scholarly journals How Does an Initial Expectation Bias Influence Auditors' Application and Performance of Analytical Procedures?

2013 ◽  
Vol 88 (4) ◽  
pp. 1413-1431 ◽  
Author(s):  
Byron J. Pike ◽  
Mary B. Curtis ◽  
Lawrence Chui
Keyword(s):  
Analytical Procedure ◽  
Data Availability ◽  
Financial Statement ◽  
Experimental Setting ◽  
Initial Expectation ◽  
Pertinent Information ◽  
Analytical Procedures ◽  
And Performance ◽  
Selective Accessibility Model ◽  
Expectation Bias

ABSTRACT Prior research demonstrates that knowledge of unaudited balances biases auditors' expectations during analytical procedures. What is less understood is how these biases affect auditors' subsequent investigations and their conclusions about the reasonableness of a particular balance. We employ the selective accessibility model to examine the differences in analytical procedure performance when auditor expectations are formed with versus without knowledge of the client's unaudited financial statement balances. In an experimental setting, we found that auditors with knowledge of unaudited balances favored hypotheses and supporting information indicating that the client's balance was reasonably stated. Auditors who formed expectations without current-year figures were more willing to evaluate competing alternatives, could better identify the most pertinent information, and were significantly more likely to identify a material misstatement using an analytical procedure. Data Availability: Data are available from the authors on request.

Two Decades of Behavioral Research on Analytical Procedures: What Have We Learned?

2012 ◽  
Vol 32 (1) ◽  
pp. 139-181 ◽  
Author(s):  
William F. Messier ◽  
Chad A. Simon ◽  
Jason L. Smith
Keyword(s):  
Analytical Procedure ◽  
Behavioral Research ◽  
Data Availability ◽  
Comprehensive Review ◽  
External Auditors ◽  
The Past ◽  
Considerable Research ◽  
Research Questions ◽  
Analytical Procedures ◽  
Corroborative Evidence

SUMMARY This paper presents a comprehensive review of behavioral research on external auditors' use of analytical procedures published over the past two decades. We frame our review around four phases of the analytical procedures process: develop an expectation, establish a tolerable difference, compare the expectation to the recorded amount and investigate significant differences, and evaluate explanations and corroborative evidence. We find that while considerable research has focused on auditors' performance of the latter phases of the analytical procedures process (i.e., investigate significant differences and evaluate explanations and evidence), relatively less research has focused on the initial phases of the process (i.e., setting expectations and establishing thresholds). We also find that prior research has primarily focused on the preliminary and substantive analytical procedure settings with little research examining auditors' judgments and decisions when using analytical procedures at the overall review stage of the audit engagement. Finally, we summarize the significant findings from research in each phase and provide a number of research questions whose answers could improve our understanding and the performance of analytical procedures. Data Availability: All articles are publicly available.

Applying analytical procedures for performance audit of customs authorities

2020 ◽  
Vol 19 (6) ◽  
pp. 1035-1055 ◽  
Author(s):  
S.V. Pankova ◽  
V.V. Popov
Keyword(s):  
Distance Method ◽  
Scientific Methods ◽  
Scientific Hypothesis ◽  
Financial Audit ◽  
Promising Area ◽  
History Of ◽  
Performance Audit ◽  
Analytical Procedures ◽  
And Performance ◽  
Customs Administration

Subject. The article considers the development of a set of methods and indicators of economic analysis, which can be used for performance audit of customs authorities, using the Volga Customs Administration case. Objectives. The aim is to justify the use of analytical procedures to rank the effectiveness of customs payments for the purpose of performance audit of customs authorities. Methods. We employ general scientific methods of research, i.e. dialectical and monographic methods, logical analysis, comparison, as well as the Euclidean distance method. Results. We reviewed works by Russian and foreign scholars on the history of customs audit development and internal financial control of customs authorities, gave scientific credence to attributing the system of customs payment and performance to the indicators of economic activity of customs authorities. Due to the lack of methods for assessing the performance of customs authorities, the use of analytical procedures during the performance audit seems to be a promising area. Conclusions. When verifying the scientific hypothesis put forward in the study, we established that the introduction and development of the ranking system for the performance of customs authorities related to the collection of customs duties can contribute to effective financial audit of customs authorities in general.

Accelerated Filing Deadlines, Internal Controls, and Financial Statement Quality: The Case of Originating Misstatements

2015 ◽  
Vol 29 (3) ◽  
pp. 551-575 ◽  
Author(s):  
Colleen M. Boland ◽  
Scott N. Bronson ◽  
Chris E. Hogan
Keyword(s):  
Internal Control ◽  
Internal Controls ◽  
Data Availability ◽  
Financial Statement ◽  
Similar Increase ◽  
Section 404 ◽  
Regulatory Changes ◽  
Rule Change ◽  
Initial Decrease

SYNOPSIS We examine whether regulations requiring accelerated filing deadlines and internal control reporting and testing affect financial statement reliability. Unlike prior research, we examine whether these regulatory changes are associated with an increase in the likelihood that misstatements originate in the period following the respective change. If the implementation of these rules causes a misstatement, then the misstatement would most likely occur in the period immediately following the rule change. We provide evidence that accelerated filers (AFs) experience an increase in the likelihood of an originating misstatement following the acceleration of filing deadlines from 90 to 75 days. Large accelerated filers (LAFs), however, do not experience a similar increase following this acceleration or the subsequent acceleration from 75 to 60 days. After the implementation of the SOX Section 404 internal control requirements, we find that the likelihood of an originating misstatement declined for AFs but not for LAFs. Taken together, the findings suggest that, although AFs experienced an initial decrease in financial statement reliability, this decrease was temporary. Data Availability: Data are publicly available from the sources identified in the text.

Investor Reaction to Auditors' Going Concern Emphasis of Matter: Evidence from a Natural Experiment

2018 ◽  
Vol 38 (2) ◽  
pp. 27-55 ◽  
Author(s):  
Jean Bédard ◽  
Carl Brousseau ◽  
Ann Vanstraelen
Keyword(s):  
Trading Volume ◽  
Natural Experiment ◽  
Abnormal Returns ◽  
Data Availability ◽  
Financial Statement ◽  
Regulatory Change ◽  
Price Response ◽  
Going Concern ◽  
Incremental Value ◽  
Investor Reaction

SUMMARY Using a “natural experiment” provided by a change in Canadian auditing standards requiring an emphasis of matter paragraph in the auditor's report (GC-EOM) when the financial statements include a going concern uncertainty disclosure (GC-FS), this paper examines the incremental investor reaction to the auditor's report over the related GC-FS. Conditioning on the linguistic severity of the GC-FS (weak and severe), we first document a negative price response to severe but not to weak GC-FS before the regulatory change. This implies that investors react to financial statement disclosures and account for their degree of interpretability in the absence of a GC-EOM. When the uncertainty disclosure is accompanied by a GC-EOM, we find incremental negative abnormal returns and lower abnormal trading volume only for weak GC-FS. Collectively, these findings imply that an emphasis of matter paragraph in the auditor's report can have incremental value to investors. JEL Classifications: M42; G12; G14. Data Availability: Data used are available from public sources identified in the study.

Workplace Mindfulness and its Effect on Staff Auditors' Audit Quality-Threatening Behavior

2018 ◽  
Vol 31 (1) ◽  
pp. 55-64 ◽  
Author(s):  
David N. Herda ◽  
Nathan H. Cannon ◽  
Randall F. Young
Keyword(s):  
Indirect Effect ◽  
Audit Quality ◽  
Review Process ◽  
Effective Means ◽  
Data Availability ◽  
Financial Statement ◽  
Work Setting ◽  
Effective Technique ◽  
Staff Level

ABSTRACT This study investigates the effect of staff auditors' workplace mindfulness on premature sign-off—a serious audit quality-threatening behavior that can go undetected through the review process. We also examine whether supervisor coaching is an effective means to engender workplace mindfulness. Using a sample of 115 auditors, we predict and find that (1) auditors who are coached by supervisors to appreciate the importance of their work to external financial statement users are more likely to be mindful in their work setting, and (2) greater workplace mindfulness about financial statement user considerations is associated with a reduced likelihood of auditor sign-off on an audit procedure not completed. We also find that supervisor coaching has an indirect effect on premature sign-off through workplace mindfulness. The results underscore the importance of workplace mindfulness in reducing audit quality-threatening behavior and indicate that supervisor coaching may be an effective technique in eliciting mindfulness among staff-level auditors. Data Availability: Contact the authors.

scholarly journals Quality assessment of linked Canadian clinical administrative hospital and vital statistics death data

2018 ◽  
Vol 3 (4) ◽  
Author(s):  
Nancy Rodrigues ◽  
Maureen Kelly ◽  
Tobi Henderson
Keyword(s):  
Assessment Tool ◽  
Vital Statistics ◽  
Data Availability ◽  
Supplementary Information ◽  
Five Dimensions ◽  
Tracking Process ◽  
Data Assessment ◽  
Hospital Deaths ◽  
And Performance ◽  
Discharge From Hospital

IntroductionThree Canadian clinical-administrative hospital databases were linked to the Canadian Vital Statistics Death Database (CVSD) to provide information about patients who died following discharge from hospital as well as supplementary information about patients that died in-hospital. Quality was assessed using a guided approach and through feedback from initial users. Objectives and ApproachThe linked datasets were created to develop and validate health care indicators and performance measures and perform outcome analyses. It is therefore imperative to evaluate the data’s fitness for use. Quality was assessed by calculating coverage of deaths for all linked contributors, creating a profile of the linked dataset and analyzing issues that were identified by users. These analyses were guided by an existing Data Source Assessment Tool, which provides a set of criteria that allow for assessment across five dimensions of quality, thus allowing for appropriate determination of a given set of data’s fitness for use. ResultsDeterministic linkage of the datasets resulted in linkage rates that ranged from 66.9% to 90.9% depending on the dataset or data year. Linkage rates also varied by Canadian jurisdictions and patient cohort. Variables had good data availability with rates of 95% or higher. Initial users identified a significant number of duplicate records that were flagged to and corrected by the data supplier. 1.4\% of acute hospital deaths had discrepancies in the death date captured in the two linked sources; the vast majority had a difference of only one day. A user group and issue tracking process were created to share information about the linked data and guarantee that issues are triaged to the appropriate party and allow for timely follow up with the data supplier. Conclusion/ImplicationsDocumentation provided by the data supplier was vital to understanding the linkage methodology and its impact on linkage rates. A guided data assessment ensured that strengths and limitations were identified and shared to support appropriate use. Feedback to the data supplier is supporting ongoing improvements to the linkage methodology.

PCAOB Inspections and Large Accounting Firms

2011 ◽  
Vol 26 (1) ◽  
pp. 43-63 ◽  
Author(s):  
Bryan K. Church ◽  
Lori B. Shefchik
Keyword(s):  
Audit Quality ◽  
Linear Trend ◽  
Dominant Role ◽  
Data Availability ◽  
Financial Statement ◽  
Public Companies ◽  
Accounting Firms ◽  
Big 4 ◽  
Second Tier ◽  
Over Time

SYNOPSIS The purpose of this paper is to analyze the PCAOB's inspection reports of large, annually inspected accounting firms. The inspection reports identify audit deficiencies that have implications for audit quality. By examining the inspection reports in detail, we can identify the nature and severity of audit deficiencies; we can track the total number of deficiencies over time; and we can pinpoint common, recurring audit deficiencies. We focus on large accounting firms because they play a dominant role in the marketplace (i.e., they audit public companies that comprise approximately 99 percent of U.S.-based issuer market capitalization). We document a significant, downward linear trend in the number of deficiencies from 2004 to 2009. We also identify common, recurring audit deficiencies, determine the financial statement accounts most often impacted by audit deficiencies, and isolate the primary emphasis of the financial statement impacted. Our findings generally are consistent comparing Big 4 and second-tier accounting firms, though a few differences emerge. In addition, we make comparisons with findings that have been documented for small, triennially inspected firms. Data Availability: The data are available from public sources.

Analisis Ratio Keuangan terhadap Perubahan Kinerja pada Perusahaan di Industri Food and Baverages yang Terdaftar pada BEJ

2005 ◽  
Vol 1 (2) ◽  
pp. 104
Author(s):  
DIAN MERIEWATY ◽  
ASTUTI YULI SEIYANI
Keyword(s):  
Stock Exchange ◽  
Financial Statements ◽  
Financial Statement ◽  
Financial Ratios ◽  
Future Earnings ◽  
Financial Condition ◽  
Total Capital ◽  
Future Earning ◽  
The Future ◽  
And Performance

Financial statements users need financial informotion of companies to analyze their financial condition and performance. Finacial rotios are useful rneasares for explaning the future earning changes. The study focuses on the usefulness of ftnancial ratios in explaning future eamings.The objective of the study is to empirically examine whether financial statement based tinancial ratios hove ability for explaning future earnings. Data in this study were in food and beverages firms listed on the Jaknrta Stock Exchange. Regression analysis were used in testing the ability financial ratios for explaning changes. The multicollinearity test shows that there is no assosiation between independent variables, indicating multieollinearity is not a seriaus problem. The heteroscedasticity test shows that voriances of disturbances are constant for all observation in independentt variables. Therefore heteroscedasticity is not a problem. The empiricolly result showed that, financial ratios in/luences the futureearnings changes for earning after tax are total debt to total capital assets, total assets turnover, and return on investment. Among those sevent financial ratios that are significant influences the future earnings changes for operating prortt is current ratio.Keywords : Financial Ratios, Performance changes of firms, significantlyinfluence.

An Empirical Analysis of Employee Responses to Bonuses and Penalties

2020 ◽  
Vol 95 (6) ◽  
pp. 395-412 ◽  
Author(s):  
Wim A. Van der Stede ◽  
Anne Wu ◽  
Steve Yu-Ching Wu
Keyword(s):  
Employee Turnover ◽  
Selection Effect ◽  
Unintended Consequences ◽  
Data Availability ◽  
Marginal Effect ◽  
Confidentiality Agreement ◽  
And Performance ◽  
Bonuses And Penalties ◽  
Employee Responses ◽  
Chip Manufacturer

ABSTRACT We examine how employees respond to bonuses and penalties using a proprietary dataset from an electronic chip manufacturer in China. First, we examine the relative effects of bonuses and penalties and observe a stronger effect on subsequent effort and performance for penalties than for bonuses. Second, we find that the marginal sensitivity of penalties diminishes faster than that of bonuses, indicating that the marginal effect of a bonus may eventually exceed that of a penalty as their value increases. Third, we find an undesirable selection effect of penalties: penalties increase employee turnover, especially for skillful and high-quality workers. These results may help inform our understanding of the observed limited use of penalties in practice due to their bounded effectiveness and possible unintended consequences. Data Availability: The confidentiality agreement with the company that provided data for this study precludes the dissemination of detailed data without the company's consent.

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