When Should Audit Firms Introduce Analyses of Big Data Into the Audit Process?

2017 ◽  
Vol 31 (3) ◽  
pp. 81-99 ◽  
Author(s):  
Anna M. Rose ◽  
Jacob M. Rose ◽  
Kerri-Ann Sanderson ◽  
Jay C. Thibodeau
Keyword(s):  
Big Data ◽  
Audit Process ◽  
Processing Mode ◽  
Big 4 ◽  
Audit Firms ◽  
Audit Evidence ◽  
Evaluation Of Evidence ◽  
Data Visualizations ◽  
Professional Judgments

ABSTRACT This study investigates how the timing of the consideration of Big Data visualizations affects an auditor's evaluation of evidence and professional judgments. In addition, we examine whether the use of an intuitive processing mode, as compared to a deliberative processing mode, influences an auditor's use and evaluation of Big Data visualizations. We conduct an experiment with 127 senior auditors from two Big 4 firms and find that auditors have difficulty recognizing patterns in Big Data visualizations when viewed before more traditional audit evidence. Our findings also indicate that auditors who view Big Data visualizations containing patterns that are contrary to management assertions after they view traditional audit evidence have greater concerns about potential misstatements and increase budgeted hours more. Overall, our results suggest that Big Data visualizations used as evidential matter have fewer benefits when they are viewed before auditors examine more traditional audit evidence.

Do Auditor Advocacy Attitudes Impede Audit Objectivity?

2016 ◽  
Vol 32 (1) ◽  
pp. 136-151 ◽  
Author(s):  
Robin Pennington ◽  
Jennifer K. Schafer ◽  
Robert Pinsker
Keyword(s):  
Information Search ◽  
Confirmation Bias ◽  
Search Strategies ◽  
Important Link ◽  
Big 4 ◽  
Audit Evidence ◽  
Evaluation Of Evidence

Biased evaluation of evidence exists when an auditor either over-emphasizes evidence that supports management assertions or over-emphasizes evidence against management assertions. This study examines if an auditor’s advocacy attitudes lead to bias in information search for audit evidence. We measure the range of advocacy attitudes of individual auditors and hypothesize that auditors at either end of the advocacy spectrum may impede the objectivity of evidence gathered. Results from 60 Big 4 auditors indicate that advocacy attitudes affect both initial judgments and consequent search strategies of auditors. When initial judgments are client-favorable, all auditors exhibit search strategies focused on finding evidence to take a more conservative position; however, when initial judgments represent an unfavorable client position, auditors with lower advocacy attitudes exhibit a stronger tendency to search for additional evidence against a client-favorable position, consistent with a confirmation bias. Conversely, auditors with more neutral attitudes plan a more objective search effectively mitigating the bias. Aggregate findings establish an important link between bias and information search that may manifest itself in auditor training procedures and be of interest to auditing regulators.

Can Simple Metaphors Be Used as Decision Aids to Promote Professional Skepticism?

2019 ◽  
Vol 34 (1) ◽  
pp. 47-60
Author(s):  
Mary P. Durkin ◽  
Jacob M. Rose ◽  
Jay C. Thibodeau
Keyword(s):  
Decision Aids ◽  
Sources Of Information ◽  
High Quality ◽  
Efficient Tool ◽  
Professional Skepticism ◽  
Fraud Risk ◽  
Big 4 ◽  
Audit Firms ◽  
Audit Evidence

ABSTRACT This study examines the potential for metaphorical priming to promote professional skepticism. Results of an experiment with 99 senior auditors from two Big 4 audit firms indicate that reading metaphors that are entirely unrelated to audit evidence can promote professional skepticism and influence auditors' judgments. Relative to auditor participants who did not read a metaphor, participants who read a metaphor related to concerns about the honesty of the sources of information (client-skeptical metaphor) or concerns about one's own ability to detect problems (self-skeptical metaphor) assessed higher levels of fraud risk. These auditors also perceived that fraud-based explanations were more likely to cause fluctuations in client ratios. Importantly, metaphorical primes improved auditors' fraud-related actions and caused them to focus on issues that were the most likely explanations for the audit evidence. Results suggest that metaphorical priming may represent a powerful and efficient tool for promoting high-quality and professionally skeptical judgments.

Audit Partners Gender, Auditor Quality and Clients Value Relevance

2017 ◽  
Vol 19 (4) ◽  
pp. 952-967 ◽  
Author(s):  
Redhwan Ahmed Ali Al-Dhamari ◽  
Sitraselvi Chandren
Keyword(s):  
Value Relevance ◽  
Accounting Information ◽  
Ordinary Least Squares ◽  
Ethical Behaviour ◽  
Audit Process ◽  
Cross Sectional ◽  
Listed Firms ◽  
Corporate Scandals ◽  
Big 4 ◽  
Audit Firms

Several corporate scandals around the world have aggravated the investors’ need for reliable and relevant accounting information. In fact, the study is inspired by prior research which suggests women audit partner or auditor possess a higher level of preparation, risk aversion and ethical behaviour in audit process. Thus, we investigated the possible effect of women audit partner on the client value relevance of accounting information on 2,478 firm-year observations from year 2012 to 2014 for Malaysian listed firms. This article uses time series cross-sectional ordinary least squares (OLS) regressions upon a large sample of the Malaysian listed firms. Basically, the regression results indicate that the signing women audit partner from Big-4 audit firms improves the reliability and value relevance of earnings. Furthermore, our additional analysis shows that firms that engaged the women audit partner from Big-4 audit firms report high relevant equity book values. This study provides a valuable contribution on the positive effect of signing women audit partner from Big-4 audit firms on client value relevance of accounting information to researchers, regulators, investors and all other interested parties in financial information.

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.

Audit Firms as Networks of Offices

2017 ◽  
Vol 37 (3) ◽  
pp. 211-242 ◽  
Author(s):  
Scott E. Seavey ◽  
Michael J Imhof ◽  
Tiffany J. Westfall
Keyword(s):  
Knowledge Management ◽  
Knowledge Sharing ◽  
Network Effects ◽  
Audit Quality ◽  
Discretionary Accruals ◽  
Big 4 ◽  
Audit Firms ◽  
Network Connectedness ◽  
Partner Knowledge ◽  
Office Level

SUMMARY Prior audit research suggests that most, if not all, audit quality can be explained at the office level. However, the question remains of whether office-level audit quality is contingent on how individual offices relate to the firm as a whole. Motivated by theories of knowledge management, organizational learning, and networks, we posit that individual offices are connected to their audit network through partner knowledge sharing and oversight, which impact office-level audit quality. We interview Big 4 audit partners and learn that knowledge sharing between partners in different offices is common and intended to aid in the provision of audit services. Using network connectedness to proxy for knowledge sharing and oversight between offices of the same firm, we document that more connected offices are associated with fewer client restatements and lower discretionary accruals. We additionally find that network effects are magnified when accounting treatments are more complex and require greater auditor judgement.

Audit firms and industry specialization in an emerging economy

2018 ◽  
Vol 14 (3) ◽  
pp. 338-362
Author(s):  
Karim Hegazy ◽  
Mohamed Hegazy
Keyword(s):  
Financial Services ◽  
Capital Investment ◽  
Emerging Economy ◽  
Annual Reports ◽  
Brand Name ◽  
Industry Specialization ◽  
Content Type ◽  
Audit Firm ◽  
Big 4 ◽  
Audit Firms

PurposeThis study aims to investigate the implications of audit industry specialization on auditor’s retention and growth within an emerging economy. Factors such as whether the firm is a Big 4, a firm with international affiliation, a local firm and the type of industry were studied to analyse the reasons behind audit firm retention and growth.Design/methodology/approachThis research is based on a field study related to audit firms providing services to listed companies in an emerging economy. The sample includes the top 100 publicly held companies’ in the Egyptian stock market during 2006-2011 for which their annual reports are analysed to determine the audit firms’ retention and growth. An assessment of the continuity of the auditors and the increase in the number of audit clients were also measured.FindingsThe results confirm that industry specialization has an important effect on the auditor’s retention, especially for industries where capital investment is significant such as buildings, construction, financial services, housing and real estate. Big 4 audit firms retained their clients because of their industry specialization and brand name. Evidence was found that good knowledge of accounting and auditing standards resulted in audit firms with international affiliation competing with the Big 4 for clients’ retention and growth.Originality/valueThis study contributes to the existing literature, as it is among the first to provide empirical evidence on auditor retention, growth and auditor’s dominance in an emerging economy such as Egypt.

scholarly journals Auditors’ professional and organizational identities and commercialization in audit firms

2018 ◽  
Vol 31 (2) ◽  
pp. 374-399 ◽  
Author(s):  
Pernilla Broberg ◽  
Timurs Umans ◽  
Peter Skog ◽  
Emily Theodorsson
Keyword(s):  
Professional Identity ◽  
Customer Orientation ◽  
Linear Regression Analysis ◽  
Positive Association ◽  
Process Orientation ◽  
Content Type ◽  
Organizational Identities ◽  
Big 4 ◽  
Audit Firms ◽  
New Instrument

Purpose The purpose of this paper is to explain how auditors’ professional and organizational identities are associated with commercialization in audit firms. Unlike previous studies exploring the consequences of commercialization in the firms, the study directs its attention toward the potential driver of commercialization, which the authors argue to be the identities of the auditors. Design/methodology/approach The paper is based on 374 responses to a survey distributed to 3,588 members of FAR, the professional association of accountants, auditors and advisors in Sweden. The study used established measures of organizational and professional identity and introduced market, customer and firm process orientation as aspects of commercialization. The study explored the data through descriptive statistics, principle component analysis and correlation analysis and tested the hypotheses with multiple linear regression analysis. Findings The findings indicated that the organizational identity of auditors has a positive association with three aspects of commercialization: market orientation, customer orientation and firm process orientation. Contrary to the arguments based on prior literature, the study has found that the professional identity of auditors is also a positively associated with commercialization. This indicates a change of the role of professional identity vis-à-vis commercialization of audit firms. The positive association between professional identity and commercial orientation could indicate the development of “organizational professionalism.” The study also found differences between the association between professional identity and commercialization in Big 4 and non-Big 4 firms. While in Big 4 firms, professional identity is positively associated only with the firm’s process orientation, in non-Big 4 firms, professional identity has a positive association with all three aspects of commercialization. Originality/value The paper provides insight into how auditors’ identities have influenced commercialization of audit firms and into the normalizing of commercialization within auditing. The study also developed a new instrument for measuring commercialization, one based on market, customer and firm process orientation concepts. This paper suggests that this instrument is an alternative to the observation through proxies.

scholarly journals A Review of the PCAOB’s Enforcement Program: 2005–2017

2020 ◽  
Author(s):  
Carl W. Hollingsworth ◽  
James H. Irving
Keyword(s):  
Overwhelming Majority ◽  
Sample Period ◽  
Pronounced Increase ◽  
Professional Obligations ◽  
Audit Firms ◽  
Time Period ◽  
Audit Evidence ◽  
Auditing Standards

This study examines the PCAOB’s Division of Enforcement from 2005 to 2017, a time period when it expanded from a $5 million to a $22 million program area.  We find that a pronounced increase in disciplinary orders issued during the latter years of the sample period is attributable to serious audit deficiencies and misconduct by triennially inspected audit firms, non-U.S. audit firms, and firms auditing brokers and dealers.  We also find that more than two-thirds of the violations of PCAOB auditing standards described in these disciplinary orders pertain to failures in general audit principles and responsibilities, obtaining audit evidence, and review and communication.  Finally, we find that the PCAOB levies punitive sanctions on an overwhelming majority of audit personnel and audit firms cited in these disciplinary orders.  Overall, our results indicate that the PCAOB’s enforcement function has actively disciplined audit personnel and audit firms that breached their professional obligations.

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