and costs associated with auditor quantitative materiality disclosures. We conduct an experiment to examine a conditional risk associated with such disclosures: that investors with heightened concerns about earnings management, a qualitative concern, will anchor too strongly to the quantitative threshold and lose trust in the audit. The experiment manipulates (1) whether investor concerns about earnings management are low or high and (2) whether auditors provide a quantitative materiality disclosure. We find that quantitative materiality disclosures mislead investors when they have high concerns about earnings management. Specifically, investors lose trust in the auditor’s ability to identify errors that are quantitatively small, but important from a qualitative perspective. A second experiment further suggests that auditors’ provision of detailed, rather than nominal, qualitative materiality disclosures can mitigate this conditional risk. Our study contributes to practice and literature on financial disclosure, materiality, and investor behavior. Data Availability: Data are available from the authors upon request.

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.

Translating audit materiality in disclosure: Competing logics and different outcomes in Australia and New Zealand

Within the accounting profession, PwC has introduced innovative practices related to audit materiality disclosures, and subsequently, some other auditors have accepted and followed PwC’s voluntary disclosure policy in audit reports, whereas others have rejected it. In this study we report on why external auditors in Australia and New Zealand have developed different audit materiality disclosure practices. As such, we explore the interplay between competing institutional logics, to shed light on the ways in which audit disclosure practices differ. Our findings indicate that, in New Zealand, both Deloitte and KPMG have been influenced by stakeholders pressuring them to accept and then follow the new voluntary disclosure practice introduced by PwC. In Australia, however, there has been resistance towards voluntary audit materiality disclosures. We examine claims about the various risks surrounding these audit disclosure practices. The study conveys how the circulation of ideas in the audit domain is influenced by a quest for tangibility (of claims), as mediated by the interplay between institutional logics, which has led to differences between audit disclosure practices in Australia and New Zealand.

Auditor Materiality Threshold and Audit Quality—Evidence from the Revised ISA 700 in the United Kingdom

SYNOPSIS Using a broad sample of U.K. firms that are required to disclose auditor materiality thresholds under the International Standards on Auditing (United Kingdom and Ireland) 700, we examine whether the auditor materiality threshold is associated with audit quality. We document that a lower materiality threshold is associated with higher audit quality, as measured by lower absolute discretionary accruals, higher accruals quality, and a lower propensity to just meet or beat analysts’ earnings expectations. We also find some evidence that the negative association between the materiality threshold and audit quality is attenuated when the audit committee is more effective and when the auditor is more economically dependent on the client, and the negative association is more pronounced when management has a stronger incentive to manage earnings. Overall, our study extends the limited studies on large-sample archival evidence on the implications of audit materiality thresholds on audit outcomes. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M40; M41; M42.

CORPORATE AUDIT QUALITY POST COVID-19

Penelitian ini bertujuan untuk menganalisis kualitas audit perusahaan pasca Covid-19 dengan menggunakan studi literatur. Peneliti menggunakan pendekatan kualitatif dengan mengumpulkan data dari berbagai sumber seperti jurnal, buku, dan publikasi lainnya terkait dengan kualitas audit perusahaan pasca Covid-19. Penelitian ini fokus pada dampak pandemi Covid-19 terhadap kualitas audit perusahaan, termasuk dalam hal biaya audit, penilaian going concern, dan prosedur audit. Hasil analisis menunjukkan bahwa pandemi Covid-19 memberikan dampak yang signifikan pada kualitas audit perusahaan. Salah satu dampaknya adalah penurunan biaya audit karena adanya penyesuaian prosedur audit yang dilakukan secara daring. Selain itu, penilaian going concern juga menjadi lebih kompleks karena adanya ketidakpastian ekonomi yang disebabkan oleh pandemi Covid-19. Penelitian ini menyimpulkan bahwa pandemi Covid-19 berdampak pada kualitas audit perusahaan, dan perusahaan perlu melakukan penyesuaian dalam proses audit mereka. Oleh karena itu, auditor perlu mempertimbangkan risiko yang terkait dengan pandemi Covid-19 dalam melakukan proses audit dan menggunakan teknologi yang relevan untuk mendukung proses audit. Selain itu, perusahaan perlu mengikuti standar audit yang relevan untuk memastikan kualitas audit yang optimal.

IMPROVING CORPORATE COACHING THROUGH STRUCTURED FEEDBACK AND POSITIVE REINFORCEMENT IN A TELEMARKETING SETTING

This study investigates the effects of structured feedback and positive reinforcement on coaching quality within a telemarketing company. A corporate audit template was developed, consisting of five competency levels, allowing superior managers to provide personalized feedback to intermediate managers on the quality of their action plans for enhancing agents' performance. Additionally, five custom-designed badges, resembling the order of colors on karate belts, were implemented to publicly recognize the coaching quality of intermediate managers. These badges served as positive reinforcement for adhering to the criteria outlined in the audit template. Results revealed a significant improvement in coaching quality, as measured by the audit template, from pre-treatment to post-treatment and during a three-month follow-up period. The study also emphasizes the importance of utilizing scientific psychology to enhance performance beyond traditional methods such as in-class learning.

Research and Analysis of the Impact of Company Digitalization on Auditing

In the era of big data, digitalization has become an important requirement for companies to improve their competitiveness and promote high-quality development. Through a review of professional literature in the field of digitalization within five years, this paper analyzes the impact of digitalization of companies on corporate auditing, and finds that digitalization of companies leads to lower or higher audit fees, generally leads to lower or higher audit risks of companies, and improves corporate audit quality, while increasing the amount of audit evidence. These effects are generally more pronounced in non-state companies and non-Big 4 firms, reflecting the profound impact of digitalization on private companies. The study further explores the impact of digitalization on auditing, and explores the changes brought by digitalization to auditing from a holistic perspective, providing a further theoretical basis for digitalization and improving the auditing system of companies.

Does ESG performance reduce audit costs

This paper explores the relationship between ESG performance and corporate audit fees based on the data of A-share listed companies in Shanghai and Shenzhen in China from 2010 to 2020. The results show that firms with higher ESG levels have lower audit fees, and this relationship is more significant in non-state enterprises. The impact mechanism test confirms that ESG performance affects the level of corporate audit fees mainly through two paths: reducing business risks and enhancing corporate reputation. The heterogeneity test shows that the suppressive effect of ESG on audit fees is more significant in firms whose audit firms are the "Big Four". The findings provide a theoretical basis for the study of the economic consequences of ESG and the factors influencing audit fees.

How big data analytics is used in forensic accounting and auditing

In this study, we investigate the application of big data analytics in forensic accounting and auditing. Big data technology mediates the connection between awareness and plans to use for fraud detection. We made an effort to assess how big data might be used in forensic accounting and auditing practices. Design/methodology This research is based on systematic literature review, and it provides a thorough understanding of the existing literature on big data research in forensic accounting and auditing. The research was gathered through peer-reviewed literature using current (post-2014) articles. Results/findings The model for corporate auditing has changed. Managers at the organization are proactively identifying and resolving internal abnormalities and discrepancies prior to an external audit using conventional audit techniques. Known white-collar crimes at several publicly traded corporations have led to a high demand for forensic accountants. Big data analytics is a key tool for spotting fraud patterns. Students should be encouraged to develop skills in data generation, sharing, analytics, mining, reporting, and storage because big data analytics is essential to business education. Practical implications and conclusions The study's conclusions can be applied to the forensic accounting industry to assist in the development of Big Data fraud-fighting technology. Big data analytics and forensic accounting should be covered in accounting curricula. By offering different perspectives on big data and its practical implications in accounting practice, this research contributes to the body of published knowledge. As more companies use big data, the need to update the accounting curriculum is highlighted because success now requires a distinct set of skills. Future research should involve interviewing and surveying accountants, auditors, and other members of the financial services industry, which will be difficult but necessary.

How Do Investor and Auditor Materiality Judgments Compare?

SUMMARY Materiality remains a challenging concept for auditors to implement in practice. The challenges underlying auditor materiality assessments are compounded by the fact that materiality is typically defined from the investor’s (rather than the auditor’s) perspective. Despite this investor orientation, there is little empirical evidence about investors’ materiality judgments, specific quantitative and qualitative factors underlying their judgments, and how their judgments compare to auditors who implement materiality in practice. This article summarizes a recent study by DeZoort, Holt, and Stanley (2019) that addresses this problem by modeling sophisticated and unsophisticated investors’ materiality judgments in a policy-capturing study, using experienced auditors as a benchmark. Results indicate significant differences in materiality judgments, judgment consensus, and cue utilization among the three participant groups. Findings also reveal between-group differences in self-reported quantitative materiality thresholds, judgment self-insight, as well as judgment confidence. We conclude the article with a discussion of the practical implications surrounding these findings.

Editorial

Australian Accounting Review (AAR) enjoys a unique position as an accounting journal that is read and appreciated by practising accountants, those interested in accounting policy and practice, regulators and accounting academics. The articles published in AAR in 2022 have benefited from the goodwill of many significant participants in the world of accounting in our region and beyond. In this editorial, we reflect on our 2022 activities and provide highlights of the current issue. As co-editors-in-chief, we accepted 21 articles for publication in AAR during 2022. At the end of 2022, a further nine submissions were still under consideration by reviewers, and we were waiting for another seven articles to be returned following suggestions to the authors from reviewers. Submissions to the journal totalled 238 in 2022, including those invited to ‘revise and resubmit’. There were 189 new submissions. Of those new submissions, 143 (75%) were rejected by us as co-editors-in-chief and a further 18 (10%) submissions were rejected on the advice of expert reviewers. The timely impact of the research that AAR publishes is enhanced by articles being available on ‘early view’ as soon as they are prepared for publication, and by articles being increasingly available to the interested public as ‘Open Access’ publications. Of the 29 articles published in 2022, 12 were open access or similar. We encourage all authors who are affiliated with participating universities to make their articles available on Open Access. In 2022, as in 2021, AAR articles were downloaded over 100 000 times. We know that the increasing use of Open Access will only see this statistic increase. No one could accuse AAR research of gathering dust on a shelf! We also promote AAR research through social media posts and in emails to CPA Australia members. Those promotions focus on particular papers and take the form of individual posts on LinkedIn and CPA Australia member emails on particular topics. In 2023 AAR will continue to publish interesting and significant articles written by scholars and practitioners with strong international reputations. The current March issue leads with Penman (2023), a thought-provoking article proposing that essential differences between tangible and internally generated intangible assets imply different accounting treatments in order that financial reports are informative. Pavlatos and Kostakis (2023) show that during the pandemic, hospitals more affected by COVID-19 with better costing systems relied the most on budgets for planning, resource allocation and cost control. Under the UK FRC's expanded disclosures, Dwyer et al. (2023) find significant variations in benchmarks for audit materiality threshold disclosures, questioning whether the intended objective of increased transparency has been achieved. Identifying that charitable organisations are managed differently from profit-making organisations, Cyr et al. (2023) present a framework for understanding the motivations, limitations and objectives that guide managers’ decision making. Han et al. (2023) model and estimate how new information is incorporated into prices in an uncertain environment. Xiao and Xi (2023) find an association between the tax avoidance aggressiveness of Chinese listed firms and their institutional cross-ownership, suggesting that ownership may be a motivating factor.