Audit Implications Research Articles

The use of preventable hospitalization for monitoring the performance of local health authorities in long-term care

ObjectiveThe objective of the study was to examine whether there are differences in the performance of long-term care programs between local health authorities, using preventable hospitalization as an indicator. MethodsA retrospective cohort study compared the rate of preventable hospitalization for local health authorities in Tuscany (Italy) between January 2012 and September 2016. Several administrative datasets for the patients in long-term care programs were linked at the individual (patient) level. Elderly disabled patients 65 years of age and older in long-term care programs in Tuscany from both types of programs: nursing homes (n = 4 196) and home care (n = 15 659) were included in the study. ResultsThe rate of preventable hospitalization differed considerably between local health authorities. Three out twelve local health authorities had a significantly lower and one had a significantly higher preventable hospitalization rate than the regional average. ConclusionThere was a large variation in the rate of preventable hospitalization among the local health authorities. Applying preventable hospitalization as an indicator for quality, with implications for periodical audit can be used for monitoring the performance of a long-term care program.

Audit Pricing of Shared Leadership

ABSTRACTThis study explores audit implications of shared leadership in client firms. Analyzing data from 2002 to 2013 of Korean listed companies, we find that auditors spend fewer audit hours and charge lower audit fees for clients with multiple CEOs. Additional tests reveal that the lower audit fees for co-CEO clients are likely attributable to reduced audit effort rather than to reduced hourly rates. We also document that firms with co-CEOs exhibit better-reporting quality than do firms with a solitary CEO. In sum, this article presents evidence that mutual monitoring via co-CEO appointments assures high-quality financial reporting of audit clients, and thus leads to reduced audit fees.

How do mentoring rewards influence experienced auditors?

The benefits of mentoring are well documented, and include lower employee turnover, heightened employee success, and higher employee satisfaction. In an effort to acquire these benefits, audit firms are structuring rewards for mentoring. However, we predict that rewarding mentors can prove problematic, leaving needy young auditors without a mentor or perhaps receiving advice that might prove detrimental. We test our expectations in an experiment with 111 Big 4 auditor participants. As expected, we find that in the presence of mentoring rewards, experienced auditors are less willing to mentor the young auditors who likely would benefit the most. We also find that in the presence of mentoring rewards, experienced auditors are more likely to provide advice that might be counterproductive. Yet interestingly, in our study, when rewards are absent, experienced auditors are more willing to mentor and more likely to provide beneficial advice. Our results inform the audit mentoring literature though our focus on mentor behavior, as opposed to protégé behavior. Our results also have implications for audit firms as they consider the structure of mentoring rewards, training on mentoring advice, and the effects of this advice.

OP 31 The effect of ethnicity on the performance of protein-creatinine ratio in the prediction of significant proteinuria in pregnancies at risk of or with established hypertension – An implementation audit and cost implications

Background The replacement of 24-h urine collection by protein-creatinine ratio (PCR) as one of the diagnostic criteria for pre-eclampsia has been recently recommended. However, the literature is conflicting and there are concerns on the impact of demographic factors on the performance of PCR as a screening tool. Methods This was an implementation audit of the introduction of PCR in a London Tertiary obstetric unit. Women with suspected pre-eclampsia (N = 476) were asked to complete a 24-h urine collection and an untimed urine sample for PCR calculation. Multivariate logistic regression was used to assess the independent predictors of significant proteinuria. Results In a pregnant population ethnicity and PCR are the main predictors of 300 mg or more of proteinuria in a 24-h urine collection. With a PCR cut-off of 30 mg/mmol, 41.4% and 22.9% of black and non-black women, respectively, would have been incorrectly classified as non-proteinuric. Sensitivity of 100% is achieved at cut-offs of 8.67 and 20.56 mg/mmol for black and non-black women, respectively. Applying these levels as a primary screening tool to inform for the need to perform a 24-h urine collection in 1000 women, it would lead to a financial saving of £2587 in non-black and to a loss of £2905 black women, respectively. Conclusions PCR has 100% sensitivity and is cost efficient in non-black pregnant women, at a cut-off of 20.5 mg/mmol, in the detection of more than 300 mg in a 24-h urine collection. However, in black pregnant populations the performance of PCR is both clinically and financially suboptimal. Download : Download high-res image (77KB) Download : Download full-size image Download : Download high-res image (133KB) Download : Download full-size image

Audit Pricing of Shared Leadership

This study explores audit implications of shared leadership in client firms. Shared leadership via co-CEO appointments may lead to either suboptimal or optimal managerial decisions, depending on the conflicting or complementary dynamics between multiple CEOs. Analyzing data from 2002 to 2013 of Korean listed companies where co-CEO structure is widespread, we find that auditors spend fewer audit hours and charge lower audit fees for clients with multiple CEOs. Additional tests reveal that hourly fees are not significantly different across clients with or without co-CEOs. Collectively, our findings suggest that the lower audit fees for co-CEO clients are likely attributable to reduced audit effort rather than to a reduced hourly fee. In further searches of specific channels through which audit fees are reduced for the co-CEO clients, we present evidence that firms with co-CEOs exhibit better reporting quality than do firms with a solitary CEO. In sum, the findings of this paper suggest that mutual monitoring via co-CEO appointments assures high quality financial reporting of audit clients, and thus leads to reduced audit fees.

Risk Disclosure Preceding Negative Outcomes: The Effects of Reporting Critical Audit Matters on Judgments of Auditor Liability

SUMMARYThe PCAOB and the IAASB recently proposed several significant changes to the audit reporting model, including requiring auditors to disclose critical audit matters (CAMs) in their audit reports. While investors appear to support such additional disclosures, some audit practitioners, academics, and attorneys contend that requiring auditors to disclose CAMs will make it easier for plaintiffs' attorneys to successfully sue auditors when audits fail to detect material misstatements. A recent study, “Risk Disclosure Preceding Negative Outcomes: The Effects of Reporting Critical Audit Matters on Judgments of Auditor Liability” (Brasel, Doxey, Grenier, and Reffett 2016), reports results of an experiment that inform this issue. Contrary to the above concerns, results of the study indicate that disclosing CAMs, either related or unrelated to an undetected material misstatement, likely will not increase, and could decrease (depending on the type of misstatement), the probability of jurors holding auditors liable when audits fail to detect material misstatements. Further, results indicate that explicitly stating in the audit report that there were no CAMs, an option allowed within the PCAOB's proposal, would increase negligence verdicts against audit firms. The following article summarizes the study's motivation, method, results, and implications for both audit reporting and risk disclosure in general.

Determinants of External Auditors Choice in Nigerian Quoted Manufacturing Companies

This paper investigates the determinants factors affecting auditors choice in quoted manufacturing companies in Nigeria. This study utilized both primary data and secondary data. The primary data were collected through the administration of structured questionnaire, while the secondary data were sourced from annual accounts and reports of sampled companies. The questionnaire on the determinants of the choice of auditors used by Oxera, (2006) was adopted for the study. 500 copies of the questionnaire were administered to respondents who were purposively selected shareholders of the quoted manufacturing companies in south western part of Nigeria. 308 copies of the questionnaire were returned and analyzed. The analysis revealed that response rate was 62%. Purposive sampling technique was adopted because it enables the researchers to identify and utilize knowledgeable shareholders in the process of selecting external auditors (include: members of audit committee, Managing Director, finance director and company secretary). Data collected were analyzed using both descriptive and inferential statistics. Logistic Regression Analysis method was used to analyze the data. The results showed that the two most important factors influencing the company’s choice of auditors are international coverage and long-term relationship with current auditors. Collectively, the findings have important implications for audit markets in emerging economies in which the sustainability of manufacturing firms is crucial to overall economic development.

Late for a very important date: financial reporting and audit implications of late 10-K filings

Delays in financial reports often reflect issues related to period-end accounting and audit processes. We investigate the impact of filing delays in connection with auditor characteristics on the quality of financial statements in a sample of firms that filed Form 10-K after the statutory due date. We find that late filing firms are associated with lower financial reporting quality compared to timely filing firms matched by propensity scores, where financial reporting quality is measured by the absolute value of performance-matched discretionary accruals and the probability of a late filing being restated in subsequent periods. Furthermore, we demonstrate that the adverse consequences of late filings can be largely mitigated by having a Big 4 auditor. The differential audit quality stems primarily from Big 4 auditors in large offices and is more pronounced when an auditor may need to draw on additional resources in a limited period.

Determinants and implications of long audit reporting lags: evidence from China

Audit reporting lag is the single most important determinant influencing the timeliness of the release of financial statements. In this study, we first explore the determinants of audit reporting lags in China where the audit market for listed firms is dominated by non-Big 4 auditors. We then examine the implications of long audit reporting lags in subsequent years. We find that selected measures of audit risk and complexity, and auditor expertise are all associated with the length of audit reporting lags in China. Firms with long audit reporting lags are more likely to have the receipt of non-standard opinions in subsequent periods. There is also evidence that firms with extremely long audit reporting lags tend to have more restatements in the subsequent year. As prior research has not specifically investigated the consequences of long audit reporting lags in subsequent years, this study makes an important contribution to the literature in this area.

Audit fees, auditor choice and stakeholder influence: Evidence from a family-firm dominated economy

Despite the dominance of family-owned publicly listed companies in developing economies, prior research has paid relatively little attention to this area and the socio-economic context of these countries has been mostly ignored. This study contributes to the accounting literature by providing empirical evidence of the effects of family control and ownership on audit pricing and auditor choice in a developing economy context. Using 1058 firm-year observations of publicly listed companies in Bangladesh, where family firms are the most dominant form of public companies, we find that in comparison with non-family firms, our sample family firms pay significantly lower audit fees and choose lower quality auditors. However, for export-oriented industries, family firms seem to pay significantly higher audit fees and recruit better quality auditors compared to non-family firms. Collectively, our findings have important implications for audit markets in emerging economies in which the sustainability of family firms is crucial for overall economic development.

Accuracy of nuchal translucency measurement depends on equipment used and its calibration

To determine the effect of different ultrasound machine-probe combinations on nuchal translucency (NT) measurements and to assess how this impacts on the accuracy of the NT-derived component of first-trimester screening for trisomy 21. Sixteen different ultrasound machine-probe combinations were used for axial measurement of 2.0-, 3.0- and 4.0-mm spaced targets in an ultrasound phantom. Differences between the measured and known values were determined. The mean of the axial measurements was used to calculate adjusted risks for trisomy 21, given specific clinical scenarios. Differences observed using different machine-probe combinations for the 2.0-mm target ranged from 1.8-2.2 mm; for the 3.0-mm target, 2.7-3.2 mm; and for the 4-mm target, 3.7-4.3 mm, and exceeded those due to intraobserver variability. For a fetal crown-rump length of 50.0 mm and NT measurement of 2.0 mm, the maximum/minimum measurements in the fetus of a 40-year-old woman led to derived risks ranging from 1 in 32 (NT, 2.2 mm) to 1 in 189 (NT, 1.8 mm) and in the fetus of a 20-year-old with an NT of 3.0 mm these ranged from 1 in 102 (NT, 3.2 mm) to 1 in 160 (NT, 2.7 mm). We have described the effect of machine-probe combinations on small but very precise ultrasound measurements. Such machine-probe combinations led to greater variability than those ascribed to intraobserver differences, and significantly affected the screening risk for the same fixed measurement. This finding has implications for Down syndrome screening algorithms and audit of ultrasound operators. Furthermore, most ultrasound machines are neither calibrated nor specified for measurements of tenths of a mm.

A cross-sectional study showing differences in the clinical diagnosis of pelvic inflammatory disease according to the experience of clinicians: implications for training and audit

ObjectivesPelvic inflammatory disease (PID) generates diagnostic difficulty even for experienced doctors. Junior doctors and nurses also assess women with symptoms suggestive of PID. We aimed to determine if and how...

The Role of Organizational Scope and Governance in Strengthening Private Monitoring

Governments and other organizations often outsource activities to achieve cost savings from market competition. Yet such benefits are often accompanied by poor quality resulting from moral hazard, which can be particularly onerous when outsourcing the monitoring and enforcement of government regulation. In this paper, we argue that the considerable moral hazard associated with private regulatory monitoring can be mitigated by understanding conflicts of interest in the monitoring organizations’ product/service portfolios and by the effects of their private governance mechanisms. These organizational characteristics affect the stringency of monitoring through reputation, customer loyalty, differential impacts of government sanctions, and the standardization and internal monitoring of operations. We test our theory in the context of vehicle emissions testing in a state in which the government has outsourced these inspections to the private sector. Analyzing millions of emissions tests, we find empirical support for our hypotheses that particular product portfolios and forms of governance can mitigate moral hazard. Our results have broad implications for regulation, financial auditing, and private credit and quality rating agencies in financial markets.

The Strategic Role of Knowledge Auditing and Mapping: An Organisational Case Study

This paper presents the results of research, which aimed to evaluate the current position of the knowledge management (KM) capabilities of a multi‐national energy services company, and is based on work originally presented at IFKAD‐KCWS 2012, Matera, Italy, 13–15 June 2012. This was achieved through the development and application of three methodological ‘tools’ designed to facilitate the collation of relevant data upon which the KM strategy would be based. These were the following: a Knowledge Process Audit to develop an understanding of how employees viewed current knowledge‐based practices within the organisation, a Knowledge Inventory and Map to identify and list tacit and explicit knowledge assets within the organisation, and a Knowledge Needs Analysis to determine the types and forms of knowledge assets required or desired by members of staff to perform their roles more effectively.Although a number of strategic approaches to knowledge management have been posited, there has been a general lack of material describing the development and use of methodologies, which may be used as a basis for KM strategies. This research emphasises the need for and use of a rigorous approach to the collation and application of relevant data on which to develop a suitable strategy.Practical implications are provided in the form of key findings for the research, including the importance of internal tacit knowledge, consultation of external sources only after internal searches have failed, difficulty of new integration of employees and lack of knowledge sharing at a wider level. Methodological implications for knowledge auditing and mapping are also presented. Copyright © 2013 John Wiley & Sons, Ltd.

Obtaining Assurance for Financial Statement Audits and Control Audits when Aspects of the Financial Reporting Process are Outsourced

Businesses increasingly outsource organizational functions that have financial reporting implications which requires auditors to adjust their risk assessment and audit procedures for this practice. However, PCAOB inspection reports cite deficiencies indicating that external auditors frequently do not perform proper procedures before relying on controls maintained by service organizations. In this paper, we examine the audit implications of client use of service organizations. Using the audit risk and control risk models and drawing on the extant research on using the work of others and internal audit outsourcing, we develop a framework that describes how clients’ use of service organizations affects financial statement and internal control audits. We propose that characteristics of outsourcing, the client, the service organization and the auditor of the service organization affect the inherent, control and control detection risk for clients who outsource these functions. Based on this model, we develop specific research questions to guide future auditing research. We also use this model to provide insights for future research on external auditors’ reliance on outsourced internal audit functions.

Obtaining Assurance for Financial Statement Audits and Control Audits When Aspects of the Financial Reporting Process Are Outsourced

SUMMARYBusinesses increasingly outsource organizational functions that have financial reporting implications, which requires auditors to adjust their risk assessment and audit procedures for this practice. However, PCAOB inspection reports cite deficiencies indicating that external auditors frequently do not perform proper procedures before relying on controls maintained by service organizations. In this paper, we examine the audit implications of clients' use of service organizations. Using the audit risk and control risk models and drawing on the extant research on using the work of others and internal audit outsourcing, we develop a framework that describes how clients' use of service organizations affects financial statement and internal control audits. We propose that three characteristics of outsourcing: the client, the service organization, and the auditor of the service organization affect inherent risk, control risk, and control detection risk for clients who outsource these functions. Based on this model, we develop specific research questions to guide future auditing research. We also use this model to provide insights for future research on external auditors' reliance on outsourced internal audit functions.JEL Classifications: M41; M42; L24.

An instructional note on business risk and audit implications: Seasonality at Mattel

► Seasonal sales have important implications for the audit of accounts receivable. ► Seasonality has important implications for the audit of a manufacturer’s inventory. ► Seasonality could lead to quarters with negative cash flows from operations. This instructional note provides materials that can be integrated into a current auditing course to demonstrate the use of a company’s disclosures to understand the company, assess business risks, and identify audit implications. Assessing business risks in the audit process has been a key thrust of academic and professional investigation over the last 20 years, and Auditing Standard 12 raised the profile, importance and requirements for assessing business risk. Teaching the assessment of business risk in the classroom, however, is challenging. Although auditors may get access to companies’ internal procedures of risk measurement and management, students would not. But there is a wealth of information that students do have access to in required SEC filings, as well as at public companies’ investor relations websites. This note provides a specific example of business risk and audit implications using information about seasonality at Mattel.

Corporate Governance: Exploring the Changing Governance Control Paradigm and its Implications for Internal Auditing

Agency theory underpins the concept of governance and the role of internal auditing. Recent studies question both the legitimacy and practicality of an agency oriented governance paradigm in determining an organization’s control paradigm, arguing instead for a multi-theoretical approach to governance. This study explores this multi-theoretical proposition with a number of public universities throughout the world using a multiple case study approach to illustrate the concept of the changing control paradigm and its implications for internal auditing. The findings illustrates that the governance of public universities are informed by multiple theories and suggests that the theoretical foundation of internal audit should now also be aligned with a multi-theoretical approach to governance to achieve its role of enhancing governance. The study provides opportunities for further research with other industry sectors to explore the findings that have policy implications for redefining the governance control paradigm and theoretical foundations of control monitoring functions such as internal audit.

Auditing quality in kidney disease and diabetes: is the precise the enemy of the good? A commentary on difficulties auditing pathology results containing 'greater than' or 'less than' signs

Primary care informatics is the scientific discipline which seeks to improve health andmedical care through the better use of data, information and knowledge. However, for use to be made of data they need to be provided in a form whereby they can readily be processed into information. In a previous editorial we attacked the use of codes which did not say whether a plasma (blood) glucose result was fasted, random or part of a glucose tolerance test. This time we turn our attention to the use of ‘greater than’ (>) or ‘less than’ (<) signs in pathology results and their implications for audit.

A critical analysis of maternal morbidity and mortality in Liberia, West Africa

Objective to conduct a secondary analysis of maternal death and near-miss audits conducted at the community and facility level to explore the causes and circumstances surrounding maternal mortality and severe morbidity in one rural county in Liberia, West Africa. Design a non-experimental, descriptive design utilising maternal death and near-miss audit surveys was utilised for data collection. Thaddeus and Maine's Three Delays Model was used as a framework for analysis. Setting one rural county in north-central Liberia. Participants interviews were conducted with (1) women who suffered a severe morbidity or nearmiss event, (2) family members of women who died or presented with a severe morbidity, and (3) community members or health workers involved in the care of the woman. Measurements (1) maternal mortality, (2) near-miss events, and (3) delays related to problem identification, transportation challenges and delays after reaching the referral site. Findings 120 near-miss events and 28 maternal mortalities were analysed. 16% of all deliveries at the referral hospital were classified as near-miss events. Near-miss events were six times more common than deaths. The majority of women experiencing a near-miss event (85%) were in critical condition upon arrival at the hospital suggesting important delays were encountered in reaching the facility. Key conclusions maternal mortality and near-miss audits allow exploration of medical and non-medical factors leading up to a severe complication or maternal death. Delays in reaching a referral hospital can have a significant impact on maternal survival rates. Implications for practice audits can stimulate a change in clinical practice and help identify areas for county health departments to focus their scant resources. Audits can be used as a quality improvement tool in facilities. Results can be used to identify communities with high rates of delay to target educational programmes.