Audit Implications Research Articles

PHARMACEUTICAL AUDIT PROCESS, OUTCOMES, AND IMPLICATIONS–OVERVIEW

PHARMACEUTICAL AUDIT PROCESS, OUTCOMES, AND IMPLICATIONS–OVERVIEW

Blockchain Technology and Its Implications for Internal Audits

Internal audits have traditionally been mired in a world of physical file storage and labour-intensive documentation. Yet, the advent of blockchain technology signals a seismic shift in this landscape, heralding a move from conventional, reactive methods to a dynamic, ongoing, and proactive audit process. This study explores the transformative potential of blockchain to revolutionize internal audits, offering not merely an examination of its technical aspects within internal auditing (IA) but envisioning a future where internal audits become more streamlined, efficient, and empowering—actively fortifying an organization's financial integrity. Nonetheless, adopting blockchain is not without its challenges. This paper aims to navigate through these potential obstacles, proposing strategies to embrace and surmount them. In addressing these challenges, our research meticulously reviews current practices and the array of existing literature on the subject. Through a comprehensive analysis and synthesis of these sources, we develop a unified framework that underscores our findings. This paper is not just an academic exercise; it's a clarion call to rethink the role and methodology of internal audits in light of emerging digital technologies. Prepare to embark on a journey towards dismantling outdated paper-based systems and welcoming an era marked by digital trust and transparency within the sphere of risk management

An NHS Trust comparison of reporting radiographers and consultant radiologists ability to identify cancer on chest radiographs with confirmation through a Fast track CT thorax referral system

IntroductionThe National Institute for Health and Care Excellence (NICE) recommends that GPs initially refer patients with suspected lung cancer for a chest X-ray (CXR). The Radiology department has a ‘fast track system’ to identify those patients who may have lung cancer on CXR and are referred for a CT thorax with contrast to help determine a cancer diagnosis. This fast track system was put in place to ensure the NICE guidelines and NHS England's standards on a faster cancer diagnosis are being met. This audit studied the ability of radiologists and reporting radiographers to identify lung cancer on CXRs and the accuracy of the fast-track system. Methods846 cases with lung alerts were analysed and 545 CXRs were audited. The CXRs were split into images reported by radiologists (168) and those reported by reporting radiographers (377). CT thorax results were collected through PACS and Cerner computer systems to identify if the ‘fast track’ system had yielded a “positive”, “negative”, or “other findings” result for lung cancer. Results32.8% (179) of CXRs flagged for lung cancer were positive, 40.6% (221) were negative, and 26.6% (145) had other findings. Chi square statistical test showed no significant difference (p = 0.14) between the two reporting groups in their ability to identify lung cancer on CXRs. 27% (38) of CXRs flagged by radiologists and 35% (125) by reporting radiographers were positive for lung cancer. ConclusionThis clinical audit indicates, reporting radiographers and radiologists are not statistically significantly different regarding their ability to identify lung cancer on CXRs, when supported by the fast track system. The fast-track system had a 59.4 % accuracy rate, detected by the number of imaging of reports that identified a serious pathology. This concludes that the system is performing well, yet could still be improved. Implications for practiceThis audit provides further evidence for the value of developing and deploying reporting radiographers for projection radiography reporting.

Developments in Cryptocurrency Transactions and Implications for Audit and Accounting Activities

Developments in Cryptocurrency Transactions and Implications for Audit and Accounting Activities

Earnings management in public hospitals: The case of Greek state-owned hospitals

IMPACT This article has multiple implications for state-owned hospitals. The authors show that state-owned hospitals will try to meet the financial targets required by the supervisory authorities. When the central government expects a certain financial outlook, hospitals will manage their accounts to comply with these expectations. Oversight authorities and legislators need to be aware of this tendency and its implications for audits. The article identifies the factors that affect the manipulation of earnings so that strategies can be set to predict and avoid such behaviours.

Audit Implications of Non‐GAAP Reporting

ABSTRACTWe investigate whether non‐GAAP reporting affects the audit process and thereby the quality of the related financial statements. First, we provide evidence that auditors in numerous countries, including the United States and the United Kingdom, rely to varying degrees on non‐GAAP profit before tax as a benchmark for determining quantitative materiality. Then, using Premium Listed companies on the London Stock Exchange, we document that U.K. auditor reliance on non‐GAAP materiality benchmarks often results in a higher quantitative materiality amount and can lower audit quality. Although U.K. auditors appear skeptical of managers’ more aggressive non‐GAAP adjustments, auditors adopt more of management's low‐quality adjustments when auditor independence is weaker. In sum, our results suggest that non‐GAAP reporting can indirectly affect investors by reducing the rigor of the financial statement audit.

Research Forum on COVID-19: Implications for Audits and the Audit Profession

This Forum invites authors to submit articles that can directly inform our understanding of how the pandemic might affect audits and the profession. Instead of the common practice of presenting Forum papers in one issue of a journal, we have decided—in view of the timeliness of the topic—to publish accepted articles as they become available. Such articles will be identified as belonging to the body of research relating to this call.This issue contains the first article for this forum. Interestingly, this article highlights the implications of the pandemic for future auditing research. The pandemic has wrought significant changes in audit teamwork and group processes, many of which will persist post-pandemic. Bauer, Humphreys, and Trotman (2022) posit that these changes will create new research questions for audit research and new ways to address existing research questions. The authors provide an insightful discussion of the implications these changes have for group judgment and decision making in auditing (e.g., review process, fraud brainstorming, consultations, and interactions with client management and the audit committee).We hope to publish more papers inspired by this call in forthcoming issues of AJPT.

Implications of internal audit effectiveness on corporate governance: Research agenda

This paper aims to use theoretical literature to develop propositions and suggest a research agenda on the implications of internal audit (IA) on corporate governance (CG). The paper uses institutional theory and Marx’s theory of the circuit of industrial capital to develop theoretical and justifiable propositions and highlight influential research agenda. The key variables are identified and operationalization issues are discussed. To demonstrate the relationship between CG and IA, researchers used theories such as institutional theory, agency theory, stewardship theory, and resource dependence theory (Tripathi, 2019; Činčalová & Hedija, 2020). The existing literature does not offer norms for IA effectiveness. We claim that a positive relationship between IA compliance with standards and CG could be used to assess IA performance. It is high time that the IA should be given consideration as a service to the board, and the IA should be made independent of the top management. Studies in settings where IA is well-developed and in different contexts, similar to Fiji, where IA is relatively at an early stage of development, could provide valuable insights.

A Review of Big Data Research in Accounting

SummaryThe impending fourth industrial revolution has enhanced the role of big data analytics in today’s business practice. Consequently, many now consider big data as the most strategic resource in business to the extent that organizations that fail to utilize it may become competitively disadvantaged. Following these developments, questions have been raised about the future of the accounting discipline, especially in terms of how it can continue to add value to organizations. While some scholars have attempted to address this question, it remains an abstract concept requiring further investigation. Therefore, this study conducts a systematic literature review to determine the status of accounting research on big data analytics and provides avenues for further studies. By conducting co‐occurrence network analysis on 52 peer‐reviewed articles published from 2010 to 2020, three broad themes emerged, entailing big data implications for accounting practice, education, and research design. A further examination of the themes revealed few empirical studies on the phenomenon, as conceptual research dominates the field. Although external audit implications of big data are widely discussed, other accounting domains (e.g., managerial accounting and taxation) are underexplored. Therefore, future studies may focus on the implications of big data on variables such as performance measurement, information governance, tax behavior, curriculum design, and pedagogy.

The Impact of Financial Performance Indicators and Audit Implications on Readability Financial Reports in Companies Listed in the Iranian Capital Market

The Impact of Financial Performance Indicators and Audit Implications on Readability Financial Reports in Companies Listed in the Iranian Capital Market

Do Stronger Wise‐Thinking Dispositions Facilitate Auditors' Objective Evaluation of Evidence When Assessing and Addressing Fraud Risk?*

ABSTRACTThe objective evaluation of evidence is imperative for audit effectiveness and the proper exercise of professional skepticism. However, numerous studies suggest that auditors fail to evaluate evidence objectively when assessing or addressing the risk of material misstatement due to fraud. We develop theory to predict that auditors do evaluate evidence objectively but only when they have stronger wise‐thinking dispositions (WTDs), a construct that is new to the audit literature. We define WTDs as the tendency of individuals to naturally engage in the balanced revision of beliefs and doubts about target phenomena by thinking openly and reflectively about evidence. We report prediction‐consistent results from two experiments that measure the strength of participants' WTDs and manipulate whether the underlying evidence is less or more indicative of fraud. The experimental results also document that auditors vary considerably in WTD strength and collectively demonstrate the reproducibility of audit judgment‐quality benefits of stronger WTDs. We further validate the WTD construct in auditing using confirmatory bi‐factor analyses to show that it has one higher‐order general factor along with several subfactors. Overall, our theory and results advance the literature by identifying WTDs as a determinant of auditors' ability to objectively evaluate evidence. In addition, our findings have implications for standard setters and audit firms as quality control standards and audit working paper review processes might benefit from revisions that take into account that auditors do not objectively evaluate evidence unless they have stronger WTDs.

AI-based audit of fuzzy front end innovation using ISO56002

PurposeThis paper aims to develop an artificial intelligence (AI) audit tool for auditing text-based evidence and determine its efficiency and effectiveness.Design/methodology/approachA manual audit checklist and an AI audit tool are developed with fuzzy front-end (FFE) from Innovation Management System Standard (IMSS) as the audit scope, First, a manual audit of five organisations is conducted to determine their compliance scores. The transcripts of the audit are recorded which are used by the AI audit tool to assign compliance scores for the same organisations. The effectiveness and efficiency of the AI audit tool are determined by comparing their results with the manual audit.FindingsThis paper demonstrates the development of the FFE AI audit tool which led to 92% improved efficiency while being 95% effective compared to a human auditor.Practical implicationsThe publication of new financial and non-financial standards (such as ISO56002: IMSS) have implications for internal auditing (IA). The scope of IA must expand to include new standards while remaining efficient. Emerging technologies, such as AI help achieve this. Even though the use of AI in financial auditing is widely studied, it has not received similar attention in non-financial auditing. This paper develops a non-financial AI audit tool to audit an essential component of the IMSS, the FFE of innovation and determine its efficiency and effectiveness.Originality/valueThe study develops an FFE AI audit tool for the first time. The methodology used has practical and academic implications for the use of AI in non-financial auditing.

Bitcoin and Blockchain: Audit Implications of the Killer Bs

ABSTRACTThis case examines auditing implications of Bitcoin and blockchain, and is intended for either undergraduate or graduate auditing and assurance courses. Students are asked to engage in aspects of planning and risk assessment for the audit of an online retailer. The case provides an interesting setting in which to achieve the learning objectives of: (1) identifying risks of material misstatement, (2) linking risks of material misstatement to relevant financial statement assertions, (3) explaining changes in audit procedures for responding to risks, (4) understanding a financial statement auditor's use of service auditor reports, and (5) understanding management specialists and the role they play in an audit. The modular case can be used for in-class discussion or as an out-of-class assignment and requires minimal advance preparation by the instructor. The case may be assigned in part or in its entirety. Student responses indicate the case is interesting and offers a positive learning experience.

The Audit Implications of Cloud Computing

SYNOPSIS Over the last decade, many firms have shifted from in-house managed information systems to cloud computing arrangements. Despite regulatory interest in the audit impact of new technologies, little empirical work has studied how auditors behave when clients introduce cloud platforms into their accounting information system. Ex ante, it is unclear whether cloud computing allows for increased audit efficiency through reliance on service organization control reports or introduces additional complexity and risk to the audit. Leveraging a 2015 accounting standards update from the Financial Accounting Standards Board to identify material cloud users, we find that these firms pay an audit fee premium of approximately 5 percent compared to nonusers. This premium attenuates when hiring an audit office with more cloud users in its portfolio, suggesting that cloud audit experience can reduce auditors' costs when conducting such audits. We also explore how audit lag and subsequent restatements vary cross-sectionally with cloud use. JEL Classifications: M41; M48. Data Availability: Data are available from the public sources cited in the text.

Implications of Financial Audit in Ensuring the Credibility of Greenhouse Gas Emissions Statements

Implications of Financial Audit in Ensuring the Credibility of Greenhouse Gas Emissions Statements

Implications of Financial Audit in Ensuring the Credibility of Greenhouse Gas Emissions Statements

Implications of Financial Audit in Ensuring the Credibility of Greenhouse Gas Emissions Statements

The effect of changing fiscal year-ends on audit fees and audit quality

PurposeThis study aims to extend recent research analyzing the effect of auditor busyness on audit quality. Specifically, this study explores the effect on audit quality of a change of fiscal year-end to or from an audit firm’s busy period.Design/methodology/approachEmpirical archival.FindingsWhen firms change their fiscal year-end to a period when the auditor is less busy, client firms are rewarded with lower audit fees and auditors are rewarded with a reduction in required effort. This study finds no difference in the level of audit quality after a change in fiscal year-end.Practical implicationsThere are significant implications for audit firms as they may gain cost advantages by successfully promoting off-season fiscal year-ends, and reduce the negative effect on employees associated with “busy season” stress. Similarly, client firms may find that audit costs are reduced when they adopt a less “busy” fiscal year-end.Social implicationsThese results have policy implications for regulators because regulators often dictate the fiscal year-end for certain industries or traded securities. Such dictates may thus introduce inefficiencies into the market for audit services.Originality/valueThese results should guide regulators in their decisions to dictate fiscal year-ends and firms in their choice of reporting periods.

Determinants of behavioural intentions in the audit market

PurposeThis study uses conceptualizations and models of service quality and behavioural intentions from the service marketing and audit quality literature to investigate the influence of supervisory board members’ perceptions about various dimensions of audit quality on their behavioural intentions. These dimensions pertain to auditor’s technical competence, functional (service) quality and auditor independence.Design/methodology/approachA survey of supervisory board members of large and medium companies in The Netherlands is made to identify audit quality dimensions. The multivariate analysis is used to identify the quality dimensions influencing supervisory board members’ behavioural intentions.FindingsOverall, the author’s results indicate that the quality dimensions identified in this study have significant influence mainly in the supervisory board members’ intention to refer their auditors to an acquaintance. In this regard, the salient determinants are the functional quality dimensions and auditor independence. The technical quality dimensions are not found to be crucial. In contrast, most of the quality dimensions are not significant determinants of supervisory board members’ intention to retain or recommend the purchase of non-audit services from the auditor albeit having a minor influence. The results have some implications for regulators and audit firms.Research limitations/implicationsThe author’s results are limited by the low response rate that did not allow us to conduct factor analysis on all the functional and technical variables at the same time.Originality/valueThis paper is the first to integrate service quality and behavioural intentions concepts from the marketing literature and auditing literature and apply it in a corporate governance setting.

Opportunities and challenges in the new innovation landscape: Implications for innovation auditing and innovation management

Innovation auditing is a well-established practice used by managers to identify strengths and weaknesses in innovation. Existing audit frameworks fall short, however, because they neglect three major trends that currently transform the innovation landscape. These trends are as follows: 1) a shift from closed to more open models of innovation (“openness”), 2) a shift from providing physical products to industrial product–services (“servitization”), and 3) a shift from an analog to a highly digitalized world (“digitalization”). This article identifies new innovation practices, opportunities, and challenges that arise for manufacturing firms along these trends. The article proposes a revised innovation audit framework, which acknowledges these trends and supports innovation management in increasingly dynamic and competitive environments.

Disclosure and Audit Implications of Nonfinancial Measures: A Teaching Case

SUMMARYThis case introduces students to nonfinancial measures (NFMs) and encourages thoughtful consideration and discourse surrounding their reporting and use by managers and auditors. NFMs are commonly reported by companies to provide increased transparency of operations and to more effectively describe performance. External parties such as analysts and auditors make use of NFMs in performing valuation assessments, fraud risk assessments, and substantive analytical procedures. In completing this case, students will be exposed to actual NFMs disclosed in SEC filings and employ Microsoft Excel knowledge to perform foundational analytical procedures. Students will also analyze how these NFMs link to the financial statements, as well as reflect upon the implications of NFMs for both internal and external users.