Abstract:SUMMARY: This study examines the work environment in the audit division of large public accounting firms. Based on 18 semi-structured interviews (eight partners and ten staff auditors currently or recently employed by large public accounting firms), we find that the interviewees cite several positive aspects of auditing careers including the people, intellectual stimulation, challenge, and responsibility. However, they also cite significant negatives, including PCAOB regulation, stress, and hours. None of the … Show more
“…Collectively, our results demonstrate instances where the presence of an FVM gap, characteristics of inspectors, and the inspection process may have unintended consequences in auditor behavior, as posited by previous literature (Glover et al ; Glover and Prawitt ; Hermanson et al ; Knechel ; Peecher et al ). Evidence of the FVM gap suggests that consensus is not always achieved between audit and inspection experts regarding what constitutes sufficient appropriate evidence to support audits of FVMs (i.e., inspectors generally want more audit work, even in low‐risk areas, and auditors believe that inspectors expect more than current standards or audit risk assessments require).…”
Reported deficiencies continue to persist in audits of fair value measurements and other complex accounting estimates (hereafter, “FVMs”), despite improvements in auditor performance observed by regulators. The persistence of reported deficiencies in audits of FVMs suggests that factors underlying this trend may be more complicated and multidimensional than previously suggested by regulators and academic research, which has focused largely on auditors' unsatisfactory performance as the principal source of reported deficiencies. Drawing from the judgment and decision‐making expertise literature, we gather field‐based data from audit experts to identify additional factors that are likely to be contributing to differences of opinion between audit and inspection experts and the persistence of reported deficiencies in audits of FVMs. We find evidence that audit experts interpret standards and evaluate audit evidence differently than inspectors, and thus perceive there to be a gap between what auditors and inspectors regard as sufficient appropriate audit evidence to support audits of FVMs (hereafter, “FVM gap”). Moreover, results highlight several areas in audits of FVMs where differences of opinion exist between auditor and inspector experts regarding what constitutes a reported deficiency. Within the contexts we examine, our results identify additional factors, beyond deficient auditor performance, that may contribute to the FVM gap. We also report audit partners' recommendations for ways to reduce the FVM gap and suggest avenues for future research. Gaining a more complete understanding of sources contributing to reported deficiencies will help regulators, standard setters, audit firms, and academics to identify ways to reduce the FVM gap and reported deficiencies in audits of FVMs.
“…Collectively, our results demonstrate instances where the presence of an FVM gap, characteristics of inspectors, and the inspection process may have unintended consequences in auditor behavior, as posited by previous literature (Glover et al ; Glover and Prawitt ; Hermanson et al ; Knechel ; Peecher et al ). Evidence of the FVM gap suggests that consensus is not always achieved between audit and inspection experts regarding what constitutes sufficient appropriate evidence to support audits of FVMs (i.e., inspectors generally want more audit work, even in low‐risk areas, and auditors believe that inspectors expect more than current standards or audit risk assessments require).…”
Reported deficiencies continue to persist in audits of fair value measurements and other complex accounting estimates (hereafter, “FVMs”), despite improvements in auditor performance observed by regulators. The persistence of reported deficiencies in audits of FVMs suggests that factors underlying this trend may be more complicated and multidimensional than previously suggested by regulators and academic research, which has focused largely on auditors' unsatisfactory performance as the principal source of reported deficiencies. Drawing from the judgment and decision‐making expertise literature, we gather field‐based data from audit experts to identify additional factors that are likely to be contributing to differences of opinion between audit and inspection experts and the persistence of reported deficiencies in audits of FVMs. We find evidence that audit experts interpret standards and evaluate audit evidence differently than inspectors, and thus perceive there to be a gap between what auditors and inspectors regard as sufficient appropriate audit evidence to support audits of FVMs (hereafter, “FVM gap”). Moreover, results highlight several areas in audits of FVMs where differences of opinion exist between auditor and inspector experts regarding what constitutes a reported deficiency. Within the contexts we examine, our results identify additional factors, beyond deficient auditor performance, that may contribute to the FVM gap. We also report audit partners' recommendations for ways to reduce the FVM gap and suggest avenues for future research. Gaining a more complete understanding of sources contributing to reported deficiencies will help regulators, standard setters, audit firms, and academics to identify ways to reduce the FVM gap and reported deficiencies in audits of FVMs.
“…So, that's a very dangerous and negative outcome for those of us trying to retain our people. (#4, senior manager, annually inspected firm)These findings reflect concerns expressed by partner participants in Hermanson et al () that critical inspection feedback and increased work expectations for public engagements are causing auditors to leave practice. Interestingly, these contemporary concerns regarding the recruiting and retaining of high‐quality talent echo those of auditors in Gendron and Suddaby (), although concerns circa 2000 were spurred by pre‐SOX‐related professional insecurity.…”
Section: Potential Implications Of An Antagonistic Regulatory Climatementioning
confidence: 61%
“…Researchers also have surveyed auditors regarding their experiences with PCAOB oversight. Evidence suggests that auditors generally are satisfied with the stated purpose of inspections to improve audit quality but not the inspection process itself (Daugherty and Tervo 2010;Houston and Stefaniak 2013;Hermanson et al 2016). For example, surveyed auditors claim that PCAOB inspections are less effective in improving audit quality than the prior peer review process (Daugherty and Tervo 2010) and their own internal quality reviews (Houston and Stefaniak 2013), particularly as the inspections provide less timely feedback and are viewed as less procedurally fair.…”
Section: Audit Regulation In the United Statesmentioning
This study examines U.S. auditors' observations of the PCAOB inspection process, and its impact on their work, in order to understand the current U.S. regulatory audit climate. Using 20 interviews with experienced auditors, we consider behavioral factors (e.g., perceived power of and trust in the PCAOB) that can impact the level and form of auditor compliance according to theory from the slippery slope framework on audit regulation (Kirchler et al. 2008; Dowling et al. 2018). Our participants described an audit climate with a powerful regulator. They reported that their desire to receive “clean” inspection reports has had a substantial impact on audit procedures and quality control. However, our participants do not appear to have high trust in the PCAOB, as they questioned aspects of the inspection process and its expectations. Accordingly, we conclude that U.S. public company auditors operate in an antagonistic environment in which auditors perceive the PCAOB has high coercive power. In other words, they comply due to fear of enforcement rather than agreement with the PCAOB's views on audit quality. Some auditors also indicated that they consider both the costs and benefits of compliance. Theoretical intuition implies that any future increases to perceived costs relative to perceived benefits of compliance could ultimately decrease the PCAOB's coercive power and reduce U.S. auditor compliance. Our findings have implications for regulators and researchers interested in understanding behavioral factors that may influence regulatory compliance.
“…The PCAOB: Relevant literature 5 Some prior qualitative research on the inspection process of annually inspected firms returns harsh criticism of the PCAOB inspection process (e.g., Glover et al 2009;Houston and Stefaniak 2013;Hermanson et al 2016). A commentary by Glover et al (2009) suggests that the inspection process is inefficient and dysfunctional.…”
Section: Regulation In Auditing: Setting the Institutional Contextmentioning
confidence: 99%
“…Partners also perceive that inspectors are focused on actively finding deficiencies and have an inferior understanding of firm audit methodology. In subsequent interviews with practicing auditors, Hermanson et al (2016) go even further by boldly suggesting that the PCAOB inspection is onerous, undermining auditing and making auditing an "unattractive" profession.…”
Section: Regulation In Auditing: Setting the Institutional Contextmentioning
The objective of our article is to obtain a better understanding of how auditors anticipate the potential for PCAOB inspection, experience the inspection, cope with the consequences of the inspection, and understand the PCAOB's influence within the context of professionalism. We use a qualitative approach that uses both surveys (55) and interviews (20) of auditors (of varying rank and firm) across a five‐year period (2012–2017). Respondents suggest that PCAOB inspectors are powerful, representing the “prosecution,” “judge,” and “jury” of the auditing profession. We therefore use a structural metaphor of the PCAOB inspection as a judicial “trial.” By controlling the criteria used to evaluate performance, inspectors have the power to repeatedly “subpoena,” “interrogate,” and return a “verdict” on the firm (auditor); those judged as “guilty” require supervised “probation.” This process is perceived as having improved audit quality but at a cost. Passing an inspection is so important that auditors (firms) have resorted to impression management strategies and “functionally stupid” work practices (e.g., excessive documentation, a decrease in critical thinking as a result of a “box ticking” approach to auditing). Furthermore, some respondents believe that being a good auditor has come at the expense of being a good accountant; the emphasis on audit process and concurrent de‐emphasis on technical accounting could ultimately lead to audits themselves falling short. In addition, it is evident that inspectors and auditors differ in their perceptions of risk, likely manifesting because inspectors are standards‐focused while auditors (firms) are methodology‐focused. Finally, the inspection process has created excessive stress and tension, beyond budget and fee pressures, which some auditors perceive as affecting the pool of talented auditors that firms may be able to attract and retain in the future.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
