Showing papers on "Audit published in 2011"

Can Big 4 versus Non-Big 4 Differences in Audit-Quality Proxies Be Attributed to Client Characteristics?

Abstract: This study examines whether differences in proxies for audit quality between Big 4 and non-Big 4 audit firms could be a reflection of their respective clients’ characteristics. In our analyses, we use three audit-quality proxies—discretionary accruals, the ex ante cost-of-equity capital, and analyst forecast accuracy—and employ propensity-score and attribute-based matching models in attempt to control for differences in client characteristics between the two auditor groups while estimating the audit-quality effects. Using these matching models, we find that the effects of Big 4 auditors are insignificantly different from those of non-Big 4 auditors with respect to the three audit-quality proxies. Our results suggest that differences in these proxies between Big 4 and non-Big 4 auditors largely reflect client characteristics and, more specifically, client size. We caution the reader that this study has not resolved the question, although we hope that it encourages other researchers to explore alt...

A Framework for Understanding and Researching Audit Quality

Abstract: June 2011 IAASB Discussion 1. At the June 2011 meeting, the IAASB considered a first draft of the Audit Quality Framework (\" Framework \") paper. The IAASB expressed strong support for a holistic approach to the development of the proposed Framework. Amongst other matters, suggestions were made for the paper to give greater recognition to the dynamism of audit quality (AQ), to recognize the influences of technology and industry circumstances as important additional contextual factors, to further consider the linkages with efficiency and cost, and to reconsider the AQ schematic so that it more effectively articulates the various elements of the Framework and the Framework's dynamism. 2. On the basis of this input and as agreed by the IAASB, the Task Force developed a revised draft of the Framework paper (the \" CAG Draft \" − see Agenda Item 6-F) for purposes of soliciting initial reactions and input from specific stakeholder groups in Q3-Q4 2011. 3. Key highlights of the discussions with stakeholders on the CAG Draft are set out below. representatives of the Task Force met six very experienced academics (four from the U.S., one from Australia, and one from Canada) in Denver on August 7 th to discuss the CAG draft. The meeting was arranged by Board member Bill Kinney, who was one of the participants. The academics seemed genuinely interested in the project and made a number of constructive suggestions as to how the Framework might be improved. A number said they struggled with understanding the current model. An alternative structure was suggested which is more consistent with the way the topic has been treated in a number of recent studies. 1 September 2011 IAASB CAG Meeting 5. Some CAG representatives welcomed the project and were broadly supportive of the CAG draft, with some commenting that it was well balanced and thoughtful. 6. One CAG representative, however, took a different position and criticized the paper for dealing with systemic issues rather than focusing on audit quality at the engagement level. A number of other CAG representatives agreed that poor contextual factors such as weak corporate governance cannot be used as an excuse for a poor quality audit. Several thought that the Framework should focus more on factors that auditors can control. 7. Some CAG representatives expressed concern that too much emphasis was placed on efficiency in the proposed Framework and were of the view that more of …

Seeking legitimacy for new assurance forms: The case of assurance on sustainability reporting

Abstract: Based on the development of a more refined conception of legitimacy than has been used in prior audit/assurance and sustainability accounting research, this paper analyses how the legitimation processes adopted by sustainability assurance practitioners in a large professional services firm have co-evolved with and impacted upon their attempts to develop this form of assurance practice – particularly the construction of assurance statements. The analysis reveals a complex and interdependent interplay between attempts at securing pragmatic, moral and cognitive legitimacy with three key constituencies – clients who commission the sustainability assurance services; (socially constructed) non-client users of the assurance statements; and the firm’s internal Risk Department that approves the wording of assurance statements. Securing these types of legitimacy is shown to require the adoption and alignment of varying legitimation strategies according to the constituency practitioners seek to influence. Developing pragmatic legitimacy with clients depends on establishing moral legitimacy with non-client users of assurance statements while securing moral legitimacy with non-client users is contingent on acquiring pragmatic legitimacy with the firm’s internal Risk Department. The practitioners’ legitimation strategies are underpinned by a commitment to opening up dialogue within the assurance process which is evident in their engagement with potential users of assurance and their efforts to expand assurance statement content and encourage user influence over what is assured. This provides a counterpoint to Power’s (1994, 1999 ) concerns about the tendency for new assurance forms to restrict debate and dialogue and reveals a rare empirical domain where Power’s (2003b) call for more customised and informative narratives in assurance reporting is being heeded.

Effects of Audit Quality on Earnings Management and Cost of Equity Capital: Evidence from China†

Abstract: We examine the effects of audit quality on earnings management and cost of equity capital for two groups of Chinese firms: state-owned enterprises (SOEs) and non-state-owned enterprises (NSOEs). The differences in the nature of the ownership, agency relations and bankruptcy risks lead SOEs to have weaker incentives than NSOEs to engage in earnings management. As a result, the effect of audit quality in reducing earnings management will be greater for NSOEs than for SOEs. In addition, investors’ pricing of information risk as reflected in the cost of equity capital will be more pronounced for NSOEs than for SOEs with high and low audit quality. We find empirical evidence consistent with these hypotheses. Our findings indicate that (1) while high-quality auditors play a governance role in China, that role is limited to a subset of firms, and (2) even under the same legal jurisdiction, the effects of audit quality (in the form of lower earnings management and cost of equity capital) vary across firms with different ownership structures. Our study extends prior research by focusing on the economic consequences of SOEs’ and NSOEs’ auditor choices and underscores the importance of controlling for ownership type when conducting audit research.

A Review of ERP Research: A Future Agenda for Accounting Information Systems

Abstract: ERP systems are typically the largest, most complex, and most demanding information systems implemented by firms, representing a major departure from the individual and departmental information systems prevalent in the past. Firms and individuals are extensively impacted, and many problematic issues remain to be researched. ERP and related integrated technologies are a transformative force on the accounting profession. As the nature of business evolves, accounting expertise is being called on to make broader contributions such as reporting on nonfinancial measures, auditing information systems, implementing management controls within information systems, and providing management consulting services. This review of ERP research is drawn from an extensive examination of the breadth of ERP-related literature without constraints as to a narrow timeframe or limited journal list, although particular attention is directed to the leading journals in information systems and accounting information systems...

Corporate Governance Research in Accounting and Auditing: Insights, Practice Implications, and Future Research Directions

Abstract: SUMMARY: Over the past two decades, the corporate governance literature in accounting and auditing has grown rapidly. To better understand this body of work, we discuss 12 recent literature review or meta-analysis papers and summarize selected results (i.e., clusters of papers with new and interesting results) from recent empirical research papers, after reviewing the findings of over 250 studies. Our corporate governance focus is primarily on corporate board and audit committee issues. We discuss the major insights from this literature and the practice implications of these findings. In addition, we identify a number of opportunities for future research. In particular, we make suggestions for: (1) improved research paradigms in corporate governance, (2) extensions of existing research, and (3) new or emerging lines of research.

Proposta para acreditação da divisão de produção de painéis sorológicos de Bio-Manguinhos / Fiocruz na norma ISO / IEC 17043 - Conformity Assessment – General Requirements for Proficiency Testing

Abstract: The accreditation of proficiency testing (PT) providers is a legal instrument for the recognition by an entity's compliance with requirements previously defined, and the demonstration of competence in conducting the performance evaluation of participating institutions, by means of interlaboratory comparisons. For this purpose it was published in 2010 the ISO / IEC 17043 - Conformity Assessment - General Requirements for Proficiency Testing. Aiming to build a model of Quality Management at the Production Division of Serological Panels (DIPPS), Bio- Manguinhos/FIOCRUZ and its accreditation in the future it was performed the interpretation of ISO / IEC 17043 and a qualitative and quantitative analysis of the adhesion of the External Quality Assessment (AEQ) Program in Serology with its requirements. These were characterized as implemented, partially implemented or not implemented according to the evidence of compliance observed. It was then proposed an Action Plan aimed to implement all the requirements and the steps for the establishment of accreditation of the DIPPS by Inmetro. Although ISO / IEC 17043 is recent and not yet implemented by Inmetro in Brazil, the AEQ Program in Serology, coordinated by DIPPS showed a good adherence rate for most of the requirements of this standard, considering the total items implemented and partially implemented ones. The accreditation of DIPPS will provide the participants of the AEQ Program in Serology evidence that it is planned and conducted according to procedures established in legal standards and meets quality patterns set by regulations for carrying out tests with human biological material. Furthermore, the integration of the ISO / IEC 17043 will enable the continuous improvement of the Quality System of Bio-Manguinhos by expanding its scope of standards, helping to build a reference model in the field of quality management and for increasing its selfsustainability. After completion of the Action Plan the next step will be a pre-audit aimed at detecting and correcting potential non-conformities, before to request the final audit of Inmetro.

Impact of Assurance and Assurer's Professional Affiliation on Financial Analysts' Assessment of Credibility of Corporate Social Responsibility Information

Abstract: SUMMARY: This study reports the results of a behavioral experiment examining whether financial analysts from Australia, the United States, and the United Kingdom perceive a difference in the credibility of stand-alone corporate social responsibility (CSR) reports depending on whether they are assured, and the type of assurance provider (professional accountants versus sustainability consultants). We further examine whether the perceived credibility differs for financial analysts from the different countries and whether results hold for companies from different industries. The overall results show the credibility of a CSR report is greater when it is assured and when the assurer is a professional accountant. While assurance increases the credibility of the information in each of the three countries included, the relative impact is context-specific. Information is perceived to be more credible when a company is from an industry where assurance is more commonplace, and by financial analysts from the United S...

Audited Financial Reporting and Voluntary Disclosure as Complements: A Test of the Confirmation Hypothesis

Abstract: We examine the “confirmation” hypothesis, that audited, backward-looking financial outcomes and disclosure of managers’ private forward-looking information are complements, because independent audit disciplines and hence enhances disclosure credibility. Committing to higher audit fees (a measure of the extent of financial outcome verification and thus the accuracy and freedom from manipulation of reported outcomes), is associated with management forecasts that are more frequent, specific, timely and accurate, and receive a larger market reaction. These relations are not driven by litigation risk and are robust to various tests. Private information disclosure and audited financial reporting are complements and cannot be evaluated separately.

Dynamic audit services for integrity verification of outsourced storages in clouds

Abstract: In this paper, we propose a dynamic audit service for verifying the integrity of an untrusted and outsourced storage. Our audit service is constructed based on the techniques, fragment structure, random sampling and index-hash table, supporting provable updates to outsourced data, and timely abnormal detection. In addition, we propose a probabilistic query and periodic verification for improving the performance of audit services. Our experimental results not only validate the effectiveness of our approaches, but also show our audit system verifies the integrity with lower computation overhead, requiring less extra storage for audit metadata.

How Effective is Internal Control Reporting Under SOX 404? Determinants of the (Non-)Disclosure of Existing Material Weaknesses

Abstract: We study determinants of internal control reporting decisions during the SOX 404 era using a sample of restating firms whose original misstatements are linked to underlying control weaknesses. We find that only a minority of these firms acknowledge their existing control weaknesses during their misstatement periods, and that this proportion has declined over time. Further, the probability of reporting existing weaknesses is negatively associated with external capital needs, firm size, non-audit fees, and the presence of a large audit firm; it is positively associated with financial distress, auditor effort, previously reported control weaknesses and restatements, and recent auditor and management changes. These results provide evidence that detection and disclosure incentives play a role in whether existing material weaknesses are reported, which has implications for the effectiveness of SOX 404 in providing investors with advance warning of potential accounting problems.

Corporate Governance Quality, Audit Fees and Non-Audit Services Fees

Abstract: This paper extends prior research on the relationship between governance quality and auditor remuneration.We examine the influence of audit committee effectiveness (ACE), a proxy for governance quality, on audit fees (AF) and non-audit services fees (NASF) using a new composite measure comprising audit committee independence, expertise, diligence and size. We find that after controlling for board of director characteristics, there is a significant positive association between ACE and AF only for larger clients. Our results indicate that effective audit committees undertake more monitoring which results in wider audit scope and higher audit fees. Contrary to our expectations, we find the association between ACE and NASF to be positive and significant, especially for larger clients. This suggests that larger clients are more likely to purchase non-audit services (NAS) even in the presence of effective audit committees probably due to the complexity of their activities. Overall, our findings support regulatory initiatives aimed at improving corporate governance quality.

Voluntary Audits and the Cost of Debt Capital for Privately Held Firms: Korean Evidence*

Abstract: Using a large sample of privately held Korean companies that are not required to obtain an external audit, this paper examines the informational value of voluntary external audits of financial statements with respect to the cost of debt. We find that private companies with an external audit pay a significantly lower interest rate on their debt than do private companies without an audit. Further, the interest rate on borrowing is significantly lower for Big 4-audited companies than for non-Big 4-audited companies. Finally, we find that a change in a company’s status from no audit to being audited – either voluntarily or because the audit became mandatory leads to significant savings in the cost of borrowing.

Does Audit Market Concentration Harm the Quality of Audited Earnings? Evidence from Audit Markets in 42 Countries

Abstract: Audit regulators around the world have expressed concern over market dominance by Big 4 accounting firms and the potential adverse effect it may have on the quality of audited financial statements. We use cross-country variation in the audit market structure of 42 countries to examine two separate aspects of Big 4 dominance: (1) Big 4 market concentration as a group relative to non-Big 4 auditors; and (2) concentration within the Big 4 group in which one or more of the Big 4 firms is dominant relative to the other Big 4 firms. We find that in countries where the Big 4 (as a group) conduct more listed company audits, both Big 4 and non-Big 4 clients have higher quality audited earnings compared to clients in countries with smaller Big 4 market shares. In contrast, in countries where there is a greater concentration within the Big 4 group, we find that Big 4 clients have lower quality audited earnings compared to countries with more evenly distributed market shares among the Big 4. Thus concentration within the Big 4 group appears to be detrimental to audit quality in a country and of legitimate concern to regulators and policymakers. However, Big 4 dominance per se does not appear to harm audit quality and is in fact associated with higher earnings quality, after controlling for other country characteristics that potentially affect earnings quality.

Is Enhanced Audit Quality Associated with Greater Real Earnings Management

Abstract: SYNOPSIS We examine whether firms resort to real earnings management when their ability to manage accruals is constrained by higher quality auditors. In settings involving strong upward earnings management incentives, i.e., for firms that meet or just beat earnings benchmarks and firms that issue seasoned equities, we find that city-level auditor industry expertise and audit fees are associated with higher levels of real earnings management. We find similar, albeit weaker, results for the Big N auditors. Our paper suggests an unintended consequence of higher quality auditors constraining accrual earnings management, namely, firms resorting to potentially even more costly real earnings management. We also find that longer auditor tenure is associated with greater real earnings management, which could suggest merits of mandating audit firm rotation. JEL Classifications: M40; M41.

Voluntary Audits versus Mandatory Audits

Abstract: Exploiting a natural experiment in which voluntary audits replace mandatory audits for U.K. private companies, we analyze whether imposing audits suppresses valuable information about the types of companies that would voluntarily choose to be audited. We control for the assurance benefits of auditing to isolate the role signaling plays by focusing on companies that are audited under both regimes. These companies experience no change in audit assurance, although they can now reveal for the first time their desire to be audited. We find that these companies attract upgrades to their credit ratings because they send a positive signal by submitting to an audit when this is no longer legally required. In contrast, companies that dispense with being audited suffer downgrades to their ratings because avoiding an audit sends a negative signal and removes its assurance value. Data Availability: All data are available from public sources.

The Case of Sustainability Assurance: Constructing a New Assurance Service

Abstract: This paper presents an in-depth longitudinal case study examining the processes through which practitioners in two Big 4 professional services firms have attempted to construct sustainability assurance (independent assurance on sustainability reports). Power’s (2003, 1999, 1997, 1996) theorization of the way in which new subject areas are made auditable is used to frame the findings. The case reveals the fragile nature of efforts to innovate with assurance and render sustainability reporting auditable. Practitioners are shown to experience considerable discomfort and conflict in their attempts to construct a stable and legitimate knowledge base for assurance practice. Tacit knowledge embedded in highly subjective assessments of evidence is frequently enrolled to make assurance possible in the presence of vague guidance from assurance standards. In light of ongoing practitioner struggles, both firms have publicly acknowledged the limitations of traditional financial audit practice operating alone in the conduct of sustainability assurance. In order to offset these limitations, they propose a coupling of “expert” stakeholder assessments of reporting completeness with traditional audit assessments of data reliability. This assigns part of the responsibility for delivering on a key assurance objective (reporting completeness) to what some practitioners perceive as questionable stakeholder expertise. Overall, the findings suggest that innovation in new assurance practices may be stifled by an exclusive reliance on financial audit training and techniques and by certain constraints imposed by internal professional firm control procedures.

Quality of nursing documentation and approaches to its evaluation: a mixed-method systematic review

Abstract: wang n., hailey d. & yu p. (2011) Quality of nursing documentation and approaches to its evaluation: a mixed-method systematic review. Journal of Advanced Nursing 67(9), 1858–1875. Abstract Aims. This paper reports a review that identified and synthesized nursing documentation audit studies, with a focus on exploring audit approaches, identifying audit instruments and describing the quality status of nursing documentation. Introduction. Quality nursing documentation promotes effective communication between caregivers, which facilitates continuity and individuality of care. The quality of nursing documentation has been measured by using various audit instruments, which reflected variations in the perception of documentation quality among researchers across countries and settings. Data sources. Searches were made of seven electronic databases. The keywords ‘nursing documentation’, ‘audit’, ‘evaluation’, ‘quality’, both singly and in combination, were used to identify articles published in English between 2000 and 2010. Review methods. A mixed-method systematic review of quantitative and qualitative studies concerning nursing documentation audit and reports of audit instrument development was undertaken. Relevant data were extracted and a narrative synthesis was conducted. Results. Seventy-seven publications were included. Audit approaches focused on three natural dimensions of nursing documentation: structure or format, process and content. Numerous audit instruments were identified and their psychometric properties were described. Flaws of nursing documentation were identified and the effects of study interventions on its quality. Conclusion. Research should pay more attention to the accuracy of nursing documentation, factors leading to variation in practice and flaws in documentation quality and the effects of these on nursing practice and patient outcomes, and the evaluation of quality measurement.

Audit Partner Specialization and Audit Fees: Some Evidence from Sweden

Abstract: Utilizing a dataset on the client portfolios of the Big 4 audit partners in Sweden, this study examines auditor specialization and pricing at the individual partner level. Consistent with the view that there are returns on investing in specialization, the analysis of audit fees indicates that both audit partner industry specialization, and specialization in large public companies, are recognized and valued by financial statement users and/or by corporate insiders, resulting in higher fees within these engagements. The highest fees are earned by engagement partners who are both industry and public firm specialists. Collectively, the findings of this study indicate that part of an auditor’s deep expertise is not transferable across audit partners within an audit firm but is instead inseparably tied to the individual audit partner’s private human capital.

Sustainable Development and Certification Practices: Lessons Learned and Prospects

Abstract: This paper investigates the extent to which certification auditing can contribute to the realization of organizational accountability for sustainable development. A theoretical framework based on a critical analysis of financial and ISO auditing practices is proposed to shed light on the misconceptions, paradoxes and rational myths underlying the institutionalization of auditing practices in the area of corporate sustainability. As such, this paper casts doubt on the imagery of impartiality, rigor and accountability projected by organizations through discourses of certification. It also illustrates the pertinence of studying the auditing function from a cross-disciplinary viewpoint, and of paying attention to the processes by which auditing travels from one discipline to another. Copyright © 2010 John Wiley & Sons, Ltd and ERP Environment.

CEO Involvement in Selecting Board Members, Audit Committee Effectiveness, and Restatements

Abstract: Research finds that independent audit committees and audit committee financial experts are generally effective in monitoring the financial reporting and auditing processes. However, not all audit committees that appear in form to be independent are in fact actually independent, and not all financial experts with similar backgrounds and credentials are equally effective. We examine whether the benefits of having an independent and expert audit committee are diminished when the chief executive officer (CEO) is involved in the selection of board members. Using restatements, our results provide some evidence that the monitoring benefits of having an independent and expert audit committee are only maintained when the CEO is not formally involved in selecting board members. Further, we find that these results appear to be driven by the more severe restatements, including misstatements in conjunction with fraudulent financial reporting. In addition, we find our results continue to apply in the post-SOX period – a period that provides data for a more exact measure of CEO involvement in the director selection process, although these data have more limited variation in audit committee characteristics. Finally, we find that the stock market’s negative reaction to a restatement announcement is mitigated only when the audit committee is independent and the CEO was not involved in selecting board members.

The Role of the Internal Audit Function in the Disclosure of Material Weaknesses

Abstract: This study investigates the role that a firm’s internal audit function (IAF) plays in the disclosure of material weaknesses reported under Section 404 of the Sarbanes-Oxley Act of 2002 (U.S. Congress 2002). Using data from 214 firms, we examine the relation between material weakness (MW) disclosures and various IAF attributes and activities. Our results indicate that MW disclosures are negatively associated with the education level of the IAF and the extent to which the IAF incorporates quality assurance techniques into fieldwork, audits activities related to financial reporting, and monitors the remediation of previously identified control problems. The timing of Section 404 work and the nature of follow-up monitoring suggests that these aspects of IAF quality help prevent MWs from occurring. We find that MW disclosures are positively associated with the IAF practice of grading audit engagements and external-internal auditor coordination, suggesting that these activities increase the effectiven...

Does Female Directorship on Independent Audit Committees Constrain Earnings Management

Abstract: This study examines whether the gender of the directors on fully independent audit committees affects the ability of the committees in constraining earnings management and thus their effectiveness in overseeing the financial reporting process. Using a sample of 525 firm-year observations over the period 2003 to 2005, we are unable to identify an association between the proportion of female directors on audit committees and the extent of earnings management.

The case of sustainability assurance: constructing a new assurance service

Abstract: This paper presents an in-depth longitudinal case study examining the processes through which practitioners in two Big 4 professional services firms have attempted to construct sustainability assurance (independent assurance on sustainability reports). Power’s (1996, 1997, 1999, 2003) theorization of the way in which new subject areas are made auditable is used to frame the findings. The case analysis reveals the fragile nature of efforts to innovate with sustainability assurance and render sustainability reporting auditable. It suggests that innovation in new assurance practices may be constrained by an over-reliance on traditional financial audit training and techniques and certain internal professional services firm control procedures. Practitioners are shown to have experienced considerable discomfort in their attempts to construct a stable and legitimate knowledge base for assurance practice. Tacit knowledge embedded in highly subjective assessments of evidence has been frequently enrolled to make assurance possible in the presence of vague guidance from assurance standards. In light of ongoing practitioner struggles, both firms have publicly acknowledged the limitations of traditional financial audit practice operating alone in the conduct of sustainability assurance. In order to offset these limitations, they have proposed a coupling of ‘‘expert’’ stakeholder assessments of reporting completeness with traditional audit assessments of data reliability. This assigns part of the responsibility for delivering on a key assurance objective (reporting completeness) to what many practitioners perceive as questionable stakeholder expertise. The findings extend prior research highlighting the trial and error nature of the processes through which accountants seek to develop their presence in new markets for their expertise. They also question the extent to which the core aims being espoused for sustainability assurance can be substantively aligned with the operational capabilities available within Big 4 professional services firms.

Audit Management System

Abstract: A computer implemented method and system for managing an audit of one or more network layer devices is provided. An audit management system accessible by a user via a graphical user interface acquires network layer device information of the network layer devices and a configuration file comprising configuration file commands. The audit management system allows creation and/or selection of one or more audit policies for the network layer devices. The audit policies comprise one or more audit rules that define functioning of the network layer devices for one or more compliance policies. The audit management system executes the audit policies for performing the audit of the network layer devices by comparing the configuration file commands of the configuration file with the audit rules of the audit policies, and generates a report comprising information about security and compliance of the network layer devices with the compliance policies based on the audit.

Fraud Risk Factor Of The Fraud Triangle Assessing The Likelihood Of Fraudulent Financial Reporting

Abstract: This research examines risk factors of the fraud triangle, core of all fraud auditing standards, for assessing likelihood of fraudulent financial reporting. Significant variables, including analyst’s forecast error, debt ratio, directors’ and supervisors’ stock pledged ratio, percentage of sales related party transaction, number of historical restatements, and number of auditor switch, belong to pressure/incentive, opportunity and attitude/rationalization. Results indicate fraudulent reporting positively correlated to one of the following conditions: more financial pressure of a firm or supervisor of a firm, higher percentage of complex transactions of a firm, more questionable integrity of a firm’s managers, or more deterioration in relation between a firm and its auditor . A simple logistic model based on examples of fraud risk factors of ISA 240 and SAS 99 gauges the likelihood of fraudulent financial reporting and can benefit practitioners.