Concern about effective auditing of fair value measurements (FVMs) has risen in recent decades. Building on prior interview-based and experimental research, we provide an engagement-level analysis of challenging FVMs, using quantitative and qualitative data on audit phases from risk assessment to booking adjustments. Challenging FVMs have high estimation uncertainty, high subjectivity, significant/complex assumptions, and multiple valuation techniques. Estimation uncertainty is associated with higher inherent risk assessments, which are, in turn, predictive of client problems identified during the engagement. The use of a valuation specialist by auditors, associated with higher inherent risk and client specialist use, is a key decision: procedures performed by specialists have the highest yield in identifying problems. Auditor-client discussion of an adjustment increases with problem identification and auditors' expressions of residual concern about uncertainty post-testing. However, booked audit adjustments are infrequent; the only factors explaining income-decreasing adjustments are better evidential support and breadth of problems identified.

In this research note, we replicate Herda and Lavelle's (2012) study on auditors' commitment to their firm, burnout, and turnover intention. Our replication features an alternative measure of commitment recently conceptualized and empirically validated in the organizational literature—the KUT (Klein et al., Unidimensional, Target-free) measure of commitment. The results of our replication are largely consistent with those reported in the original study, suggesting that the initially reported results are robust and that the KUT can be used effectively in a behavioral accounting research context. We also discuss some potential conceptual and practical advantages of the KUT for behavioral accounting researchers to consider. Data Availability: We are willing to share the data used in this study.

The broker-dealer (BD) industry is facing increasing scrutiny because of the recent financial crisis and well-publicized scandals. As is often the case for public companies, a root cause of the problems underlying scandals in the BD sector is ineffective internal controls. This paper describes the current regulatory environment for auditors of BDs, focusing on Congressional actions taken, as well as guidance for auditors in preparing their reports on clients' internal controls and compliance with regulations as required by the SEC. We describe aspects of current attestation standards contributing to uncertainty with respect to the level of assurance that auditors should obtain when evaluating their clients' internal controls for purposes of SEC reporting, and evidence from regulators on the variability in audit quality. Then, we describe the SEC's proposed changes to BD reporting and the PCAOB's proposal for related attestation standards. We conclude with some thoughts about the implications of these proposals for auditing and reporting in this important industry sector.

The financial security of the investing public relies on high‐quality service by broker‐dealers (BDs), investors' gateway to the financial markets. The SEC has long required auditors to attest to BDs' internal controls and compliance with regulations (including those privately owned). Following the unraveling of the Madoff Ponzi scheme in 2008, the SEC required auditors of all BDs to register with the PCAOB, and Congressional initiatives signaled imminent transition from private (AICPA) to public (PCAOB) oversight. We investigate whether audit quality increased following this transition by measuring whether auditors report material internal control and compliance problems for BD clients where a deficiency presumably existed (i.e., BDs sanctioned by the Financial Industry Regulatory Authority for transgressions against stakeholders). Overall, we do not find increased reporting quality following the regulatory shift but do observe variation by auditor group and BD ownership. While reporting quality for global network firms (GNFs) increases slightly, lower reporting quality observed prior to the regulatory shift for specialist audit firms (having large BD portfolios but small overall size) is exacerbated afterward. This finding complements results of PCAOB inspections and other research identifying audit quality problems among small, industry‐specialized firms in non‐public client settings. Focusing on deficiencies likely more difficult to detect, we find lower reporting quality for private relative to publicly affiliated BDs prior to PCAOB oversight, and lower reporting quality for very small audit firms relative to GNFs following the regulatory shift.

No abstract