Are evaluations of audit quality influenced by management’s intentions and outcomes?

Jamal, Karim; Han-wen, Chen; Luo, Lingen

doi:10.1080/16081625.2014.928988

Cited by 4 publications

(5 citation statements)

References 21 publications

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“…T he increasing number of corporate fraud cases has put more pressure on external auditors to improve their assessment of management integrity (Attard 2000;Petrick and Scherer 2003). The value of external audits is weakened when a client's integrity is questionable (Bernardi 2008;Jamal, Chen, and Luo 2014). Stakeholder's confidence in the independence of external auditors is strongly linked to their confidence in an auditor's ability to challenge management; unfortunately, this function does not seem to be one much expected of external auditors (FRC 2015).…”

Section: Introductionmentioning

confidence: 99%

Assessing Management Integrity: Insights from Big 4 Auditors in Egypt

Kassem

2018

Current Issues in Auditing

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SUMMARY Recent corporate scandals have raised concerns about the quality and value of the audit profession and have generated demands for improving auditors' evaluation of management integrity. The literature lacks evidence regarding methods of assessing management integrity, while audit standards provide little if any guidance on this matter. This raises questions about how external auditors can comply with the audit standards in this area and what best practices and deficiencies exist in the assessment of management integrity. This study examines methods of assessing management integrity by providing insights from the Big 4 auditors in Egypt. The findings of this study will benefit audit firms in their professional audit training programs, as well as auditors conducting fraud risk assessments.

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Section: Introductionmentioning

confidence: 99%

Assessing Management Integrity: Insights from Big 4 Auditors in Egypt

Kassem

2018

Current Issues in Auditing

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“…PCAOB identifies “tone at the top” as a significant driver of audit quality stating “An appropriate ‘tone at the top’ and the way the firm communicates and stands behind that tone is generally essential to fostering professional skepticism, objectivity, and independence in the firm’s personnel” (2015 – p A-13, emphasis added). Jamal et al (2015) argue that requiring auditors to evaluate the “tone at the top” is a critical regulatory tool for enhancing audit quality. Pyzoha et al (2020, p 368) state that “Academic research has long stressed the crucial role that tone at the top, set by leadership, plays in influencing firm culture and how it is ultimately reflected in the actions and behaviors of employees (e.g.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

“…Figure 1 summarizes our argument. PCAOB (2015), IAASB (2014) and Jamal et al (2015) identify managerial emphasis (i.e. “tone at the top”) as an important driver of audit quality.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

“Tone at the top”: management’s discussion and analysis and audit quality

Tam

Xu²,

Fernando³

et al. 2023

MAJ

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Purpose This paper aims to investigate whether the managers’ emphasis on audit in the management’s discussion and analysis (MD&A) section of the 10-K filing, as part of the firm’s “tone at the top,” is linked to audit quality. Design/methodology/approach Adopting a computational linguistics approach, the authors measure the manager’s audit emphasis as the frequency of audit-related words in the MD&A. The authors then assess the relationship between audit emphasis and audit quality with ordinary least squares and probit regression models. Findings This study finds that the manager’s audit emphasis, proxied by the count of audit-related words, is positively associated with audit fees, audit delay, the appointment and retention of Big 4 and industry-specialist auditors, and the probability of switching to Big 4 auditors, while negatively linked to abnormal accruals and the possibility of financial misstatements. Research limitations/implications The audit emphasis measure suffers from limitations. The computer program determining audit emphasis may misinterpret words in the MD&A. Researchers need to consider procedures to minimize misinterpretations. Practical implications Frequency of audit words in the MD&A reflects the firm’s aspiration for audit quality. Auditors, regulators and investors could ascertain such aspiration from past and current MD&As. Originality/value This study associates the manager’s emphasis on audit, measured with computational linguistics from the MD&A, with realized audit quality.

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“…When internal audits fail to assess the tone at the top and ignore their role in identifying and rectifying control weaknesses in an ERP system, they set the stage for the advent of fraud (Tsai and Chou, 2015). Special attention is needed to train internal auditors to asses the tone at the top, as research found that auditors disregard management intentions when judging fraud cases (Jamal et al, 2015).…”

Section: Implications Of the Studymentioning

confidence: 99%

Why do information system controls fail to prevent unethical behavior?

Sherif

Pitre

Kamara

2016

VJIKMS

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Purpose The purpose of this paper is to examine the ability of enterprise systems and embedded controls to prevent unethical behavior within organizations. Design/methodology/approach The authors use a case study to explore how the configuration of information technology (IT) controls within enterprise systems and their effectiveness in preventing unethical behavior is compromised by the tone at the top. Findings The study highlights the decisive role of cultural values and leadership in moderating the relationship between IT controls and unethical behavior and the realization that ethical environments are socially constructed not enforced. Research limitations/implications The limitation of this research is that the authors conducted one case study in an institution of higher education to refute the theory that IT controls embedded within enterprise systems can prevent unethical, and thus, the results may not be generalizable to other industries. Practical implications An important implication of the research is that the configuration of information system controls is affected by the organizational culture and the ethical values embraced by top management. When the tone at the top does not emphasize the ethical code of conduct, the configuration of IT controls will be compromised leaving organizations vulnerable at all levels. Originality/value Although the authors have a wealth of knowledge on ethics and theories that explain why unethical decision-making continue to surface to the headlines, they have little explanation as to why enterprise systems fail to stop unethical behavior in organizations. This study explores technical, organizational and individual factors that contribute to unethical decision-making.

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Are evaluations of audit quality influenced by management’s intentions and outcomes?

Cited by 4 publications

References 21 publications

Assessing Management Integrity: Insights from Big 4 Auditors in Egypt

Assessing Management Integrity: Insights from Big 4 Auditors in Egypt

“Tone at the top”: management’s discussion and analysis and audit quality

Why do information system controls fail to prevent unethical behavior?

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