Showing papers on "Audit published in 2017"

Enhanced Recovery After Surgery: A Review

Abstract: Importance Enhanced Recovery After Surgery (ERAS) is a paradigm shift in perioperative care, resulting in substantial improvements in clinical outcomes and cost savings. Observations Enhanced Recovery After Surgery is a multimodal, multidisciplinary approach to the care of the surgical patient. Enhanced Recovery After Surgery process implementation involves a team consisting of surgeons, anesthetists, an ERAS coordinator (often a nurse or a physician assistant), and staff from units that care for the surgical patient. The care protocol is based on published evidence. The ERAS Society, an international nonprofit professional society that promotes, develops, and implements ERAS programs, publishes updated guidelines for many operations, such as evidence-based modern care changes from overnight fasting to carbohydrate drinks 2 hours before surgery, minimally invasive approaches instead of large incisions, management of fluids to seek balance rather than large volumes of intravenous fluids, avoidance of or early removal of drains and tubes, early mobilization, and serving of drinks and food the day of the operation. Enhanced Recovery After Surgery protocols have resulted in shorter length of hospital stay by 30% to 50% and similar reductions in complications, while readmissions and costs are reduced. The elements of the protocol reduce the stress of the operation to retain anabolic homeostasis. The ERAS Society conducts structured implementation programs that are currently in use in more than 20 countries. Local ERAS teams from hospitals are trained to implement ERAS processes. Audit of process compliance and patient outcomes are important features. Enhanced Recovery After Surgery started mainly with colorectal surgery but has been shown to improve outcomes in almost all major surgical specialties. Conclusions and Relevance Enhanced Recovery After Surgery is an evidence-based care improvement process for surgical patients. Implementation of ERAS programs results in major improvements in clinical outcomes and cost, making ERAS an important example of value-based care applied to surgery.

Do Client Characteristics Really Drive the Big N Audit Quality Effect? New Evidence from Propensity Score Matching

Abstract: A large auditing literature concludes that Big N auditors provide higher audit quality than non-Big N auditors. Recently, however, a high-profile study suggests that propensity score matching (PSM) on client characteristics eliminates the Big N effect [Lawrence A, Minutti-Meza M, Zhang P (2011) Can Big 4 versus non-Big 4 differences in audit-quality proxies be attributed to client characteristics? Accounting Rev. 86(1):259–286]. We conjecture that this finding may be affected by PSM’s sensitivity to its design choices and/or by the validity of the audit quality measures used in the analysis. To investigate, we examine random combinations of PSM design choices that achieve covariate balance, and four commonly used audit quality measures. We find that the majority of these design choices support a Big N effect for most of the audit quality measures. Overall, our findings show that it is premature to suggest that PSM eliminates the Big N effect. This paper was accepted by Suraj Srinivasan, accounting.

The Emergence of Artificial Intelligence: How Automation is Changing Auditing

Abstract: This paper provides an overview of the emergence of artificial intelligence in accounting and auditing. We discuss the current capabilities of cognitive technologies and the implications these technologies will have on human auditors and the audit process itself. We also provide industry examples of artificial intelligence implementation by Big 4 accounting firms. Finally, we address some potential biases associated with the creation and use of artificial intelligence and discuss implications for future research.

Big Data and Analytics in the Modern Audit Engagement: Research Needs

Abstract: SUMMARY: Modern audit engagements often involve examination of clients that are using Big Data and analytics to remain competitive and relevant in today's business environment. Client systems now are integrated with the cloud, the Internet of Things, and external data sources such as social media. Furthermore, many engagement clients are now integrating this Big Data with new and complex business analytical approaches to generate intelligence for decision making. This scenario provides almost limitless opportunities and the urgency for the external auditor to utilize advanced analytics. This paper first positions the need for the external audit profession to move toward Big Data and audit analytics. It then reviews the regulations regarding audit evidence and analytical procedures, in contrast to the emerging environment of Big Data and advanced analytics. In a Big Data environment, the audit profession has the potential to undertake more advanced predictive and prescriptive-oriented analytics. The next s...

Mining corporate annual reports for intelligent detection of financial statement fraud A comparative study of machine learning methods

Abstract: We combine features derived from financial information and managerial comments.We employ feature selection and classification using a wide range of machine learning methods.Analysts forecasts of revenues and earnings are necessary to detect fraudulent firms.Misclassification cost ratio of 1:2 is based on the loss attributable to financial statement fraud and audit fees.Interpretable Nave Bayes-based models outperform remaining methods in terms of misclassification costs. Financial statement fraud has been serious concern for investors, audit firms, government regulators, and other capital market stakeholders. Intelligent financial statement fraud detection systems have therefore been developed to support decision-making of the stakeholders. Fraudulent misrepresentation of financial statements in managerial comments has been noticed in recent studies. As such, the purpose of this study was to examine whether an improved financial fraud detection system could be developed by combining specific features derived from financial information and managerial comments in corporate annual reports. To develop this system, we employed both intelligent feature selection and classification using a wide range of machine learning methods. We found that ensemble methods outperformed the remaining methods in terms of true positive rate (fraudulent firms correctly classified as fraudulent). In contrast, Bayesian belief networks (BBN) performed best on non-fraudulent firms (true negative rate). This finding is important because interpretable ``green flag values (for which fraud is likely absent) could be derived, providing potential decision support to auditors during client selection or audit planning. We also observe that both financial statements and text in annual reports can be utilised to detect non-fraudulent firms. However, non-annual report data (analysts forecasts of revenues and earnings) are necessary to detect fraudulent firms. This finding has important implications for selecting variables when developing early warning systems of financial statement fraud.

Sourcing Under Supplier Responsibility Risk: The Effects of Certification, Audit, and Contingency Payment

Abstract: Companies that source from emerging economies often face supplier responsibility risks, namely, financial and reputational burdens that the companies have to bear when their suppliers’ engagement in noncomplying labor and environmental practices becomes public. To mitigate such risks, companies can invest in screening mechanisms and design incentive schemes in sourcing contracts. Common mitigation instruments include supplier certification, process audits, and contingency payments. The interactions of these instruments are often not well understood. We first note that the effectiveness of any mitigation instrument depends on how it changes the economic trade-offs faced by a supplier in compliance to social and environmental standard, and hence we develop a model that explicitly captures such trade-offs. As a result, our model endogenizes the supplier’s noncompliance probability and connects it with various factors, including the supplier’s intrinsic ethical level that is unobservable to the buyer. We then...

Do Social Ties between External Auditors and Audit Committee Members Affect Audit Quality

Abstract: We examine whether social ties between engagement auditors and audit committee members shape audit outcomes. Although these social ties can facilitate information transfer and help auditors alleviate management pressure to waive correction of detected misstatements, close interpersonal relations can undermine auditors' monitoring of the financial reporting process. We measure social ties by alma mater connections, professor-student bonding, and employment affiliation, and audit quality by the propensity to render modified audit opinions, financial reporting irregularities, and firm valuation. Our evidence implies that social ties between engagement auditors and audit committee members impair audit quality. In additional results consistent with expectations, we generally find that this relation is concentrated where social ties are more salient, or firm governance is relatively poor and agency conflicts are more severe. Implying reciprocity stemming from social networks, we also report some sugge...

Why regulate private firm disclosure and auditing

Abstract: Private firms face differing financial disclosure and auditing regulations around the world. In the US and Canada, for example, private firms are generally neither required to disclose their financial results nor have their financial statements audited. By contrast, many firms with limited liability in most other countries are required to file at least some financial information publicly and are also required to have their financial statements audited. This paper discusses and analyzes the reasons for differential financial reporting regulation of private firms. We first discuss various definitions of a private firm. Next, we examine theoretical arguments for regulating the financial reporting of these firms, particularly related to public disclosure and auditing. We then provide new survey-based evidence of firms’ and standard setters’ views of regulation. We conclude by identifying future research opportunities.

The impact of audit committee expertise on audit quality: Evidence from UK audit fees

Abstract: Governance regulators currently place great emphasis on ensuring the presence of financial expertise on audit committees (Sarbanes-Oxley, 2002; UK Corporate Governance Code 2010–2016). Underlying this is a belief that greater expertise enhances the effectiveness of audit committees and, by extension, the quality of the external audit. This study investigates the impact of audit committee expertise on one measure of audit quality - audit fees paid by FTSE350 companies. Our analysis finds that audit committees possessing greater levels of financial expertise are associated with higher audit fees. When we segregate financial expertise between accounting and non-accounting, we find that the positive impact identified is driven by non-accounting expertise. Furthermore, when we separate FTSE100 and FTSE250 firms we find the impact of financial expertise is confined to FTSE250 firms. Our findings are important as they highlight the usefulness of segregating financial expertise between specialists and non-specialists, something which regulators in the UK and in the USA currently do not do. Our findings also highlight the potential value of audit committee expertise in smaller as opposed to larger listed firms, suggesting that the value of expertise to audit quality depends on the specific financial reporting challenges firms face.

The Contagion Effect of Low-Quality Audits at the Level of Individual Auditors

Abstract: This study examines the relation between the audit failures of individual auditors and the quality of other audits performed by these same auditors. Employing a Chinese setting where audit reports reveal the identities of engagement auditors, we find that auditors who have performed failed audits also deliver lower-quality audits on other audit engagements, with this “contagion” effect spreading both over time and to other audits performed by these same auditors in the same year. However, we find little evidence that an audit failure also casts doubt on the quality of audits performed by “non-failed” auditors who are same-office colleagues of a “failed” auditor. We further discover that the contagion effect is attenuated for female auditors, auditors holding a master's degree, and auditors with more auditing experience. Our results underscore the usefulness of disclosing the identity and personal characteristics of individual auditors to investors and regulators.

Do PCAOB Inspections Improve the Quality of Internal Control Audits

Abstract: We investigate whether Public Company Accounting Oversight Board (PCAOB) inspections affect the quality of internal control audits. Our research design improves on prior studies by exploiting both cross-sectional and time-series variation in the content of PCAOB inspection reports, while also controlling for audit firm and year fixed effects, effectively achieving a difference-in-differences research design. We find that when PCAOB inspectors report higher rates of deficiencies in internal control audits, auditors respond by increasing the issuance of adverse internal control opinions. We also find that auditors issue more adverse internal control opinions to clients with concurrent misstatements, who thus genuinely warrant adverse opinions. We further find that higher inspection deficiency rates lead to higher audit fees, consistent with PCAOB inspections prompting auditors to undertake costly remediation efforts. Taken together, our results are consistent with the PCAOB inspections improving the quality of internal control audits by prompting auditors to remediate deficiencies in their audits of internal controls.

The Informational Value of Key Audit Matters in the Auditor’s Report: Evidence from an Eye-tracking Study

Abstract: Using eye-tracking technology, we examine whether and how the addition of mandatory paragraphs that highlight Key/Critical audit matters (KAM) in the auditor’s report affects users’ attention to financial statement information. Using an experiment, we manipulated the presence of KAMs, their number (one or three KAMs), and their format with the inclusion of an overview of audit procedures performed to address each KAM. We find that KAMs have attention directing impact, in that they increased participants’ attention to KAM-related financial statement disclosures. However, when exposed to an auditor’s report with multiple KAMs including audit procedures and additional language relevant to the understanding of KAMs, participants devoted less attention to the remaining parts of the financial statements. Overall, our results show that, as expected by standard setters, the communication of KAMs have attention directing effects, but may also act as a substitute for reading parts of the financial statements not referred in KAMs.

Internal Control and Stock Price Crash Risk: Evidence from China

Abstract: This paper examines the role played by internal control and its five components (i.e. control environment, risk assessment, control activities, information and communication, and monitoring) in alleviating future stock price crash risk. Using a unique dataset from China, we find evidence that internal control is negatively associated with future stock price crash risk. Specifically, control environment, information and communication, and monitoring are significantly and negatively associated with future stock price crash risk. Moreover, the negative association between internal control and crash risk is significantly more pronounced in firms with weak internal and external governance (i.e. audited by non-Big 4 auditors, located in provinces with low market development, and less conservative in accounting) and with poor ability to mitigate impacts of extreme negative events (i.e. non-state-owned enterprises). Our study highlights the delicate role of internal control as a mechanism in preventing cr...

NPP: A New Privacy-Aware Public Auditing Scheme for Cloud Data Sharing with Group Users

Abstract: Today, cloud storage becomes one of the critical services, because users can easily modify and share data with others in cloud. However, the integrity of shared cloud data is vulnerable to inevitable hardware faults, software failures or human errors. To ensure the integrity of the shared data, some schemes have been designed to allow public verifiers (i.e., third party auditors) to efficiently audit data integrity without retrieving the entire users’ data from cloud. Unfortunately, public auditing on the integrity of shared data may reveal data owners’ sensitive information to the third party auditor. In this paper, we propose a new privacy-aware public auditing mechanism for shared cloud data by constructing a homomorphic verifiable group signature. Unlike the existing solutions, our scheme requires at least t group managers to recover a trace key cooperatively, which eliminates the abuse of single-authority power and provides nonframeability. Moreover, our scheme ensures that group users can trace data changes through designated binary tree; and can recover the latest correct data block when the current data block is damaged. In addition, the formal security analysis and experimental results indicate that our scheme is provably secure and efficient.

Measuring Accounting Reporting Complexity with XBRL

Abstract: Using eXtensible Business Reporting Language (XBRL) filings, we propose two measures of accounting complexity The first is based on the number of US GAAP XBRL Taxonomy tags reported in the annual financial filings The second is based on the number of customized (extended) XBRL tags created by companies when the taxonomy does not include suitable tags to represent company-specific accounting concepts Based on existing theory, we conjecture that high volume and more unique company-specific accounting information complicate the preparation of the financial reports We validate these measures by examining their association with several proxies for financial reporting quality We find that the proposed accounting complexity measures are strongly associated with increased likelihood of issuing financial statement restatements, disclosing material weaknesses in internal controls and with higher level of abnormal accruals Greater complexity is also positively associated with higher audit fees

Assuring the integrated report: Insights and recommendations from auditors and preparers

Abstract: There is little guidance on how integrated reports could be the subject matter of a conventional assurance engagement despite their growing use as an important means of communicating with stakeholders. This paper takes the first step in addressing this issue. The study relies on primary data collected from recorded interviews with 20 audit experts and 20 preparers, complemented by principles from existing professional assurance standards, to develop interpretively three possible assurance models (restricted, integrated and Delphi-inspired assurance). A restricted assurance model concentrates only on the audit of financial statements and the reporting of inconsistencies between the financial statements and other information contained in an integrated report to those charged with an organisation's governance. An integrated approach to ‘assurance’ offers an immediate solution for providing at least some assurance over the integrated report. It relies on different systems of checks and balances to provide directors with a basis for accepting responsibility for their organisations' integrated reports. Finally, a Delphi-inspired model offers a glimpse into how assurance services may evolve in response to the call for integrated reports to be assured. This model relies on a panel of experts to express an opinion on the method used to prepare integrated reports.

Current Practices and Challenges in Auditing Fair Value Measurements and Complex Estimates: Implications for Auditing Standards and the Academy

Abstract: SUMMARY: Auditing fair value measurements and other complex estimates (hereafter, FVMs) has received significant attention from regulators, practitioners, and researchers. Using a survey, we gather...

Strong Key-Exposure Resilient Auditing for Secure Cloud Storage

Abstract: Key exposure is one serious security problem for cloud storage auditing. In order to deal with this problem, cloud storage auditing scheme with key-exposure resilience has been proposed. However, in such a scheme, the malicious cloud might still forge valid authenticators later than the key-exposure time period if it obtains the current secret key of data owner. In this paper, we innovatively propose a paradigm named strong key-exposure resilient auditing for secure cloud storage, in which the security of cloud storage auditing not only earlier than but also later than the key exposure can be preserved. We formalize the definition and the security model of this new kind of cloud storage auditing and design a concrete scheme. In our proposed scheme, the key exposure in one time period doesn’t affect the security of cloud storage auditing in other time periods. The rigorous security proof and the experimental results demonstrate that our proposed scheme achieves desirable security and efficiency.

Governing Global Supply Chain Sustainability through the Ethical Audit Regime

Abstract: Over the past two decades multinational corporations have been expanding ‘ethical’ audit programs with the stated aim of reducing the risk of sourcing from suppliers with poor practices. A wave of government regulation—such as the California Transparency in Supply Chains Act (2012) and the UK Modern Slavery Act (2015)—has enhanced the legitimacy of auditing as a tool to govern labor and environmental standards in global supply chains, backed by a broad range of civil society actors championing audits as a way of promoting corporate accountability. The growing adoption of auditing as a governance tool is a puzzling trend, given two decades of evidence that audit programs generally fail to detect or correct labor and environmental problems in global supply chains. Drawing on original field research, this article shows that in spite of its growing legitimacy and traction among government and civil society actors, the audit regime continues to respond to and protect industry commercial interests. Conc...

Does family ownership reduce corporate tax avoidance? The moderating effect of audit quality

Abstract: Purpose The purpose of this paper is to shed light on the effect of family ownership on corporate tax avoidance. It also investigates whether audit quality affects tax avoidance practices by family firms. Design/methodology/approach Based on a sample of 55 Tunisian listed companies from 2008 to 2013, the authors use GLS regression models estimated with robust standard errors, clustered at the firm level. Findings The results show that family ownership is positively associated with corporate tax avoidance practices, suggesting that families expropriate minority interests by extracting rents from tax-saving positions. These practices are less prominent after the 2011 Tunisian revolution, suggesting that the pressure from governments and non-governmental organizations against corruption and unethical behavior has increased after the revolution. However, the findings show that audit quality curbs the incentives of family firms to engage in aggressive tax positions, supporting the moderating effect of audit quality on the relation between family ownership and tax avoidance. Research limitations/implications These findings suggest that Tunisian family firms are likely to expropriate minority interests by extracting rents from tax-saving positions. However, in presence of high-quality audit, the relation turns negative, suggesting that external audit quality is an efficient corporate governance device that is likely to monitor family corporate decisions. Originality/value This paper extends previous research by investigating the moderating effect of external audit quality on the relation between tax avoidance and family ownership. It also examines tax avoidance by family firms in a unique setting: Tunisia, a transitioning economy subsequently to the 2011 revolution, where investors’ rights are weakly protected and the financial market is not well-developed as in more developed countries.

Internal Audit of the Canadian Neonatal Network Data Collection System

Abstract: Background Neonatal databases worldwide have become a prominent tool for benchmarking, evaluation of outcomes, and quality improvement initiatives. We aimed to assess the precision of the Canadian Neonatal Network (CNN) database by conducting an internal audit of data extraction. Methods An audit was conducted in all 31 neonatal units participating in the CNN. Ninety-five data items selected for reabstraction were classified into categories (critical, important, less important) based on predefined agreement rates. Five records were randomly selected at each site for reabstraction, including one short (3–7 days), two medium (8–12 days), and two long (18–22 days) stay cases. Agreement rates for each data item were calculated for individual units and across the network. Results A total of 155 cases and 14,725 data fields were reabstracted. The overall agreement rates for critical, important, and less important data items were 98.0, 96.1, and 96.3%, respectively. Individual site variation for discrepancies ranged between 0.2 and 12.8% for all collected data items. Conclusion Neonatal data extraction within the CNN database structure exhibited high precision; thereby, revealing the reliability of our data abstraction for neonatal demographic, processes of care, and outcomes information. An independent external audit of data extraction would be beneficial.

Auditing private companies: what do we know?

Abstract: The purpose of this article is to provide an overview of the literature on what we currently know about the costs and benefits of auditing private company accounts. Our main conclusions are the fol...

Gender in accounting research: a review

Abstract: Purpose This paper aims to review studies dealing with gender issues in accounting literature over the period of 1994-2016. Design/methodology/approach This study combines electronic and manual searches to identify relevant studies using keywords such as “gender” or “female” and “earnings quality” or “social and environmental disclosure” or “auditing” or “tax aggressiveness”. In total, 64 published studies were identified. Findings Three main streams of gender accounting literature related to financial reporting (earnings quality, accounting conservatism, voluntary disclosure), auditing (audit fees, audit opinion, audit report lag) and other miscellaneous topics were identified. Gender accounting literature uses empirical analysis, experimental approaches and interviews. Reviewed studies deal with top management gender (CEO, CFO), board of directors, audit committee and auditor gender. A synthesis of empirical findings shows that female representation on the board, audit committee, CFO or CEO leads to more conservative reporting, higher level of social and environmental disclosure, less tax aggressiveness and higher audit fees. Furthermore, auditor gender influences audit quality through lower abnormal accruals and shorter audit report lag, higher likelihood of issuing an adverse audit opinion and higher audit fees. Qualitative studies dealing with miscellaneous topics in gender accounting literature generally focus on the status of women in accounting and auditing professions, gender issues in accounting academic setting and disclosure about women in annual reports. Practical implications This review informs policymakers about the effect of female representation on accounting and auditing practices given the political debate largely shaped by anti-discriminatory arguments concerning the under-representation of women in management and audit professions. Originality/value This study goes beyond a classic narrative review by presenting criticisms to gender accounting literature and suggesting future research avenues.