Realigning Auditors' Accountability: Experimental Evidence

2018 ◽  
Vol 94 (3) ◽  
pp. 233-250 ◽  
Author(s):  
Patrick J. Hurley ◽  
Brian W. Mayhew ◽  
Kara M. Obermire
Keyword(s):  
Audit Quality ◽  
Institutional Design ◽  
Additional Treatment ◽  
Data Availability ◽  
Third Party ◽  
Judgment Accuracy ◽  
The Third ◽  
Experimental Economic ◽  
Economic Markets ◽  
The Impact

ABSTRACT We use experimental economic markets to examine the impact of changing institutional design features on audit quality. Specifically, we manipulate auditors' economic accountability to managers by altering who hires the auditor—a manager or an independent third party—and auditors' psychological accountability to investors by explicitly stating that the auditor is hired on the investors' behalf. Our design shifts auditors' accountability from managers, who have directional goal preferences, to investors, who prefer judgment accuracy. We find that removing auditors' economic accountability to managers and replacing it with psychological accountability to investors significantly increases audit quality. This increase in audit quality occurs despite the independent third party randomly hiring auditors. In an additional treatment, we incorporate auditor accuracy into the third-party hiring algorithm and find even higher audit quality. Our results suggest that altering auditors' accountability relationships can significantly enhance audit quality. Data Availability: The laboratory market data used in this study are available from the authors upon request.

Market Reactions to a High-Quality Auditor and Managerial Preference for Audit Quality

2019 ◽  
Vol 38 (4) ◽  
pp. 131-149 ◽  
Author(s):  
Patrick J. Hurley ◽  
Brian W. Mayhew
Keyword(s):  
Loss Aversion ◽  
Audit Quality ◽  
Data Availability ◽  
Quality Competition ◽  
High Quality ◽  
Market Reactions ◽  
Comprehensive Theory ◽  
Audit Reports ◽  
The Impact ◽  
Quality Theory

SUMMARY We insert an automated high-quality (HQ) auditor into established experimental audit markets to test the impact of high-quality competition on other auditors' supply of and managers' demand for audit quality. Theory predicts that managers will demand high levels of audit quality to avoid investors' price-protecting behavior. This demand should result in the HQ auditor dominating the market and increase other auditors' audit quality provision to compete with the HQ auditor. However, we find that the HQ auditor does not dominate the market—despite holding audit costs constant and investors placing a premium on HQ auditor reports. We also find that adding an HQ auditor results in other auditors lowering audit quality. Additional analyses indicate some managers demand lower audit quality to avoid negative audit reports, consistent with loss aversion as a potential explanation. Our findings indicate a need to develop a more comprehensive theory of the demand for auditing. Data Availability: The laboratory market data used in this study are available from the authors upon request.

Strategic Audit Inquiry: The Impact of Timing and the Promotion of Statutory Protections on Client Fraud Disclosures

2020 ◽  
Vol 34 (3) ◽  
pp. 153-167
Author(s):  
John R. Lauck ◽  
Stephen J. Perreault ◽  
Joseph R. Rakestraw ◽  
James S. Wainberg
Keyword(s):  
Best Practices ◽  
Audit Quality ◽  
Self Regulation ◽  
Data Availability ◽  
Audit Committees ◽  
External Auditors ◽  
Extant Literature ◽  
Psychological Theories ◽  
Inquiry Process ◽  
The Impact

SYNOPSIS Auditing standards require external auditors to inquire of client-employees regarding their knowledge of actual or suspected fraud (PCAOB 2010b; AICPA 2016). However, the extant literature provides little guidance on practical methods that auditors can employ to increase the likelihood of fraud disclosure and improve audit quality. Drawing upon best practices in the whistleblowing literature and psychological theories on self-regulation, we experimentally test the efficacy of two practical strategies that auditors can employ during the fraud inquiry process: actively promoting statutory whistleblower protections and strategically timing their fraud inquiries. Our results indicate that auditors are more likely to elicit client-employee fraud disclosures by actively promoting statutory whistleblower protections and strategically timing the fraud inquiry to take place in the afternoon, when client-employee self-regulation is more likely to be depleted. These two audit inquiry strategies should be of considerable interest to audit practitioners, audit committees, and those concerned with improving audit quality. Data Availability: From the authors by request.

Prenegotiation Development of Optimism in Intractable Conflict

2015 ◽  
Vol 20 (1) ◽  
pp. 59-72 ◽  
Author(s):  
Dean G. Pruitt
Keyword(s):  
The Other ◽  
Third Party ◽  
Case Material ◽  
Face To Face ◽  
Intractable Conflict ◽  
The Third ◽  
A Chain ◽  
The Impact ◽  
Psychological Experiments

Except when there is substantial third-party pressure for settlement, participants in intractable conflict will only enter negotiation if they are motivated to end the conflict and optimistic about negotiation’s chances of success. The sources of such optimism are explored using case material from three intractable interethnic conflicts that were ultimately resolved by negotiation. In all three cases, optimism developed during prenegotiation communication between the parties. Also there were two main channels of communication, each channel providing credibility to the other and serving as a back-up if the other failed. In two of the cases the communication was face-to-face and friendly, but in the third it was distant and mediated by a chain of two intermediaries. A possible reason for this difference is that the parties were positively interdependent in the first two cases but not in the third. The paper concludes with a summary of three psychological experiments that demonstrate the impact of positive vs. negative interdependence.

scholarly journals Do Gender Diversity Recommendations in Corporate Governance Codes Matter? Evidence from Audit Committees

2020 ◽  
Vol 39 (1) ◽  
pp. 173-197 ◽  
Author(s):  
Nigar Sultana ◽  
Steven F. Cahan ◽  
Asheq Rahman
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Gender Diversity ◽  
Positive Association ◽  
Data Availability ◽  
Audit Committees ◽  
Women Directors ◽  
Corporate Governance Codes ◽  
Limited Supply ◽  
The Impact

SUMMARY Motivated by two opposing views, the limited supply view and the discrimination view, we examine the impact of gender diversity guidelines on the strength of the association between the presence of female audit committee members and audit quality. The limited supply view predicts that the effect of female audit committee members on audit quality would decrease after the guidelines were issued because they increased the demand for women directors without a commensurate increase in the supply of qualified women directors. The discrimination view predicts this relation would increase after the guidelines were issued since some firms would have abandoned their suboptimal hiring practices that favored men over better qualified women, resulting in higher quality firm-director matches as opportunities for women increase. Consistent with the limited supply view, we find that the positive association between audit committee gender diversity and audit quality weakened after gender diversity guidelines were introduced in Australia. JEL Classifications: G38; M42; M48. Data Availability: Data are available from the databases cited in the text.

scholarly journals A Critical Appraisal of Dismissals at the Behest of a Third Party: The Impact of the Constitutional Labour Rights

Obiter ◽  
2021 ◽  
Vol 42 (1) ◽  
pp. 105-125
Author(s):  
Tumo Charles Maloka
Keyword(s):  
Social Justice ◽  
Critical Appraisal ◽  
Third Party ◽  
Disciplinary Power ◽  
Security Services ◽  
The Third ◽  
Statutory Protection ◽  
The Third Party ◽  
The Impact ◽  
Do So

The pivotal judgments on dismissals at the behest of a third party – East Rand Proprietary Mines Ltd v UPUSA, Lebowa Platinum Mines v Hill, NUMSA v Hendor Mining Supplies a Division of Marschalk Beleggings (Pty) Ltd, TSI Holdings (Pty) Ltd v NUMSA, NUPSAW obo Mani v National Lotteries Board and NUMSA v High Goal Investments t/a Chuma Security Services – deeply implicate discrimination in all its manifestations, accountability, gendered precariousness and social justice. This contribution explores the focal questions raised in recent times concerning the fairness of a dismissal at the instance of a third party. First, there are fundamental points relating to the constitutional and statutory protection of security of employment. Secondly, there are those familiar problems often associated with substantive and procedural fairness that surface here under the guise of questioning the disciplinary power of the employer. In this context, inroads into managerial prerogative and disciplinary procedure are amplified where there has been no fault on the part of the employee and no breakdown of the trust relationship, or where the employee has been disciplined, but not dismissed and the employer did not want to terminate the employee’s employment but was coerced by the third party to do so. Thirdly, there is the thorny issue of the reason behind the third-party demand and the related issue of intolerability caused by the targeted employee. And finally, there is the issue of striking in support of a demand for dismissal of a co-employee.

Transitional Justice in Comparative Perspective

2017 ◽  
Author(s):  
Chandra Lekha Sriram
Keyword(s):  
Transitional Justice ◽  
Institutional Design ◽  
Global Perspective ◽  
Comparative Perspective ◽  
Mena Region ◽  
Grass Roots ◽  
The Third ◽  
The Impact

Chapter 2, by Chandra Lekha Sriram, offers comparative lessons and challenges in understanding transitional justice from a global perspective, with some examples from and reflections for the MENA region. She identifies four types of challenges in discussing the topic, which have arisen from experiences in other regions but are equally relevant in the region. The first is how the impact of transitional justice can be assessed, if at all. The second is that of who is calling for transitional justice, and what the views of it are, particularly from the grass-roots level. The third is that of the effects of institutional design of specific transitional justice measures. And the final challenge is the appropriate scope of such measures, including whether they should include a range of social and economic concerns.

The Impact of Initial Information Ambiguity on the Accuracy of Analytical Review Judgments

2012 ◽  
Vol 31 (2) ◽  
pp. 113-129 ◽  
Author(s):  
Benjamin L. Luippold ◽  
Thomas E. Kida
Keyword(s):  
Financial Data ◽  
Data Availability ◽  
Data Set ◽  
Judgment Accuracy ◽  
Initial Information ◽  
Information Set ◽  
Analytical Review ◽  
Analytical Procedures ◽  
Information Ambiguity ◽  
The Impact

SUMMARY Analytical procedures require that auditors develop and test hypotheses about possible fluctuations in a firm's financial data. Research in psychology suggests that the initial information ambiguity that exists prior to hypothesis generation may affect not only the initial hypothesis set, but also final judgment accuracy. We argue in this paper that information ambiguity can be caused by two primary variables, data sufficiency and data complexity, and examine how these variables affect judgment accuracy during analytical review. Ninety-four staff auditors completed analytical procedures for a company with an error seeded into its financial statements. Information ambiguity was varied across three levels by manipulating both the sufficiency and complexity of the data (insufficient/complex, sufficient/complex, and sufficient/not complex). Participants generated hypotheses that might explain the observed fluctuations in the data, then received a comprehensive financial data set (that was identical for all groups) and were asked to identify the cause of the fluctuations. The results indicate that when auditors are initially exposed to more ambiguous information (either due to its insufficiency or complexity), they are less likely to ultimately identify the error causing the fluctuations, even though they have access to the same unambiguous information set prior to making their final judgments. Implications of these results for audit research and practice are discussed. Data Availability: Contact the authors.

Damage evaluation and protection method of resin pipe for gas conduit subjected to impact load

2020 ◽  
Vol 11 (4) ◽  
pp. 423-447 ◽  
Author(s):  
Hiroki Tamai ◽  
Sota Jinkawa ◽  
Yoshimi Sonoda
Keyword(s):  
High Density Polyethylene ◽  
Impact Test ◽  
Impact Resistance ◽  
High Density ◽  
Third Party ◽  
Medium Density ◽  
Absorbed Energy ◽  
Polyethylene Pipe ◽  
The Third ◽  
The Impact

Medium-density polyethylene pipe has been widely introduced to low-pressure gas pipes because of its high flexibility and corrosion resistance. However, many third-party damages due to the impact of heavy equipment have been reported during the construction every year, thus, to prevent the third-party damage, materials such as high-density polyethylene and polyamide have been considered as the new gas pipe candidates. However, their impact resistance capacity under the third-party attack has not been clarified. In this study, static and impact loading experiments were conducted to compare load resistance capacities. As a result, it was revealed that the high-density polyethylene pipe and the polyamide pipe had higher static load capacity and impact resistance than the medium-density polyethylene pipe. By comparing the absorbed energy of the static test and the impact test and calculating the pseudo absorbed energy of the impact test, the evaluation formula judging the safer side of whether the penetration occurred was proposed. Furthermore, as one of the methods to protect the gas pipe, the protective effect of winding a sheet made of reinforced fiber and non-woven fabric was clarified.

Study on Development Strategy of Third Party Logistics Based on Electronic Commercial Environment

2013 ◽  
Vol 584 ◽  
pp. 277-281
Author(s):  
Qiu Sheng Sheng
Keyword(s):  
Electronic Commerce ◽  
Evaluation System ◽  
Comprehensive Evaluation ◽  
Third Party ◽  
Third Party Logistics ◽  
Logistics Industry ◽  
The Third Party Logistics ◽  
The Third ◽  
The Third Party ◽  
The Impact

Mid-20th century, with the scale of production and circulation of commodities have been expanding, the status and role of logistics has become more evident. At the same time the rise of e-commerce logistics and development of new demand, third-party logistics development as the development of the logistics industry has become an important form of specialized logistics, but also a prerequisite for development of electronic commerce. The objective of social and business requirements, the third-party logistics is increasingly becoming the mainstream of logistics development, known as the 21st century "gold industry." In this paper, the theory of third-party logistics and research-based, combine the first e-commerce development environment, described the development of electronic commerce on the impact of a third party logistics, and third-party logistics environment was the development of micro, meson and macro for analysis, followed by third-party logistics system, proposed comprehensive third party logistics capability evaluation system design principles, according to third-party logistics enterprise's comprehensive ability to evaluate the impact of factors, ability to set a comprehensive evaluation of the indicators, building the ability of third party logistics enterprise's comprehensive evaluation system, respectively, from service capabilities, relationship skills and the aspects of the internal capacity of the comprehensive capacity of third party logistics evaluation, then the use of AHP and fuzzy assessment method on simulated third-party logistics company comprehensive assessment, and evaluation results were analyzed. Finally, according to analysis of the results of the evaluation, and drawing on advanced domestic and international experience of the Third Party Logistics, e-commerce environment, third party logistics proposed the development of countermeasures and suggestions: to strengthen the construction of third-party logistics information, and promote third-party logistics and supply chain integration, and enhance internal capabilities.

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