Showing papers on "Audit published in 2002"

The Alcohol Use Disorders Identification Test (AUDIT): A Review of Recent Research

Abstract: Background: Efficient, inexpensive screening for early stage alcohol problems is important in health care settings. The Alcohol Use Disorders Identification Test (AUDIT) has been studied extensively to establish its value in this regard. Methods: A literature search that used EtOH as a database was conducted to identify studies published on the AUDIT through September 2001. Keywords used for the search were “Alcohol Use Disorders Identification Test” and “AUDIT.” All studies reporting psychometric properties of the measure were reviewed with particular attention being given to the period 1996 and later. A small number of additional references were located by noting their citation in other studies reviewed. Results: Although more research is needed on non-English versions to establish their psychometric properties, at least in its English edition, the AUDIT demonstrates sensitivities and specificities comparable, and typically superior, to those of other self-report screening measures. Test-retest reliability and internal consistency are also quite favorable. For males, the AUDIT-C, a shortened version of the AUDIT, appears approximately equal in validity to the full scale. Conclusions: Recent research continues to support use of the AUDIT as a means of screening for alcohol use disorders in health care settings in the United States.

Do Non-audit Service Fees Impair Auditor Independence? Evidence from Going-concern Audit Opinions

Abstract: We find no evidence that non-audit service fees impair auditor independence, where independence is surrogated by auditors' propensity to issue going concern audit opinions. We do find, however, that auditors are more likely to issue going concern opinions to clients paying higher audit fees, suggesting that auditors behave with relatively greater independence towards these clients. Our findings are consistent with Reynolds and Francis (2001) and suggest that market-based incentives, such as loss of reputation and litigation costs, dominate the benefits auditors are likely to receive from compromising their independence to retain clients that pay larger fees. Overall, our findings indicate that recent SEC regulations based on concerns that non-audit services impair auditor independence, are unfounded.

Audit‐Firm Tenure and the Quality of Financial Reports*

Abstract: This study examines whether the length of the relationship between a company and an audit firm (audit-firm tenure) is associated with financial-reporting quality. Using two proxies for financial-reporting quality and a sample of Big 6 clients matched on industry and size, we find that relative to medium audit-firm tenures of four to eight years, short audit-firm tenures of two to three years are associated with lower-quality financial reports. In contrast, we find no evidence of reduced financial-reporting quality for longer audit-firm tenures of nine or more years. Overall, our results provide empirical evidence pertinent to the recurring debate regarding mandatory audit-firm rotation — a debate that has, to date, relied on anecdotal evidence and isolated cases.

Do Non–Audit Service Fees Impair Auditor Independence? Evidence from Going Concern Audit Opinions

Abstract: We find no significant association between non–audit service fees and impaired auditor independence, where auditor independence is surrogated by auditors’ propensity to issue going concern audit opinions. We also find no association between going concern opinions and either total fees or audit fees. In addition, our findings are robust to controlling for unexpected fees, to controlling for endogeneity among our variables, and to several alternative research design specifications. Our results are consistent with market–based incentives, such as loss of reputation and litigation costs, dominating the expected benefits from compromising auditor independence.

Experimental research in financial accounting

Abstract: This paper uses recent experimental studies of financial accounting to illustrate our view of how such experiments can be conducted successfully. Rather than provide an exhaustive review of the literature, we focus on how particular examples illustrate successful use of experiments to determine how, when and (ultimately) why important features of financial accounting settings influence behavior. We first describe how changes in views of market efficiency, reliance on the experimentalist’s comparative advantage, new theories, and a focus on key institutional features have allowed researchers to overcome the criticisms of earlier financial accounting experiments. We then describe how specific streams of experimental financial accounting research have addressed questions about financial communication between managers, auditors, information intermediaries, and investors, and indicate how future research can extend those streams. We focus particularly on (1) how managers and auditors report information; (2) how users of financial information interpret those reports; (3) how individual decisions affect market behavior; and (4) how strategic interactions between information reporters and users can affect market outcomes. Our examples include and integrate experiments that fall into both the “behavioral” and “experimental economics” literatures in accounting. Finally, we discuss how experiments can be designed to be both effective and efficient.

Board Characteristics and Audit Fees

Abstract: This paper examines the relations between three board characteristics (independence, diligence, and expertise) and Big 6 audit fees for Fortune 1000 companies. To protect its reputation capital, avoid legal liability, and promote shareholder interests, a more independent, diligent, and expert board may demand differentially higher audit quality (greater assurance, which requires more audit work) than the Big 6 audit firms normally provide. The audit fee increases as the auditor's additional costs are passed on to the client, such that we expect positive relations between audit fees and the board characteristics examined. We find significant positive relations between audit fees and board independence, diligence, and expertise. The results persist when similar measures of audit committee “quality” are included in the model. The results add to the growing body of literature documenting relations between corporate governance mechanisms and various facets of the financial reporting and audit processes, as well as to our understanding of the determinants of audit fees.

Auditor Tenure and Audit Reporting Failures

Abstract: Recently, the SEC has called for research regarding the relationship between audit tenure and audit failures. In this study, we address this issue by examining prior audit reports for a sample of c...

Corporate Governance and the Audit Process

Abstract: There has been growing recognition in recent years of the importance of corporate governance in ensuring sound financial reporting and deterring fraud. The audit serves as a monitoring device and is thus part of the corporate governance mosaic. The objective of this paper is to examine the impact of various corporate governance factors, such as the board of directors and the audit committee, on the audit process. Importantly, there is little professional guidance on how auditors should consider such factors when formulating an appropriate audit strategy, and there has been only one prior study on this issue (Cohen and Hanno 2000). Because there are no current specific auditing standards that relate to the effect of corporate governance on the audit process, we conducted a semi-structured interview with 36 auditors on current audit practices in considering corporate governance in the audit process. Reflecting on client experiences, auditors indicate a range of views with regard to the elements included in the rubric of “corporate governance”. Most significantly, auditors view management as the primary driver of corporate governance. The inclusion of top management in the “corporate governance mosaic” is inconsistent with agency theory's prescription of the board and other mechanisms serving as a means to independently oversee management's actions to protect stakeholders. Auditors consider corporate governance factors to be especially important in the client acceptance phase and in an international context. Further, despite the attention placed on the audit committee in the academic literature, in the business community, and by regulators in different countries (e.g., Canada, United States, Australia), several respondents indicated that their experiences with their clients suggest that audit committees are typically ineffective and lack sufficient power to be a strong governance mechanism. Implications for research and practice are presented.

Shredded Reputation: The Cost of Audit Failure

Abstract: In this article we investigate the impact of the Enron audit failure on auditor reputation. Specifically, we examine Arthur Andersen’s clients’ stock market impact surrounding various dates on which Andersen’s audit procedures and independence were under severe scrutiny. On the three days following Andersen’s admission that a significant number of documents had been shredded, we find that Andersen’s other clients experienced a statistically negative market reaction, suggesting that investors downgraded the quality of the audits performed by Andersen. We also find that audits performed by Andersen’s Houston office suffered a more severe decline in abnormal returns on this date. We are not able to show that Andersen’s independence was questioned by the amount of non–audit fees charged to its clients.

Why good accountants do bad audits.

Abstract: On July 30, President Bush signed into law the Sarbanes-Oxley Act addressing corporate accountability. A response to recent financial scandals, the law tightened federal controls over the accounting industry and imposed tough new criminal penalties for fraud. The president proclaimed, "The era of low standards and false profits is over." If only it were that easy. The authors don't think corruption is the main cause of bad audits. Rather, they claim, the problem is unconscious bias. Without knowing it, we all tend to discount facts that contradict the conclusions we want to reach, and we uncritically embrace evidence that supports our positions. Accountants might seem immune to such distortions because they work with seemingly hard numbers and clear-cut standards. But the corporate-auditing arena is particularly fertile ground for self-serving biases. Because of the often subjective nature of accounting and the close relationships between accounting firms and their corporate clients, even the most honest and meticulous of auditors can unintentionally massage the numbers in ways that mask a company's true financial status, thereby misleading investors, regulators, and even management. Solving this problem will require far more aggressive action than the U.S. government has taken thus far. What's needed are practices and regulations that recognize the existence of bias and moderate its effects. True auditor independence will entail fundamental changes to the way the accounting industry operates, including full divestiture of consulting and tax services, rotation of auditing firms, and fixed-term contracts that prohibit client companies from firing their auditors. Less tangibly, auditors must come to appreciate the profound impact of self-serving biases on their judgment.

The Fast Alcohol Screening Test

Abstract: Using the Alcohol Use Disorders Identification Test (AUDIT) as the gold standard, the Fast Alcohol Screening Test (FAST) was developed for use in busy medical settings. AUDIT questionnaires were completed by 666 patients in two London accident & emergency (A&E) departments. Using a principal components analysis, as well as sensitivity and specificity indices, a two-stage screening test was developed, using four of the AUDIT items. The first stage involved one item that identified >50% of patients as either hazardous or non-hazardous drinkers. The second stage made use of the other three items to categorize the rest. The performance of this four-item questionnaire was then tested across a range of settings. Opportunistic samples of 100 patients completed AUDIT questionnaires in each of the following National Health Service settings: A&E department, fracture clinic, primary health centre and a dental hospital. It was concluded that the four-item FAST questionnaire had good sensitivity and specificity, across a range of settings, when the AUDIT score was used as the gold standard. The FAST questionnaire is quick to administer, since >50% of patients are categorized using just one question.

Audit-3 and audit-4: Effectiveness of two short forms of the alcohol use disorders identification test

Abstract: Aims: To identify suitable short versions of the Alcohol Use Disorders Identification Test (AUDIT) and to evaluate their effectiveness as screening tests for 'risky drinking' among men and women in primary health care (PHC) settings. Methods: A total of 255 patients attending five PHC centres in Catalonia (Spain) were interviewed by clinicians regarding health status and drinking pattern. Patients also completed the AUDIT. Clinicians' diagnosis of risky drinking was used as a gold standard to evaluate the effectiveness of three forms of AUDIT. Results: AUDIT-3 and AUDIT-4 performed similarly to AUDIT-10 in detecting risky drinking and had equivalent receiver operating characteristics curves and their areas under the curve. Conclusions: Both short forms of AUDIT seem to be as effective as the full AUDIT for detecting risky drinking among men and women in PHC settings.

The Football Association Medical Research Programme: an audit of injuries in professional football--analysis of preseason injuries * Commentary

Abstract: Objectives: To conduct a detailed analysis of preseason football injuries sustained in English professional football over two competitive seasons. Methods: Club medical staff at 91 professional football clubs annotated player injuries. A specific injury audit questionnaire was used together with a weekly form that documented each club’s current injury status. Results: 17% (1025) of the total number of injuries over the two seasons were sustained during the preseason, the mean number of days absent per injury was 22.3 days. Younger age groups (17–25 yrs) were more likely to sustain a preseason injury than more experienced players (26–35+) (p<0.01). There were relatively more “slight” and “minor” injuries (as defined in the methodology), overuse, and tendon related injuries sustained during preseason compared to the in season (p<0.01). The thigh (23%), knee (17%), and ankle (17%) were the most common locations for injuries during the preseason, there was a relatively greater number of lower leg injuries (15%) during the preseason (p<0.05). Achilles tendonitis was most prevalent in the preseason, with 33% of all Achilles related injuries sustained during this period (p<0.01). Muscle strains were the most common injury during preseason (37%). Rectus femoris muscle strains were observed twice as frequently during the preseason relative to the in season (p<0.01). Ligament sprains were the second most common injury during preseason (19%). Non-contact mechanisms were the cause of significantly more injuries during the preseason (p<0.01), with relatively more preseason injuries sustained while running or shooting (p<0.01). For 70% of the injuries reported during the preseason, the ground condition was described as dry. Conclusions: Players are at a greater risk of slight and minor injuries, overuse injuries, lower leg injuries (especially the Achilles tendon) and rectus femoris strains during the preseason period. Prevention of preseason injury is important to ensure availability of players for the commencement of the season and to decrease the risk of injury later in the season, we recommend the implementation of a risk management policy for this purpose. Areas requiring further investigation include methods of prevention for the common preseason injuries that have been identified, a detailed analysis of preseason and closed season training programmes, and a smaller study involving exposure data.

Brand Name Audit Pricing, Industry Specialization, and Leadership Premiums post‐Big 8 and Big 6 Mergers*

Abstract: This paper investigates brand name, industry specialization, and leadership audit pricing in the wake of the mergers that created the Big 6 and the Big 5 accounting firms. For samples of Australian listed public companies in each of the postmerger years 1990, 1992, 1994, and 1998, we estimate national audit fee premiums for the Big 6/5 auditors and the industry specialists and leaders. We find limited support for the ability of the Big 6/5 to obtain fee premiums over non-Big 6/5 for those industries not having specialist auditors. Nonspecialist Big 6/5 auditors are able to obtain fee premiums over nonspecialist non-Big 6/5 auditors for those industries having specialist auditors. However, this result only holds among the smaller half of our sample. We do not find strong support for the presence of industry specialist premiums in the postmerger years, especially after 1990, using various definitions of industry specialist. We find, at best, limited support for the presence of industry leadership premiums. The evidence suggests that after the Big 8/6 audit firm mergers, some caution is required in generalizing the Craswell, Francis, and Taylor 1995 finding of national market industry specialist premiums. More generally, the study raises questions about the tenuous link between the concept of specialization and national market-share statistics.

Acute care nurses' perceptions of barriers to using research information in clinical decision‐making

Abstract: Aim: To examine the barriers that nurses feel prevent them from using research in the decisions they make. Background: A sizeable research literature focusing on research utilization in nursing has developed over the past 20 years. However, this literature is characterized by a number of weaknesses: self-reported utilization behaviour; poor response rates and small, nonrandom sampling strategies. Design: Cross-case analysis involving anonymised qualitative interviews, observation, documentary audit and Q methodological modelling of shared subjectivities amongst nurses. The case sites were three large acute hospitals in the north of England. One hundred and eight nurses were interviewed, 61 of whom were also observed for a total of 180 h, and 122 nurses were involved in the Q modelling exercise (response rate of 64%). Results: Four perspectives were isolated that encompassed the characteristics associated with barriers to research use. These related to the individual, organization, nature of research information itself and environment. Nurses clustered around four main perspectives on the barriers to research use: (1) Problems in interpreting and using research products, which were seen as too complex, 'academic' and overly statistical; (2) Nurses who felt confident with research-based information perceived a lack of organizational support as a significant block; (3) Many nurses felt that researchers and research products lack clinical credibility and that they fail to offer the desired level of clinical direction; (4) Some nurses lacked the skills and, to a lesser degree, the motivation to use research themselves. These individuals liked research messages passed on to them by a third party and sought to foster others' involvement in research-based practice, rather than becoming directly involved themselves. Conclusions: Rejection of research knowledge is not a barrier to its application. Rather, the presentation and management of research knowledge in the workplace represent significant challenges for clinicians, policy-makers and the research community

Continuous Auditing: Building Automated Auditing Capability

Abstract: The digital economy has significantly altered the way business is conducted and financial information is communicated. A rapidly growing number of organizations are conducting business and publishi...

Earnings Quality in U.K. Private Firms

Abstract: UK private and public companies face substantially equivalent regulation on auditing, accounting standards and taxes. We hypothesize that private-company financial reporting nevertheless is lower quality due to different market demand, regulation notwithstanding. A large UK sample supports this hypothesis. Quality is operationalized using Basu's (1997) time-series measure of timely loss recognition and a new accruals-based method. The result is not affected by controls for size, leverage, industry membership and auditor size, or by allowing endogenous listing choice. The result enhances understanding of private companies, which are predominant in the economy. It also provides insight into the economics of accounting standards.

Accounting Theory: An Information Content Perspective

Abstract: 1 Introduction Part I: Foundations 2 The Reporting Organization 3 Classical Foundations 4 Accounting Foundations 5 Modeling Information 6 Information Use at the Individual Level 7 The Accounting System as an Information Channel Part II: Information Content 8 Information in a Valuation Setting 9 Accounting Information in a Valuation Setting 10 Accounting and Non-accounting Information in a Valuation Setting 11 Information in a Managerial Contracting Setting 12 Additional Information in a Managerial Contracting Setting 13 Conflict among uses Part III: Comparative Advantage 14 Recognition 15 Information Content of Audited Accruals 16 Conditional Recognition 17 Inter-Temporal Accruals 18 Intra-Temporal Accruals Part IV: End Game 19 Institutional Considerations 20 Professional Opportunity and Responsibility

Information aggregation, processing and distribution system

Abstract: A utility is provided for managing exchanges of information within a context involving multiple users, for example, multi-user network collaboration. The invention enables automatic enforcement of a policy regarding sensitive information. The policy may be negotiated among the users and expressed as multiple rule sets that govern access to a use of sensitive information. The utility also logs activities involving sensitive information to ensure compliance with the policy. These logs can be audited by a third party or automatically processed for audit compliance by the utility. In this manner, an environment of trust is created which encourages fruitful collaboration.

Predecisional Distortion of Evidence as a Consequence of Real‐Time Audit Review

Abstract: With the current shift toward real‐time audit review, subordinates become aware of supervisors' views earlier in the audit process I use an experiment to examine whether earlier knowledge of supervisors' views increases subordinates' tendencies to agree with those views because subordinates predecisionally distort evidence In a going‐concern task, I find that auditors who learn the partner's view before evaluating evidence (1) evaluate individual evidence items as more consistent with the partner's view, and (2) make going‐concern judgments that are more consistent with the partner's view, than do auditors who learn the same partner's view after evaluating evidence In a second experiment, I examine whether auditors anticipate the distortion's effect on subordinates' judgments I find that auditors expect subordinates to make judgments that agree with supervisors' views, but auditors do not expect subordinates to agree even more with those views when subordinates learn those views earlier in the audit p

Empirical evidence on the depth of corporate information disclosure in developing countries: the case of jordan

Abstract: Over the last decade, Jordanian Authorities and Government adopted several far‐reaching measures aimed at improving its investment environment. These measures included the introduction of International Accounting Standards (IASs) in 1990, amendment of the Companies Act in 1997 and amendments to Investment Promotion Law in 1998. This study specifically provides empirical evidence on changes in the depth of corporate disclosure after introducing IASs. In addition, the relationship between the depth of corporate disclosure and company's attributes is investigated. The outcome of the analysis reveals a slight improvement in the depth of disclosure after the introduction the IASs. The depth of disclosure seems to be associated with corporate size, audit firm status, liquidity, gearing, and profitability.

Auditor–Provided Consultancy Services and their Associations with Audit Fees and Audit Opinions

Abstract: This study examines the relationships between non–audit services fees (consultancy fees) paid to auditors and (1) audit fees, and (2) the occurrence of qualified audit opinions. The positive association between consultancy fees and audit fees is shown to be due to certain company specific events that generate a demand for consultancy services as well as requiring additional audit effort. Identified company specific events are mergers and acquisitions, new share issues, new accounting and information systems, new CEOs, and corporate restructurings. When these events are absent, there is no statistically significant relationship between audit fees and consultancy fees after controlling for company size. Companies that have relatively high consultancy fees are more likely to receive a clean audit opinion. This may be due to the non–audit work clearing up problem areas at the client company or it may be due to high consultancy fees impairing auditor independence. With the available data it is not possible to distinguish between these two reasons.