FAR Newsletter: FAR Practice Note & International Conference Program

In this newsletter:

• FAR Practice Note “How auditors may confuse specialist status with skill: The effects of expert status on the audit of complex estimates” – by Anna Gold, Kathryn Kadous & Justin Leiby
• FAR Masterclass report of 6 February 2019 – “Why some auditors thrive while others struggle: The effects of multiple team membership on audit quality”
• Save the date: FAR 2019 International Conference entitled “Evidence informed policy making for the future of the auditing profession”- 3 and 4 June 2019
• Invitation for FAR Masterclass “Judgment biases in auditing” by Anna Gold – 29 March 2019
• Reminder FAR Call for Research Project Proposals 2019 (due 22 March 2019)

FAR Practice Note: Auditor should not confuse specialists’ status with skill
In auditing, confusing status for skill may lead the auditor to rely unduly on insufficient evidence, increasing audit risk and potentially reducing financial reporting quality. This is one of the findings published in FAR Practice Note “The effects of expert status on the audit of complex estimates”. This practice note is based on research findings by Anna Gold (Vrije Universiteit Amsterdam), Kathryn Kadous (Emory University) and Justin Leiby (University of Illinois at Urbana-Champaign).

Status irrelevant to audit
Professional standards dictate that auditors evaluate specialists based on “hard” cues such as the specialist’s direct experience with the audit issue, as well as “softer” cues of the specialist’s social standing (“status”). The researchers examined specialist characteristics that increase status and whether high status leads auditors to ignore more substantive information about the specialist, such as the specialist’s justifications for a conclusion. A survey amongst practitioners resulted in the findings that auditors perceive higher specialist status based on a variety of characteristics that are irrelevant to the audit issue, including the specialist’s social activities and self-confidence. In auditing, confusing status for skill may lead the auditor to rely unduly on insufficient evidence, increasing audit risk and potentially reducing financial reporting quality.

The researchers will conduct a follow up study to determine whether these characteristics inflate auditors’ assessments of the specialist’s capability and work quality, which would lead to over reliance on the specialist and higher audit risk. They provide recommendations relevant to practitioners, standard setters, and regulators, including (1) minimizing auditors’ evaluation of the specialist’s background and instead evaluating the work product, and (2) centralizing specialist assignment within audit firms to prevent auditors from over relying on specialist status.

Click here for the full report.

Report on the FAR Masterclass of 6 February 2019 – “Why some auditors thrive while others struggle: The effects of multiple team membership on audit quality”

Working in multiple teams: (how) does that work?
According to estimates, between 65 and 90 percent of the professionals work in multiple teams simultaneously. This, for example, holds for professionals in health care, in research teams at universities and for knowledge workers in general. This way of working is also common practice within audit firms. But how does simultaneously working in several audit teams affect audit quality? And what factors increase or reduce audit quality?

The positive aspects (the so-called ‘resources’) of functioning in multiple teams are:

• Networks of information, experiences and knowledge.
• Learning
• More efficient work habits/routines.
• Potentially more variety in tasks and social environment.

The negatives on the other hand can be listed as follows:

1. Task-related demands:
   • Time-schedule conflicts.
   • Switching costs (relocation and coordination).
   • Increased workload and time pressure.
2. Social demands:
   • Teams may be less socially coherent.
   • Requires more effort/time to familiarize oneself with one’s role in the team.
3. Auditors have been shown to make memory-related mistakes:
   • Mix up clients.
   • Do not judge clients independently (review, evidence).

These topics were extensively discussed during the interactive FAR Masterclass by Reggy Hooghiemstra and Dennis Veltrop, held last February 6, in which more than 30 auditors and academics participated.

For the full report visit our website.

FAR 2019 International Conference Program – “Evidence informed policy making for the future of the auditing profession”
The FAR Conference will take place on 3rd and 4th June 2019 in Breukelen, registration for this event is now open!

For the latest program details and registration, please visit: http://foundationforauditingresearch.org/en/event/4th-international-far-conference/

Or go straight to registration: Register

FAR offers the unique opportunity to bring researchers and audit firms together for knowledge exchange and collaboration. The conference is focused on sharing findings from FAR Research Projects as well as introducing new projects, disseminating existing knowledge on relevant questions from auditing practice, and discussing views from practice, standard setters and regulators. The conference is particularly of interest to audit researchers, audit practitioners and firm management, auditing standards setters, audit supervisors and auditing teachers.

Curious about last year’s conference? Watch the video or read all about it here.

We look forward to welcoming you at our host, Nyenrode Business Universiteit in Breukelen

“Judgment biases in Auditing” – FAR Masterclass by Anna Gold
On March 29, 2019, the Foundation for Auditing Research (FAR) will be hosting a Masterclass by Anna Gold, professor at the Vrije Universiteit Amsterdam. The subject of this Masterclass is “Judgment biases in auditing”.

Departing from psychological theories, we will discuss several judgment biases, how they apply to auditor judgments, and what we know from research about these biases. We will discuss applications in various steps of the audit process, where professional judgment plays a role.

Please click here for more information and registration.
There are only a few spaces left, so don’t hesitate!

Reminder FAR Call for Research Project Proposals 2019
Proposals should be submitted in writing to the Scientific Committee of FAR no later than March 22, 2019 for proposals in research program B:

• Research Program B: Empirical research projects, including a research practice note and synthesis, with a project timeline of 1 to 4 years (depending on scope of the research project).

 For a full overview of the agenda and the requirements to submit a research proposal, please see the following documents, or visit the website:

• FAR Call for Projects 2019
• FAR Application Form 2019