Evidence of Organizational Learning and Organizational Forgetting from Financial Statement Audits

2015 ◽  
Vol 35 (2) ◽  
pp. 53-72 ◽  
Author(s):  
Monika Causholli
Keyword(s):  
Production Efficiency ◽  
Financial Statement ◽  
Accounting Firm ◽  
Audit Firm ◽  
Productivity Losses ◽  
Learning Rates ◽  
Organizational Forgetting ◽  
Audit Production ◽  
Productivity Gains ◽  
Over Time

SUMMARY This paper examines the association between audit firm tenure and audit production efficiency. The analyses are based on proprietary audit production data provided by a large international accounting firm. The results document evidence of learning over time. Specifically, repeatedly servicing a client increases production efficiency by reducing the total audit hours expended in an audit engagement. Learning rates vary across different ranks of labor and learning is more pronounced among higher personnel ranks, with lower ranks experiencing little learning. Further, learning rates are not constant over time; there is little incremental learning beyond the initial productivity gains consistent with the concept of the learning curve. Finally, the results show some evidence of productivity losses as audit hours increase for very long tenures consistent with the notion of organizational forgetting. JEL Classifications: M41; M42

The Effect of Engagement Auditors on Financial Statement Comparability

2021 ◽  
Author(s):  
Liuchuang Li ◽  
Baolei Qi ◽  
Jieying Zhang
Keyword(s):  
Fixed Effects ◽  
Financial Statement ◽  
Industry Specialization ◽  
Personal Traits ◽  
Audit Firm ◽  
Audit Firms ◽  
Prior Literature ◽  
Client Firm ◽  
Industry Peers ◽  
Over Time

Prior literature finds that audit firm style shapes client firm financial statement comparability (Francis, Pinnuck, and Watanabe 2014). We expect that engagment partners also shape financial statement comparability, and find that two clients audited by the same engagement auditor have more comparable accruals than two clients audited by different auditors. We also find that engagement auditor past comparability style explains new client comparability with industry peers, suggesting that engagement auditor style persists over time. We uncover that auditor personal traits such as gender, experience, qualification, and industry-specialization are associated with higher comparability. Finally, we find that adding the audit-firm, audit-office and engagement-auditor fixed effects sequentially increases the adjusted R2 of our accrual comparability model by 0.6%, 1.9%, and 10%, respectively. Taken together, our findings suggest that the engagement auditors have a distinguishable effect on financial statement comparability that is incremental to the effect of audit firms and offices.

How a Shared Auditor Affects Firm-Pair Comparability: Implications of Both Firm and Individual Audit Styles

2020 ◽  
Vol 39 (3) ◽  
pp. 133-160
Author(s):  
Lili Jiu ◽  
Bin Liu ◽  
Yuanyuan Liu
Keyword(s):  
Accounting Standards ◽  
Financial Statement ◽  
Professional Judgment ◽  
Audit Process ◽  
Personal Style ◽  
Audit Firm ◽  
Market Participants ◽  
Audit Firms ◽  
Audit Reports ◽  
Practical Implications

SUMMARY In this study, we examine the roles of audit firms and individual auditors in improving financial statement comparability. We conduct the study in the Chinese setting, in which the identities of signing auditors are revealed in audit reports and accounting standards are principle based. After controlling for audit firm style, we find that firm pairs with shared signing auditors have incrementally greater comparability. Our results indicate that individual auditors exhibit their own personal style in implementing accounting standards and exercising professional judgment in the audit process. Overall, our study underscores the association between individual auditors and comparability, with practical implications for market participants and policymakers.

scholarly journals The Influence of Reputation of Public Accounting Firms on the Integrity of Financial Statements with Corporate Governance as the Moderating Variable

2018 ◽  
Vol 9 (3) ◽  
pp. 177-186 ◽  
Author(s):  
Nera Marinda Machdar ◽  
Dade Nurdiniah
Keyword(s):  
Corporate Governance ◽  
Audit Committee ◽  
Institutional Ownership ◽  
Financial Statements ◽  
Financial Statement ◽  
Public Accounting ◽  
Accounting Firms ◽  
Accounting Firm ◽  
The Public ◽  
Public Accounting Firms

This research aimed to determine the effect of the reputation of the public accounting firm on the integrity of financial statements by including leverage and firm size as the control variables. This research also investigated the effects of corporate governance moderation that was proxied by the independent commissioner, institutional ownership, and audit committee in strengthening or weakening the reputation of the public accounting firms on the integrity of the financial statements. The population was manufacturing companies listed on the Indonesia Stock Exchange (IDX) in 2013-2015. The sample utilized the purposive sampling method and resulted in 34 manufacturing firms, so the total observations were 102 firms in all observed years. This research performed statistical data processing with EVIEWS 8. There are two main findings of this research. First, the reputation of public accounting firm affects the integrity of the financial statement. Second, corporate governance that utilizes the independent commissioners and institutional ownership strengthen the effect of the reputation of the public accounting firm on the integrity of the financial statement. However, corporate governance using audit committee weakens the reputation of the public accounting firm on the integrity of financial statements.

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.

scholarly journals Auditor Style and Financial Statement Comparability

2013 ◽  
Vol 89 (2) ◽  
pp. 605-633 ◽  
Author(s):  
Jere R. Francis ◽  
Matthew L. Pinnuck ◽  
Olena Watanabe
Keyword(s):  
Data Availability ◽  
Financial Statement ◽  
Audit Firm ◽  
Internal Working ◽  
Big 4 ◽  
Auditing Standards ◽  
Reported Earnings ◽  
Working Rules

ABSTRACT The term “audit style” is used to characterize the unique set of internal working rules of each Big 4 audit firm for the implementation of auditing standards and the enforcement of GAAP within their clienteles. Audit style implies that two companies audited by the same Big 4 auditor, subject to the same audit style, are more likely to have comparable earnings than two firms audited by two different Big 4 firms with different styles. By comparable we mean that two firms in the same industry and year will have a more similar accruals and earnings structure. For a sample of U.S. companies for the period 1987 to 2011, we find evidence consistent with audit style increasing the comparability of reported earnings within a Big 4 auditor's clientele. Data Availability: All data are publicly available from the sources identified in the text.

scholarly journals The Economic Pay-Offs to Informal Training: Evidence from Routine Service Work

ILR Review ◽  
2007 ◽  
Vol 61 (1) ◽  
pp. 75-89 ◽  
Author(s):  
Xiangmin Liu ◽  
Rosemary Batt
Keyword(s):  
Job Performance ◽  
Electronic Monitoring ◽  
Supervisor Training ◽  
Individual Level ◽  
Level Data ◽  
Telephone Operators ◽  
Productivity Gains ◽  
The Relationship ◽  
Over Time ◽  
Informal Training

This study examines the relationship between informal training and job performance among 2,803 telephone operators in a large unionized U.S. telecommunications company. The authors analyze individual-level data on monthly training hours and job performance over a five-month period in 2001 as provided by the company's electronic monitoring system. The results indicate that the receipt of informal training was associated with higher productivity over time, when unobserved individual heterogeneity is taken into account. Workers with lower pre-training proficiency showed greater improvements over time than did those with higher pre-training proficiency. Finally, whether the trainer was a supervisor or a peer also mattered: workers with below-average pre-training proficiency achieved greater productivity gains through supervisor training, while workers with average pre-training proficiency achieved greater productivity gains through peer training.

scholarly journals Simple learning rules to cope with changing environments

2008 ◽  
Vol 5 (27) ◽  
pp. 1193-1202 ◽  
Author(s):  
Roderich Groß ◽  
Alasdair I Houston ◽  
Edmund J Collins ◽  
John M McNamara ◽  
François-Xavier Dechaume-Moncharmont ◽  
...  
Keyword(s):  
The Other ◽  
Simple Extension ◽  
Effective Learning ◽  
Changing Environments ◽  
Learning Rules ◽  
Learning Rates ◽  
Decision Making Processes ◽  
Full Knowledge ◽  
Over Time ◽  
Better Than

We consider an agent that must choose repeatedly among several actions. Each action has a certain probability of giving the agent an energy reward, and costs may be associated with switching between actions. The agent does not know which action has the highest reward probability, and the probabilities change randomly over time. We study two learning rules that have been widely used to model decision-making processes in animals—one deterministic and the other stochastic. In particular, we examine the influence of the rules' ‘learning rate’ on the agent's energy gain. We compare the performance of each rule with the best performance attainable when the agent has either full knowledge or no knowledge of the environment. Over relatively short periods of time, both rules are successful in enabling agents to exploit their environment. Moreover, under a range of effective learning rates, both rules are equivalent, and can be expressed by a third rule that requires the agent to select the action for which the current run of unsuccessful trials is shortest. However, the performance of both rules is relatively poor over longer periods of time, and under most circumstances no better than the performance an agent could achieve without knowledge of the environment. We propose a simple extension to the original rules that enables agents to learn about and effectively exploit a changing environment for an unlimited period of time.

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