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FAR Newsletter: April 2020

24 April 2020

In this newsletter:

How is FAR dealing with Covid-19?
Open for registration: Online FAR Conference on 22 June 2020
Open for registration: Online Masterclass by Prof. dr. Eddy Cardinaels and Kristof Stouthuysen on “The impact of auditor interactions on audit quality” on 5 June 2020
Research synthesis on ’Going concern opinions (GCO’s) in theory and practice’ by Marshall Geiger, Anna Gold and Philip Wallage
FAR Working Paper published, entitled ‘Does status equal substance’? The effects of specialist social status on auditor assessments of complex estimates’ by Justin Leiby, Anna Gold and Kathryn Kadous
FAR Literature Review available about ‘Professional skepticism and audit committee support’ by Anna Gold, Joseph Brazel, Justin Leiby and Tammie Schaefer
FARview: new podcast series!
Reminder: FAR Call for Research Project Proposals 2020 – deadline 30 April 2020
Other

How is FAR dealing with Covid-19?

The Covic-19 pandemic poses a challenge to FAR, as it does to other organizations. We would like to let you know that the work of the colleagues at FAR and the researchers associated with FAR will continue (albeit from home), and that the firms will continue to actively supply data. Unfortunately, however, we had to decide to reschedule the FAR International Conference and other physical meetings that were planned at short notice. You can read more about the conference later in this newsletter. Fortunately, the current quarantine measures are also being used to our advantage; there is a huge increase in the activity of researchers at the remote facility.

Open for registration: Online FAR Conference on 22 June 2020

As communicated to you earlier, we have decided to postpone the 5^th FAR conference until June 2021. However, we are proud to announce that we will host an interesting online and interactive session in the afternoon (CET) of Monday the 22nd of June 2020.

This is what the program (1:00 – 5:30 pm CET) will look like (including opening and closing part and breaks):

Moving audit teams forward: designing firm environments for sustainable learningfrom errors Research Findings and Practitioner Perspectives (with Practitioner Discussant)Wim Gijselaers, Maastricht
How can audit committee support improve auditor’s applications of professional skepticism? Anna Gold, Vrije Universiteit Amsterdam (with Practitioner Discussant)
Going concern opinions (Key note speaker) Marshall Geiger, University of Richmond (with Practitioner Discussant)
The auditees internal controls and financial reporting quality Jean Bédard, Laval Canada (with Practitioner Discussant)
Economic consequences of joint audit Alain Schatt, University of Lausanne (with PractitionerDiscussant)

Registration for the event is now open on Eventbrite using this link. The link is open until Monday 15 June 11:59 pm.

Open for registration: Online Masterclass by Prof. dr. Eddy Cardinaels and Kristof Stouthuysen on “The impact of auditor interactions on audit quality” on 5 June 2020

As we had to cancel the Masterclass on 2 April 2020 due to the evolving situation regarding Covid-19, we are very fortunate that we were able to find a new date with Eddy Cardinaels and Kristof Stouthuysen for their Masterclass. They will now host an online session on Friday 5 June 2020 from 2:00 – 3:30 pm CET.

Check out this movie (approx. 5 min) for some extra background information.

You can now register through this link.

Research synthesis on ’Going concern opinions (GCO’s) in theory and practice’ by Marshall Geiger, Anna Gold and Philip Wallage

Access to cash has largely dried up as a result of the current Covid-19 crisis. Banks can offer solace but need to make an estimate to determine who will continue to have access to these cash resources. In order to prevent bankruptcies, it is important that companies substantiate future revenues and that agreements are made with financiers. The auditor must give an opinion on these forecasts and agreements.

In this context, we would like to bring to your attention once again the 'research synthesis' on 'going concern opinions', which was published last year on this subject.

Reporting on going-concern-related uncertainties remains one of the most challenging issues faced by external auditors. Even though professional standards do not hold external auditors responsible for predicting future events, such as the subsequent viability of audit clients, if an auditor refrains from issuing a going concern modified audit opinion (hereafter GCO) and the client company subsequently fails (referred to in the academic literature as a “type II” reporting error 1), the costs to the auditor in terms of increased litigation costs and loss of reputation are often substantial (Carcello and Palmrose 1994). At the same time, companies usually do not welcome a GCO from their auditor. For example, if an auditor renders a GCO to a financially distressed client, there is often concern that the GCO itself may precipitate, or at least accelerate, the financial distress of the already troubled company resulting in a self-fulfilling prophecy. Further, if an auditor renders a GCO to a client that subsequently survives (referred to in the academic literature as a “type I” reporting error), these clients are significantly more likely to switch to another auditor for their next audit (Geiger, Raghunandan and Rama 1998). It is not surprising, then, that audit practitioners, regulators and standard setters around the world continue to grapple with this complex issue.

For the full working paper please click here.

FAR Working Paper published, entitled ‘Does status equal substance’? The effects of specialist social status on auditor assessments of complex estimates’ by Justin Leiby, Anna Gold and Kathryn Kadous

Auditors rely on specialists in auditing complex estimates, but do they rely on specialists for the right reasons? We examine whether specialists’ high status, or social standing, influences auditor assessments of specialists’ competence and, in turn, their conclusions about the reasonableness of client estimates. We propose that specialist social status most likely affects auditor conclusions under conditions of heightened ambiguity, specifically when the specialist disagrees with the client and when the specialist agrees with the client but offers poor justification for the conclusion.

To read the full working paper please click here.

FAR Literature Review available about ‘Professional skepticism and audit committee support’ by Anna Gold, Joseph Brazel, Justin Leiby and Tammie Schaefer

Professional skepticism is essential to audit quality and enhancing auditor skepticism is of great concern to regulators, practitioners, and scholars. However, despite the acknowledged importance of professional skepticism, auditors’ failure to exercise a sufficient level of skepticism continues to be a globally recognized issue. Prior research has shown that exercising skepticism may come at a cost (e.g., budget overruns and potential conflicts with management), which can form a substantial barrier to the appropriate application of skepticism. In this literature review, the researchers examine whether audit committee involvement and support can reduce this barrier, and in turn, increase the professional skepticism exercised on the audit. This paper provides an overview of the literature on (1) auditor professional skepticism, divided into a general overview followed by a focus on the aforementioned barrier to skepticism, and (2) audit committee interactions with the audit team, and how these can potentially improve professional skepticism.

To read the literature review, click this link.

FARview: new podcast series!

As you may have noticed, FAR has started a podcast series called FARview, in which scientists are interviewed about their contribution to scientific research facilitated by FAR, and other relevant topics.

The first two episodes of FARview have been online since mid-March and can be found via one of the following links:

In the first episode of FARview, dr. Mathijs van Peteghem is our guest. He is Assistant Professor of Accounting at the University of Maastricht and conducts research into corporate governance, auditing and financial reporting. The FAR project he is working on focuses on the role of the audit committee and internal control. In this podcast he discusses the future challenges for accountants, the importance of internal control, the role of the audit committee and the cooperation between science and practice.

For additional information we would like to refer to the FAR Practice note of the FAR research project to which Dr. van Peteghem is affiliated (Dutch only): https://foundationforauditingresearch.org/files/papers/far-project-2017b03-bedard---practice-notenl120419_1557845430_7586744c.pdf.

In the second episode of FARview, educationalist Dr. Therese Grohnert is our guest. The FAR project in which she participates deals with the link between learning and decision making. The central question is how accountants can adapt to new challenges and unexpected problems. In this podcast she discusses the importance of learning from mistakes, 'on-the-job learning', the role of managers and the usefulness of a corporate culture in which mistakes can and may be made.

Reminder: FAR Call for Research Project Proposals 2020 – deadline 30 April 2020

Based on the further development of our research agenda and strategy, we have invited academics to submit a research proposal that provides academics and/or audit professionals with insight into audit phenomena.

In this call, FAR invites scientists to submit research proposals related to the following 2 research programs:

- Research program A: Replication projects
- Research program B: Empirical projects

For a complete overview of the agenda and the requirements for submitting a research proposal, see the following documents or visit our website:

Research groups in accounting and auditing are invited to submit a written proposal to the Scientific Committee of FAR no later than 30 April 2020. Please contact Jan Bouwens and / or Olof Bik in case of questions or further deliberations with regard to research proposals.

Please send the application form to:

info@foundationforauditingresearch.org

For the attention of Prof. Dr. Jan Bouwens and Prof. Dr. Olof Bik RA

Other

Besides this newsletter and news related to events, we regularly publish literature reviews and practice notes on our website. Of course, you can read all about it in our newsletter, but please also make sure to check out these updates on our LinkedIn page as that is where we also share new podcasts and other articles.

Want to be the first to know? Then don't forget to follow our LinkedIn page.

Do you have suggestions on how to improve our newsletter or news you would like to share with us?Please let us know by sending an email to info@foundationforauditingresearch.org

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FAR Newsletter: April 2020

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