An Examination of Factors Affecting the Decision to Waive Audit Adjustments

Abstract

The value of audit services is determined by an auditor's ability to both (1) discover misstatements in the client's accounting system and (2) report those misstatements (DeAngelo [1981a, 1981b]). Audit adjustments reflect the auditor's discovery of a potential breach in the client's accounting system. The decision to waive an audit adjustment is important, since it can potentially lead to misleading financial statements. Waiving an adjustments) may also result in litigation and loss of auditor reputation. Despite its importance, we have very little empirical evidence on the decision to waive an adjustment. The purpose of this study is to initiate an understanding of the importance placed by auditors on a number of factors noted in the literature in determining whether a proposed audit adjustment is waived. The study reported here utilizes archival data gathered from actual audit engagements to examine variables that may explain the decision to waive an audit adjustment. The findings reveal that in addition to materiality, a number of factors appear to be considered, including directional impact on income, the nature of the adjustment (objective versus subjective), and size of the client. Finally, a number of adjustments exceeding materiality were waived, highlighting the need for future research to more fully understand factors affecting this important decision and to ensure that business decisions (e.g., client pressures) do not overly influence the auditor.

Value and Costs of Auditor’s Assurance: Evidence from the Review of Quarterly Financial Statements

“…Studies of post audit financial statements suggest that measures of audit quality such as Big 4, industry specialization, independence and quantity of audit work are positively associated with earnings quality (Francis 2004). In addition, adjusting-entry studies (Wright and Wright 1997) and a survey of auditors by also show that an audit has a positive effect on the quality of financial statements.…”

The Concept of Negotiation in Auditing Practices and the Negotiation Process Between Auditor and Client Firm Management

“…Çoğu zaman oldukça karmaşık olan mesleki standartlar ve yasal mevzuat söz konusu tartışmalı durumların ancak müzakere gibi karmaşık bir süreç içerisinde çözülmesine imkan vermektedir. (Wright ve Wright, 1997), muhasebe politikaları (Kadous v.d., 2003;Salterio, 1996) ve mali tablo açıklamaları (Zhang, 1999) üzerine anlaşmazlıklar, mali tabloların değeri üzerindeki anlaşmazlıklar (Nelson ve Kinney, 1997;Church ve Zhang, 1999), denetim ölçeğinin ve ücretlerinin tespiti (Beattie v.d., 2000) gibi konularda yoğunlaşmaktadır. Denetim yazınında yürütülen çalışmaların çoğunlukla hata ve usulsüzlüklerin tespitine yoğunlaştığı görülmektedir.…”

Entdeckung von falschen Angaben in der Rechnungslegung durch den Abschlussprüfer – Bezugsrahmen, Einordnung empirischer Studien der Prüfungsdifferenzenforschung und Forschungsperspektiven

“…Wright u. Wright (1997), S. 27 zeigen in Bezug auf die Ergebniswirksamkeit korrigierter Differenzen häufigerÜber-als Unterbewertungen. Der Anzahl nach stehenÜber-und Unterbewertungen in einem Verhältnis von 1,6 zu 1 (Kinney u. Martin 1994, S. 153;Wright u. Wright 1997, S. 27).…”

“…Wright (1997), S. 32 fest, dass 47,5% der untersuchten nicht korrigierten Differenzen die Wesentlichkeitsgrenze für den Bereich der Prüfungsplanungübersteigen (ähnlich Joe et al 2006, S. 17).…”