The Effect of Auditing Standard No. 5 on Audit Report Lags

2015 ◽  
Vol 29 (3) ◽  
pp. 507-527 ◽  
Author(s):  
Santanu Mitra ◽  
Hakjoon Song ◽  
Joon Sun Yang
Keyword(s):  
Internal Control ◽  
Extended Period ◽  
Data Availability ◽  
Audit Report ◽  
Audit Process ◽  
Top Down ◽  
The Public ◽  
Audit Efficiency ◽  
Public Company ◽  
The Impact

SYNOPSIS Auditing Standard No. 5 (AS5) introduced by the Public Company Accounting Oversight Board (PCAOB) in June 2007 requires a top-down risk-based approach in auditing and is expected to improve audit efficiency and make the overall auditing process timelier by reducing audit report lags. We investigate the impact of AS5 on audit report lags over an extended period from 2006 to 2011 and find that audit report lags are lower in the AS5 years (2007–2011) relative to the AS2 years (2006–2007). But this reduction is evident mostly for the firms with clean SOX 404 opinions. The presence of material internal control weaknesses (ICW) significantly increases audit report lags, but AS5 does not have any incremental moderating effect on report lags and the ICW relationship. Tests for the firms with company-level and account-specific ICWs demonstrate identical results. Additional analyses show that the learning curve effect takes place rapidly in the early part of the AS5 period and audits continue to remain efficient in terms of reduced report lags in the latter part of the AS5 period relative to the AS2 period. The year-to-year change analyses for the AS5 period further corroborate this result. Overall, our study demonstrates that the top-down, risk-based approach under AS5 makes the audit process more efficient and timelier by decreasing audit report lags. Data Availability: Data are available from public sources identified in the paper.

The Effects of Employer and Client Identification on Internal and External Auditors' Evaluations of Internal Control Deficiencies

2012 ◽  
Vol 31 (1) ◽  
pp. 39-56 ◽  
Author(s):  
Chad M. Stefaniak ◽  
Richard W. Houston ◽  
Robert M. Cornell
Keyword(s):  
Internal Control ◽  
Audit Quality ◽  
Data Availability ◽  
Internal Auditor ◽  
Internal Auditors ◽  
External Auditors ◽  
Audit Efficiency ◽  
Public Company ◽  
External Auditor ◽  
Internal Control Deficiencies

SUMMARY The Public Company Accounting Oversight Board's (PCAOB) Auditing Standard No. 5 (AS5) encourages external auditors to rely on internal auditors to increase the efficiency of lower-risk internal control evaluations (PCAOB 2007). We use post-SOX experimental data to compare the levels and effects of employer (client) identification on the control evaluations of internal (external) auditors. First, we find that internal auditors perceive a greater level of identification with the evaluated firm than do external auditors. We also find some evidence that, ceteris paribus, internal auditors are less lenient than external auditors when evaluating internal control deficiencies (i.e., tend to support management's preferred position to a lesser extent). Further, while we support Bamber and Iyer's (2007) results by finding that higher levels of external auditor client identification are associated with more lenient control evaluations, we demonstrate an opposite effect for internal auditors—higher levels of internal auditor employer identification are associated with less lenient control evaluations. Our results are important because we are the first to capture the relative levels of identification between internal and external auditors, as well as the first to compare directly internal and external auditor leniency, both of which are important in light of AS5. That is, we provide initial evidence that external auditors' increased reliance on internal auditors' work, while increasing audit efficiency, also could improve audit quality by resulting in less lenient internal control evaluations, due, at least in part, to the effects of employer and client identification. Data Availability: Contact the first author.

scholarly journals Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on the PCAOB Rulemaking Docket Matter 029: PCAOB Release No. 2011-007, Improving Transparency Through Disclosure of Engagement Partner and Certain Other Participants in Audits

2012 ◽  
Vol 6 (1) ◽  
pp. C1-C6 ◽  
Author(s):  
Keith L. Jones ◽  
Jagadison K. Aier ◽  
Duane M. Brandon ◽  
Tina D. Carpenter ◽  
Paul Caster ◽  
...  
Keyword(s):  
Exposure Period ◽  
Data Availability ◽  
Audit Report ◽  
Public Accounting ◽  
Accounting Firms ◽  
The Public ◽  
Public Comment ◽  
Public Company ◽  
Public Accounting Firms ◽  
Auditing Standards

SUMMARY In October 2011, the Public Company Accounting Oversight Board (PCAOB or Board) issued a release to solicit public comment on amendments to its standards that would improve the transparency of pubic company audits. The objective of the release was to solicit public comments on a proposed standard that would (1) require registered public accounting firms to disclose the name of the engagement partner in the audit report, (2) amend the Board's Annual Report Form to require registered firms to disclose the name of the engagement partner for each audit report already required to be reported on the form, and (3) require disclosure in the audit report of other independent public accounting firms and other persons that took part in the audit. The PCAOB provided for a 91-day exposure period (from October 11, 2011, to January 9, 2012) for interested parties to examine the release and provide comments. The Auditing Standards Committee of the Auditing Section of the American Accounting Association provided the comments in the letter below to the PCAOB on PCAOB Rulemaking Docket Matter 029: PCAOB Release No. 2011-007, Improving Transparency Through Disclosure of Engagement Partner and Certain Other Participants in Audits. Data Availability: Information about and access to the release is available at: http://pcaobus.org/Rules/Rulemaking/Docket029/PCAOB_Release_2011-007.pdf

The Impact of PCAOB Auditing Standard No. 5 on Audit Fees and Audit Quality

2012 ◽  
Vol 26 (3) ◽  
pp. 493-511 ◽  
Author(s):  
Dechun Wang ◽  
Jian Zhou
Keyword(s):  
Internal Control ◽  
Audit Quality ◽  
Audit Fees ◽  
Test Sample ◽  
Large Sample ◽  
The Public ◽  
Public Company ◽  
The Impact ◽  
Jel Classifications

SYNOPSIS We investigate the impact of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 5 (AS5) on audit fees and audit quality. AS5 supersedes Auditing Standard No. 2 (AS2), and became effective for audits for accelerated filers for fiscal years ending on or after November 15, 2007. Using a large sample of accelerated filers subject to AS5, we find evidence that audit fees decrease upon the adoption of AS5. More importantly, even though AS5 adoption reduces audit fees for our test sample, we find no evidence of a decrease in audit quality. In summary, we document evidence that AS5 improves the efficiency of internal control audits. JEL Classifications: M41.

scholarly journals Audit Partners' Judgments and Challenges in the Audits of Internal Control over Financial Reporting

2020 ◽  
Vol 39 (4) ◽  
pp. 57-85
Author(s):  
Jeffrey R. Cohen ◽  
Jennifer R. Joe ◽  
Jay C. Thibodeau ◽  
Gregory M. Trompeter
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Data Availability ◽  
Audit Committees ◽  
Structured Interviews ◽  
Material Weakness ◽  
The Public ◽  
National Office ◽  
Evaluation Task ◽  
Public Company

SUMMARY Internal control over financial reporting (ICFR) audits have been the subject of intensive examination by the Public Company Accounting Oversight Board (PCAOB) and researchers but the process through which auditors make ICFR judgments is largely a “black box.” To understand ICFR judgments, we conducted semi-structured interviews with 20 audit partners. Common themes in our interviews suggest that the subjectivity inherent in the ICFR evaluation task contributes to resistance against ICFR audit findings and cougnterarguments from management. Moreover, auditors perceive that their judgments are being second-guessed by PCAOB inspectors. Auditors believe that managers have difficulty accepting that material weaknesses can exist without a detected error, that management's reflexive reaction is to deny/avoid a material weakness finding, and managers routinely claim that management review controls (MRCs) would have caught the detected control deficiency. Auditors cope with management's defenses by consulting with their national office and leveraging support from strong audit committees. Data Availability: Requests for the data should be accompanied by a description of intended uses.

scholarly journals Evidence on the Impact of Internal Control over Financial Reporting on Audit Fees

2019 ◽  
Vol 9 (3) ◽  
pp. 1
Author(s):  
Mohamed Gaber ◽  
Samy Garas ◽  
Edward J. Lusk
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Public Information ◽  
Audit Fees ◽  
Stock Trading ◽  
Audit Opinion ◽  
The Public ◽  
Public Company ◽  
Effective Group ◽  
The Impact

Introduction: Circa 1992, the dot.com sector created an irrational stock-trading market where the usual “financial” profiles of: Liquidity, Cash Flow from Operations, and Revenue generation were replaced by Ponzi-esque mayhem. To stabilize the markets, the Public Company Accounting Oversight Board [PCAOB] required a second audit opinion: the COSO Opinion on the adequacy of management’s system of Internal Control over Financial Reporting: [ICoFR].Study Focus: Three COSO-[ICoFR] designations are now required as public information: (i) A “clean” opinion [Is Effective], (ii) Deficiencies are noted, and (iii) Weaknesses reported. Our research interest is to determine, for a panel of randomly selected firms traded on the S&P500 for a eleven-year period: 2005 to 2015, the nature of the effect that the COSO deficiency reporting protocol has on (i) Audit Fees and (ii) the Market Cap of traded firms.Method: To this end we collected, using the Audit Analytics Ô[WRDSÔ] database, various categories of reported Audit Fees and also Market Cap information. This random sample was classified into two sets: the first group: Is Effective SEC 302 Designation and No COSO issues & the second group: Is Not 100% Effective for which there were SEC 302 Deficiencies or Weaknesses noted.Results: Inferential testing indicates that failure to attend to the PCAOB-COSO imperatives results in a relational where there are higher Audit Fees and a slippage of the firm’s Market Cap compared to the Is Effective Group. The PCAOB’s protocol to require the Audit of the firm’s ICoFR system and make that evaluation public information seems to be an excellent corrective “Carrot and Stick”.

The Effects of Decision-Aid Design on Auditor Performance in Internal Control Evaluation Tasks

2017 ◽  
Vol 32 (2) ◽  
pp. 95-113 ◽  
Author(s):  
Uday S. Murthy ◽  
Patrick R. Wheeler
Keyword(s):  
Task Performance ◽  
Internal Control ◽  
Decision Aid ◽  
Decision Aids ◽  
Dilution Effect ◽  
Data Availability ◽  
Directed Search ◽  
The Public ◽  
Public Company ◽  
Control Evaluation

ABSTRACT Independent auditors evaluate internal controls (IC) using internal control questionnaires (ICQs). The Public Company Accounting Oversight Board (PCAOB) recommends that rather than using generic ICQs, auditors should consider using ICQs customized for each audit client. Based on Silver's (1988, 1990) decision-aid design principles and dilution effect research, we hypothesize that the presence of irrelevant task cues in an ICQ decision aid will negatively affect auditors' task performance and that task performance will be positively affected by an ICQ decision aid in which task cues are presented one at a time (directed search) rather than all together (non-directed). We conduct an experiment with practicing auditors as participants who complete an ICQ decision-aid with either few or many irrelevant questions presented all at once or a question at a time. We find partial support for the PCAOB's recommendation, in that participants were more accurate with a directed versus non-directed search ICQ decision aid. Irrelevant cues did not affect accuracy. Although the participants with directed search ICQ decision-aids were more accurate evaluating IC, they were less accurate assessing the overall strength of the IC system and recommending additional testing of IC and transaction details. These findings have important implications for the design and use of decision aids. Data Availability: Contact the authors.

scholarly journals Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Rulemaking Docket Matter No. 042: PCAOB Release No. 2017-005, Proposed Amendments Relating to the Supervision of Audits Involving Other Auditors and Proposed Auditing Standard— Dividing Responsibility for the Audit with Another Accounting Firm

2018 ◽  
Vol 12 (1) ◽  
pp. C11-C18 ◽  
Author(s):  
Sean A. Dennis ◽  
Denise Dickins ◽  
Christine E. Earley ◽  
Christine Nolder ◽  
Tammie J. Schaefer
Keyword(s):  
Data Availability ◽  
Audit Report ◽  
Accounting Firms ◽  
Accounting Firm ◽  
The Public ◽  
Public Company ◽  
Auditing Standards

SUMMARY On September 26, 2017, the Public Company Accounting Oversight Board (PCAOB) solicited public comments on Proposed Amendments Relating to the Supervision of Audits Involving Other Auditors and Proposed Auditing Standard—Dividing the Responsibility for the Audit with Another Accounting Firm. The supplemental request for comment seeks commenters' views on the proposed amendments and standard related to audits involving accounting firms and individuals other than the accounting firm that issues the audit report. The comment period ended on November 15, 2017. This commentary summarizes the contributors' views on these amendments. Data Availability: The supplemental request for comment Proposed Amendments Relating to the Supervision of Audits Involving Other Auditors and Proposed Auditing Standard—Dividing Responsibility for the Audit with Another Accounting Firm is available at: https://pcaobus.org/Rulemaking/Docket042/2017-005-other-auditors-SRC.pdf, and the comment letter sent in by the Auditing Standards Committee is available at: https://pcaobus.org/Rulemaking/Docket042/020b_AAA.pdf.

THE INSTITUTIONAL EFFECTS OF LEADERSHIP: THE UNITED STATES GENERAL ACCOUNTING OFFICE AND ITS AUDIT REPORT REVIEW PROCESS

1994 ◽  
Vol 21 (1) ◽  
pp. 255-273 ◽  
Author(s):  
Onker N. Basu
Keyword(s):  
United States ◽  
Review Process ◽  
Field Research ◽  
The United States ◽  
Organizational Leaders ◽  
Audit Report ◽  
The Public ◽  
General Accounting Office ◽  
Audit Team ◽  
The Impact

In accounting research, the role of organizational leaders has been underrepresented. The limited research dealing with leadership issues has focused on the impact of leadership on micro activities such as performance evaluation, budget satisfaction, and audit team performance. The impact of leadership on the structure of accounting and audit systems and organizations has been ignored. This paper focuses on the impact that past Comptrollers General have had on the working and structure of one federal audit agency, the United States General Accounting Office (GAO). In addition, it also focuses on the influence of the two most recent Comptrollers General on one important audit related activity, i.e., the audit report review process. Using qualitative field research methods, this paper documents how the organizational leadership impacts its long-term audit practices and thereby influences auditing, especially in the public sector.

The Search for Order in Municipal Administration: Herman A. Metz and the New York City Experience, 1898–1909

2020 ◽  
Vol 47 (1) ◽  
pp. 55-74
Author(s):  
Ryan P. McDonough ◽  
Paul J. Miranti ◽  
Michael P. Schoderbek
Keyword(s):  
New York ◽  
New York City ◽  
Internal Control ◽  
York City ◽  
Internal Controls ◽  
Data Availability ◽  
Financial Reports ◽  
The Public ◽  
Operational Activities ◽  
The City

ABSTRACT This paper examines the administrative and accounting reforms coordinated by Herman A. Metz around the turn of the 20th century in New York City. Reform efforts were motivated by deficiencies in administering New York City's finances, including a lack of internal control over monetary resources and operational activities, and opaque financial reports. The activities of Comptroller Metz, who collaborated with institutions such as the New York Bureau of Municipal Research, were paramount in initiating and implementing the administrative and accounting reforms in the city, which contributed to reform efforts across the country. Metz promoted the adoption of functional cost classifications for city departments, developed flowcharts for improved transaction processing, strengthened internal controls, and published the 1909 Manual of Accounting and Business Procedure of the City of New York, which laid the groundwork for transparent financial reports capable of providing vital information about the city's activities and subsidiary units. JEL Classifications: H72, M41, N91. Data Availability: Data are available from the public sources cited in the text.

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