Private Audit Research Articles

Public vs Private Bodies: Who Should Run Advanced AI Evaluations and Audits? A Three-Step Logic Based on Case Studies of High-Risk Industries

Artificial Intelligence (AI) Safety Institutes and governments worldwide are deciding whether they evaluate and audit advanced AI themselves, support a private auditor ecosystem or do both. Auditing regimes have been established in a wide range of industry contexts to monitor and evaluate firms’ compliance with regulation. Auditing is a necessary governance tool to understand and manage the risks of a technology. This paper draws from nine such regimes to inform (i) who should audit which parts of advanced AI; and (ii) how much resources, competence and access public bodies may need to audit advanced AI effectively. First, the effective responsibility distribution between public and private auditors depends heavily on specific industry and audit conditions. On the basis of advanced AI’s risk profile, the sensitivity of information involved in the auditing process, and the high costs of verifying safety and benefit claims of AI Labs, we recommend that public bodies become directly involved in safety critical, especially gray- and white-box, AI model audits. Governance and security audits, which are well-established in other industry contexts, as well as black-box model audits, may be more efficiently provided by a private market of auditors under public oversight. Secondly, to effectively fulfill their role in advanced AI audits, public bodies need extensive access to models and facilities. Public bodies’ capacity should scale with the industry's risk level, size and market concentration, potentially requiring 100s of employees for auditing in large jurisdictions like the EU or US, like in nuclear safety and life sciences.

DeVoS: Deniable Yet Verifiable Vote Updating

Internet voting systems are supposed to meet the same high standards as traditional paper-based systems when used in real political elections: freedom of choice, universal and equal suffrage, secrecy of the ballot, and independent verifiability of the election result. Although numerous Internet voting systems have been proposed to achieve these challenging goals simultaneously, few come close in reality. We propose a novel publicly verifiable and practically efficient Internet voting system, DeVoS, that advances the state of the art. The main feature of DeVoS is its ability to protect voters' freedom of choice in several dimensions. First, voters in DeVoS can intuitively update their votes in a way that is deniable to observers but verifiable by the voters; in this way voters can secretly overwrite potentially coerced votes. Second, in addition to (basic) vote privacy, DeVoS also guarantees strong participation privacy by end-to-end hiding which voters have submitted ballots and which have not. Finally, DeVoS is fully compatible with Perfectly Private Audit Trail, a state-of-the-art Internet voting protocol with practical everlasting privacy. In combination, DeVoS offers a new way to secure free Internet elections with strong and long-term privacy properties.

Audit(or) type and audit quality in emerging markets: evidence from explicit vs. implicit restatements

Purpose This paper aims to examine the link between audit(or) type and restatements in Egypt, a complex and multifaceted auditing market. The usual big 4 versus non-big 4 comparison is insufficient as Egypt has a unique mix of private audit firms, one governmental agency (Accountability State Authority) and mandatory/nonmandatory audit services, including single, joint and dual audits. Design/methodology/approach The study uses a sample of listed companies in Egypt and analyzes the impact of auditor type and audit type on explicit, implicit and total restatements. The study uses logistic regression model to examine the underlying relationship. Findings Results show no relationship between auditor type and audit quality, positive association between non-big foreign CPA firms and total/implicit restatements and mixed results for the impact of dual audits on audit quality. The study found no link between auditor type and audit quality in Egypt. Egyptian audit firms linked to non-big 4 foreign Certified Public Accounting firms were positively linked to total and implicit restatements. Joint audits did not improve audit quality and were directly related to total and explicit restatements. Dual audits showed mixed results, positively associated with implicit restatements but inversely associated with explicit restatements. Originality/value The study provides valuable insights into the complexities of the auditing market in emerging markets and offers valuable insights for stakeholders in the financial statement users, audit firms and governmental agencies.

Readability of auditor reports: does audit market competition matter? Empirical evidence from Iran

PurposeWhile existing research explores the impact of audit market competition on audit fees and audit quality, there is limited investigation into how competition in the audit market influences auditors' writing style. This study examines the relationship between audit market competition and the readability of audit reports in Iran, where competition is particularly intense, especially among private audit firms.Design/methodology/approachThe sample comprises 1,050 firm-year observations in Iran from 2012 to 2018. Readability measures, including the Fog index, Flesch-Reading-Ease (FRE) and Simple Measure of Gobbledygook (SMOG), are employed to assess the readability of auditors' reports. The Herfindahl–Hirschman Index (HHI) is utilized to measure audit market competition, with lower index values indicating higher auditor competition. The concentration measure is multiplied by −1 to obtain the competition measure (AudComp). Alternative readability measures, such as the Flesch–Kincaid (FK) and Automated Readability Index (ARI) are used in additional robustness tests. Data on textual features of audit reports, auditor characteristics and other control variables are manually collected from annual reports of firms listed on the Tehran Stock Exchange (TSE).FindingsThe regression analysis results indicate a significant and positive association between audit market competition and audit report readability. Furthermore, a stronger positive and significant association is observed among private audit firms, where competition is more intense compared to state audit firms. These findings remain robust when using alternative readability measures and other sensitivity checks. Additional analysis reveals that the positive effect of competition on audit report readability is more pronounced in situations where the auditor remains unchanged and the audit market size is small.Originality/valueThis paper expands the existing literature by examining the impact of audit market competition on audit report readability. It focuses on a unique audit market (Iran), where competition among audit firms is more intense than in developed countries due to the liberalization of the Iranian audit market in 2001 and the establishment of numerous private audit firms.

STANDARDIZATION OF THE ACTIVITIES OF STATE FINANCIAL CONTROL AND AUDIT BODIES

The article discusses the internal control standards adopted by the Internal Control Standards Committee of the International Organization of Supreme Audit Institutions, the construction and work process of the internal control system that meets these goals, the purpose and tasks of standardization, as well as the role of these standards in financial control and auditing. The articlealso provides information on the application of standards developed by the members of the Internal Control Standards Committee of the International Organization of Supreme Audit Institutions. Their educational perspectives are presented both in the context of good supervisory practices and in the context of examples of identified supervisory weaknesses. Purpose: The main purpose of the standards of financial control and auditing is to regulate the professional activity of private auditors and audit companies and to achieve the greatest objectivity in giving an opinion on the reliability of the audit, as well as to establish uniform quality criteria for comparing audit results. International audit standards are necessary to form uniform basic requirements that define the standards for audit quality and reliability and ensure a certain level of assurance of audit results by strictly observing all of the above requirements. Methodology: Induction, deduction and analysis methods were used in the research work. The result of the research: The presence of a single methodological platform in the standards of different types of control will increase the efficiency and effectiveness of all types of fifinancial control, as well as the possibilities of convergence between them. The introduction of uniform standards and the strengthening of the integration of financial control and audit institutions at different levels will allow the creation of a financial and budget control database, which, in turn, will allow not only more efficient planning of the work of all structural elements of the financialcontrol system, but also the preventio n of violations of the norms of financial and budget legislation. it will be the basis for imposing restrictions on the management positions of officials.

The Impact of Ethical Foundations on Reporting Audit Whistleblowing: Evidences from Private Audit Firms

The Impact of Ethical Foundations on Reporting Audit Whistleblowing: Evidences from Private Audit Firms

Impact of business owner’s gender on the audit firms income: the case of Kazakhstan

Kazakhstan is characterized by women’s significant representation in the financial industry, including the audit sector, which distinguishes the country from other states and can lay the basis for a competitive advantage of the economy. The literature review on audit firms in Kazakhstan showcases a scarcity of studies about gender’s influence on audit firms’ financial performance. The paper aims to identify the correlation between business owners’ gender and the net income of Kazakhstani private audit firms. The publicly available data on audit companies and the size of their paid taxes were processed and analyzed with the quantitative research method. The data of 117 audit firms for 2021 were scrutinized through the parametric Student t-test for independent samples with the utilization of the Statistical Package for the Social Science (SPSS). To analyze and adjust the normal distribution of the studied data, frequency histograms, taking logarithms, and formalized tests by Kolmogorov-Smirnov and Shapiro-Wilk criteria were applied. The findings demonstrate the significant correlation between women owners and the size of paid taxes by their audit firms: women positively contribute to audit firms and generate higher net earnings compared with their men counterparts. The paper postulates the necessity of women’s more intensive involvement in higher levels of decision-making to increase the performance indicators of the financial industry in Kazakhstan. The study supports the idea that less gender bias in the expert field can be a good indicator of women's real contribution to Kazakhstan's economy. The auditing field should serve as a solid role model for lowering the barriers to female leadership in other industries.

Evaluasi e-Warong sebagai Upaya Pengentasan Kemiskinan di Kota Padang

Poverty is a complex problem experienced by various countries in the world, including Indonesia. The government has launched various poverty alleviation policies in Indonesia, one of which is through the Non-Cash Food Assistance (NCFA) policy with a program called e-Warong. The implementation of e-Warong in Padang City is known to be optimal, but needs to be improved in a few aspects in order to improve the quality of e-Warong to be perfect, so this study aims to evaluate the implementation of e-Warong as a poverty alleviation policy in Padang City. This study uses a qualitative approach with a descriptive method using secondary data sources. The results show that there have been no problems related to the integrity, reputation and credibility of e-Warong in Padang City. The conclusions of this research show that, to improve the quality of e-Warongs that operate in accordance with applicable regulations, close monitoring is required by third parties who are not related to structural positions from the city to the sub-district. monitoring by a private audit team can be a neutral and good addition to improving e-Warong in the city of Padang

A Blockchain-Empowered Arbitrable Multimedia Data Auditing Scheme in IoT Cloud Computing

As increasing clients tend to outsource massive multimedia data generated by Internet of Things (IoT) devices to the cloud, data auditing is becoming crucial, as it enables clients to verify the integrity of their outsourcing data. However, most existing data auditing schemes cannot guarantee 100% data integrity and cannot meet the security requirement of practical multimedia services. Moreover, the lack of fair arbitration leads to clients not receiving compensation in a timely manner when the outsourced data is corrupted by the cloud service provider (CSP). In this work, we propose an arbitrable data auditing scheme based on the blockchain. In our scheme, clients usually only need to conduct private audits, and public auditing by a smart contract is triggered only when verification fails in private auditing. This hybrid auditing design enables clients to save audit fees and receive compensation automatically and in a timely manner when the outsourced data are corrupted by the CSP. In addition, by applying the deterministic checking technique based on a bilinear map accumulator, our scheme can guarantee 100% data integrity. Furthermore, our scheme can prevent fraudulent claims when clients apply for compensation from the CSP. We analyze the security strengths and complete the prototype’s implementation. The experimental results show that our blockchain-based data auditing scheme is secure, efficient, and practical.

Identity-based remote data checking with a designated verifier

Traditional remote data possession auditing mechanisms are usually divided into two types: private auditing and public auditing. Informally, private auditing only allows the original data owner to check the integrity of its outsourced data, whereas anyone is allowed to perform the checking task in public auditing. However, in many practical applications, the data owner expects some designated verifier (instead of others) to audit its data file, which cannot be covered by the existing private or public auditing protocols. Thus, in a recent work, Yan et al. proposed a new auditing technique with a designated verifier [IEEE Systems Journal, 12(4): 1788-1797, 2020]. Nevertheless, we note that this protocol suffers from complicated management of certificates and hence heavily relies on public key infrastructure. To overcome this shortcoming, in this paper, we propose an identity-based auditing protocol with a designated verifier, which not only avoids the introduction of certificates, but also has the desired property of only allowing specific verifier to audit. Its security is based on the classical computational Diffie-Hellman and Weil Diffie-Hellman assumptions. Finally, performance analysis shows that our proposed protocol is very efficient and suitable for some real-life applications.

Relationship between the Self-Interest Threat and ethical sensitivity, the role of mediating of moral intensity

The threat of self-interest as an environmental factor can affect the ethical decision-making process of auditors. Therefore, the purpose of this study is to investigate the effect of the threat of self- interest on ethical sensitivity, with an emphasis on the role of mediator of the ethical severity of auditors. This research is a quasi experimental study and the statistical population of the study includes auditors working in private audit firms in 2018, of which 186 were selected as sample volumes. The research data were collected through a questionnaire and analyzed using the structural equation modeling using PLS software. Findings show that the threat of self- interest has a positive and significant effect on ethical sensitivity, and this effect is exacerbated by the variable of moral intensity. Therefore, based on the theory of social cognition, it can be argued that the existence of a Self-Interest Threat due to fears that poses the negative consequences of these threats to auditors can increase the ethical sensitivity and moral intensity of auditors to ethical issues.

CEO succession origin, audit report lag, and audit fees: Evidence from Iran

This study examines whether chief executive officer (CEO) succession origin (hiring an insider CEO versus an outsider CEO) is associated with audit report lag (ARL) and audit fees in the Iranian setting, which is characterized by less-developed corporate governance mechanisms and a constrained audit market. Using a sample of firms listed on the Tehran Stock Exchange between 2007 and 2017 and three proxies for ARL, I find that audit report delay is longer if the CEO is promoted from within the firm. Furthermore, audit fees are higher for firms promoting an insider to the CEO position than for firms hiring outsider CEOs. Further analyses show that the positive effects of insider CEOs on ARL and audit fees are more pronounced when firms are audited by private audit firms. The results remain robust after controlling for firm-level fixed effects, addressing endogeneity issue, and running several sensitivity tests. This study contributes to the literature by providing new empirical evidence concerning the effect of CEO succession origin on corporate audit outcomes in an emerging economy setting. The findings of this study suggest that the implications of CEO succession origin for auditors can differ between emerging and developed economies.

Banks as Potentially Crooked Secret Keepers

AbstractBank failures are generally liquidity as well as solvency events. Whether it is households running on banks or banks running on banks, defunding episodes are full of drama. This theater has, arguably, lured economists into placing liquidity at the epicenter of financial collapse and liquidity provision as opposed to improved intermediation as the rationale for banks. But loss of liquidity describes how banks fail . Bad news about banks explains why they fail. This paper models banks as arising from asymmetric information. Banks have superior knowledge of investment opportunities. But bankers, or at least a subset, also know how to steal. Hence, we model banking crises as triggered by news that the degree (share) of banking malfeasance is likely to be particularly high. The malfeasance share follows a Markov process. When this period's share is high, agents rationally raise their probability that next period's share will be high as well. Whether or not this proves true, agents invest less in banks, reducing intermediation and output. Worse, bad bankers can infect good bankers. When bad bankers are thought to abound, good bankers have less incentive to secure a high return on their investment. Deposit insurance prevents defunding runs and stabilizes the economy. But it sustains bad banking, lowering welfare. Private monitoring helps, but is no panacea. It partially limits banking malfeasance. But it does so inefficiently as households needlessly replicate each other's costly information acquisition. Moreover, if private audits become public, private monitoring breaks down due to free‐riding. Redistribution between generations that do and do not confront the highest share of banking malfeasance does not relieve the problem. What does improve matters is government real‐time disclosure of banking malfeasance. This mitigates, if not eliminates, the asymmetric information problem leading to potentially large gains in both nonstolen output and welfare.

Factors Influencing External Auditors’ Independence of Private Audit Firms in Ethiopia

This study was examined factors affecting auditors’ independence with reference to private audit firms in Ethiopia. The researcher employed quantitative research approach with explanatory research design where the effect caused by the independent variable on the dependent variable is observed through regression analysis. Primary data was collected through structured questionnaire from chive executive officers of private audit firm. Accordingly, the result of regression analysis showed that size of audit firm, size of audit fee, professional audit standard, competition, existence of audit committee and information technology have positive and statistically significant effect on auditors’ independence. Whereas, provision was not statistically significant. Based on the findings of the study, the researcher recommended that for audit firms in Ethiopia have to work on statistically significant variables due to fact that they have positive influence in improving auditors’ independence. Keywords: Determinants, Auditors’ Independence, Private Audit Firms, Ethiopia DOI: 10.7176/RJFA/12-11-04 Publication date: June 30 th 2021

Skills Development Factors of Information Technology Competency Among External Auditors

This study examines the skill development factors influencing Information Technology (IT) competency in respect of external auditors. It applies the human capital theory (HCT) as the underpinning theory to develop the research framework. A questionnaire is administered to 328 external auditors in public and private audit companies in Yemen. Data are analysed via the partial least square-structural equation modeling (PLS-SEM) approach to examine the posited research hypotheses. The PLS-SEM approach reveals that self-direct learning is the strongest factor that influences the IT competency of auditors. This is followed by accounting education that records a significant positive effect on IT competency. The originality of this study is the application of the quantitative method to investigate the factors that influence IT competency among external auditors in developing countries, such as Yemen, who are facing the issue of low level IT competency in doing their tasks. The results underpin new and extensive inputs into skills and enlarge the emergent literature related to skills and competency development in IT.

Organizing municipal audit: contracting out and audit costs in Norway

PurposeThis paper analyses the deregulation of the municipal audit market in Norway, in particular how organization of the service affected audit costs.Design/methodology/approachThe paper uses multiple regression analysis of administrative as well as survey data of organizational structure and audit costs from 312 municipalities in Norway in 2012.FindingsThe introduction of contracting out in the municipal audit market in Norway in 2004 contributed to a reduction in audit fees eight years after the deregulation, compared to the situation four years before the deregulation. The type of audit, mixing inter-municipal co-operation and contracting private auditors, was related to lower costs.Research limitations/implicationsThe data does not include audit quality and are restricted to one country.Practical implicationsThe municipalities that combined inter-municipal co-operation and contracting a private auditor achieved the lowest costs. Hence, neither pure in-house production (“make”) nor outsourcing (“buy”) but mixing several governance forms (hybrid organization) was related to low costs.Social implicationsContracting out is a core element of new public management (NPM) but has often been a contested tool in public policy. This paper provides empirical evidence on the effects of a reform of a professional service, which is relevant for many services in the public sector.Originality/valueThis paper contributes by filling some of the gaps in the public sector accounting and public management reform literature by studying the organization and costs of the municipal audit, specifically by including transaction costs, addressing plural governance forms in addition to pure in-house production, inter-organizational co-operation and market contracting and by studying long-term effects.

The Relationship between Organizational Justice and Auditors’ Professional Skepticism with the Moderating Role of Organizational Commitment and Identity

The purpose of this study is to investigate the relationship between organizational justice on professional skepticism with the moderating role of organizational commitment and identity. In order to collecting data the questionnaire employed. The statistical population of the study is 137 auditors working in the audit organization and private audit sector institutes in Iran. Structural equation modeling approach based on partial least squares (PLS) method was used to test the hypotheses. The results of data analysis showed that there is a positive and significant relationship between organizational justice and professional skepticism with moderating role of organizational commitment, but between organizational justice and professional skepticism with moderating role of organizational identity does not exist a significant relationship. Considering that, the results of this research are aimed at better perception and enhanced and more significant recognition of the competitive advantage of the organization; besides, the relationship between organizational justice on auditor’s professional skepticism with moderating role of organizational commitment and identity so far has not been tested yet in the society of audit and consideration to the relationships between these variables will derive the performance of audit firms with added productivity and value.

Corporate Failure in the Banking Sector: The Role of External Auditors

The aim of the study was to establish the role of external auditors in corporate failure in the banking sector. The study discovered that the auditing gaps within banks are tangibility and empathy services. It was also revealed that remuneration, training of external auditors, lot of variety in their job, level of logistics, loyalty rate of external auditors, motivational package and improved salary and opinion counts in the organisation were the factors influencing the effectiveness of external auditors. Lastly, unethical behavior has a positive relationship with corporate failure which was statistically significant at confident interval of 0.05 with a predictive power of 83.7 percent chance of predicting corporate failure which was moderate. It was recommended that the Bank should take steps to train and promote external auditors towards acquiring the necessary skills and experience to commission the corporate failure audit. Additionally, assistance also could be sought from other Supreme Audit Institutions in other countries with a similar government arrangement. Alternatively, assistance from private audit firms that have developed expertise in the public sector audit can be sought to assist them to make the audit function more meaningful and constructive. This will help fill the empathic gap of clients. With the current trend towards the harmonization of auditing standards and guidelines, further research into the usefulness and adequacy of auditing standards and guidelines is worthwhile. Keywords: Corporate failure, auditing, corporate corruption, assurance, effectiveness DOI: 10.7176/RJFA/11-4-03 Publication date: February 29 th 2020

The Role of Internal Control Guidance in the Modern Economy and Its Impact on Audit Governance in the U.S.

Whether it is the private sector or public sector, it is important for auditors to have an adequate framework when evaluating internal control systems governance. One of the most widely used frameworks used by audit practitioners is the COSO Internal Control-Integrated Framework Governance. As auditors examine different global frameworks, one can quickly identify the importance the COSO Internal Control-Integrated Framework Governance has on evaluating internal control systems globally. As audit practitioners, it is essential to have a universal framework that can systematically assist in evaluating an internal control system. As auditors and management look toward the future, whether it is private or public sector auditing, they can-will see the fingerprints of the COSO Internal Control-Integrated Framework Governance in evaluating future internal control systems throughout the world. This article are helpful to both the pravite sector management and policymakers.

The impact of auditor brand name on auditor remuneration in a large private client segment

The purpose of this study is to investigate the impact of auditor reputation and nonaudit services on audit pricing in the context of large private audit clients. Focusing on German large private clients, we use a low litigious audit environment that allows us to investigate the role of auditor reputation as proxied by auditor type for three auditor tiers. We find evidence for a Big 4 audit fee premium, suggesting the pronounced role of auditor reputation even in a private client segment. However, this premium is subject to the Big 4 auditor's role in the national audit market. Audit pricing is also affected by nonaudit services, which add value to the audit engagement for the client. Nonaudit fees further incentivize pricing strategies for audits of private audit clients, particularly for Big 4 auditors, which indicates a joint effect of nonaudit fees and auditor type on audit fees.