After confronting unprecedented challenges in the last decade, accounting firms have undertaken extensive effort to improve the basic financial statement audit and to expand external assurance beyond the traditional audit. The re-examination of audit methods has produced a new emphasis on assessing business and process risks in the conduct of an audit. This paper describes the fundamental changes in the audit process and examines their impact in an actual engagement. We first identify outcomes that we expect to observe in an audit based on the business risk model and then study an actual engagement to gather preliminary evidence about our expectations. The engagement used in this study is the 1997 audit of the Czech bank Cˇeskoslovenska´ Obchodni´ Banka (CˇSOB). Important observations about the new audit process included changes to the audit team structure, changes in administration and timing of the engagement, changes in the risks addressed during the audit and the evidence gathered, increased assurance to the client, and increased opportunities for value-added services. Although the generalization of results from a field study is constrained, this study identifies expectations and effects that can be examined in future larger sample studies.
We investigate how the strictness of a requirement to consult on potential client fraud affects auditors' propensity to consult with firm experts. We consider two specific forms of guidance about fraud consultations: (1) strict, i.e., mandatory and binding; and (2) lenient, i.e., advisory and non-binding. We predict that a strict consultation requirement will lead to greater propensity to consult, particularly under certain client- and engagement-related conditions. Results from two experiments with 163 Dutch audit managers and partners demonstrate that consultation propensity is higher under a strict consultation requirement, but only when underlying fraud risk is high. The strictness effect is also greater under tight versus relaxed time pressure. Further, a strict standard increases auditors' perceived probability that a fraud indicator exists. Overall, we demonstrate that the formulation of a standard can have the desired effect on the judgments of auditors while also creating unexpected incentives that may influence auditor judgments. Data Availability: The data used in this study are available upon request from the authors.
This article discusses initial experiences with a new assurance service: the verification of sustainability reports providing assertions regarding financial, environmental, and social issues. For illustration purposes, references to the verification of The Shell Report 2000 are made. Because of the new content and format of sustainability reports, established standards for reporting and verification are not yet available. Therefore, applying specifically developed criteria is inevitable. In this article, examples and characteristics of criteria that are needed to evaluate management assertions regarding sustainability are described. Furthermore, verification procedures that can be used and the content and design of a conclusion on a sustainabilty audit are described. It can be concluded that the verification of sustainability reports is a very challenging assurance service for financial auditors. Academics should be challenged as well, because of the need for further research in this area.
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