Purpose: In an effort to develop an audit quality (AQ) framework specific to the US audit market, the Public Company Accounting Oversight Board (PCAOB) recently issued a concept release proposing 28 audit quality indicators (AQIs) along three dimensions: audit professionals, audit process and audit results. Using AQIs initially proposed by the PCAOB, as well as AQIs suggested by prior literature, the authors solicit perceptions from junior-level (senior and staff) auditors to investigate the current state of practice along many of the AQIs relating to audit professionals and audit process. Design/methodology/approachIn the study, 78 junior-level auditors responded to the survey.
This study investigates (1) the extent to which audit committee members (ACM) of small publicly traded companies utilize Public Company Accounting Oversight Board (PCAOB) inspection reports in their auditor selection recommendations when management recommends hiring the auditor, and (2) whether the Sarbanes-Oxley Act's mandated one-year cooling-off period mitigates independence concerns of ACM resulting from a prior management-auditor affiliation in the same auditor selection context. We use financially literate professional participants as proxies for ACM who make a Likert-scale based recommendation for hiring the auditor. Our study manipulates a hypothetical, triennially inspected auditor's inspection results (favorable/unfavorable) as an auditor competence indicator and a prior management-auditor affiliation (present/absent) as an auditor independence indicator. We document that participants incorporate the inspection results into their selection recommendations, that prior affiliation negatively impacts ACMs' selection recommendations, and that auditor independence effects are contingent upon auditor competence. More specifically, auditor independence impacts auditor selection decisions only when auditor competence is favorable.
We examine the association between audit report lag (ARL) and the level of investment opportunity of U.S. firms. High investment opportunities have been perceived to increase audit risk. External auditors, therefore, have to increase the required scope of audit work, which is expected to lead to longer audit report delays. The paper is motivated by (1) the effect of audit report lag on the timeliness of financial reporting and the market reactions to late earnings releases; and (2) the limited research on investment opportunities. With the sample of 8520 U.S. firm-year observations during the 2010-2012 period, we find firms with high investment opportunities are more likely to have longer audit report lags. Our results extend the contemporary research on ARL and investment opportunities. The paper also provides useful information for firms' management and external auditors.
This case provides students a unique opportunity to examine and reflect on the challenges of auditing in today's global environment. Students examine a real-world billion dollar plus embezzlement and fraud at Satyam Corporation, an international company based in India and previously trading on the New York Stock Exchange. The case focuses on auditors' responsibilities related to obtaining and evaluating audit evidence, particularly as it relates to confirming cash and receivables. It also explores the quality control responsibilities related to audit procedures performed by foreign affiliates of a large international audit firm. The case illustrates the role of culture in performing an audit in accordance with auditing standards issued by the U.S. Public Company Accounting Oversight Board. Additionally, case details provide opportunities for class discussions and foster students' critical thinking skills on other auditing topics such as audit risk and planning, related party transactions, tone-at-the-top, and internal control deficiencies. By using a foreign issuer to explore these issues, the case highlights both the technical and international challenges of performing auditing procedures.
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