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FAR Literature Review - The impact of auditor interactions on audit quality Prof. dr. Eddy Cardinaels Prof. dr. Kristof Stouthuysen Dr. Evelien Reusen Details
 

The judgment and decision-making literature in auditing largely focuses on individual auditor judgments. However, auditors do not work in isolation. They interact with other auditors in audit engagements and with other participants in the financial reporting process. For this reason, scholars have called for more research on how the people, tasks, and environment that auditors interact with influence their performance and hence, the audit quality of their work.

This review identifies three specific issues related to these influences that, we believe, warrant additional research and consideration. The first two issues relate to between-auditor interactions within the audit firm. The third issue relates to interactions with groups outside the firm.

Authors

Prof. dr. Eddy Cardinaels

Eddy Cardinaels (1975) is full Professor of accounting at Tilburg University and part-time professor at KU Leuven. His work combines new insights from psychology and behavioral economics to study how different information presentation (ABC, BSC, summaries of earnings releases) can affect decision making of managers within companies. Other experimental work focuses on drivers of honest reporting and social motives in inter-firm negotiations. He also conducts archival work on corporate governance examining how social connections between board members affect financial reporting, how companies use their networks to engage in tax avoidance and factors that drive (excess) compensation. Eddy has published in leading journals such as The Accounting Review, Journal of Accounting Research, and Accounting, Organizations and Society, and Review of Accounting Studies. Eddy’s work has been recognized with several prestigious awards including the greatest impact on practice award (AAA).

Prof. dr. Kristof Stouthuysen

Professor in Accounting and Control at Vlerick Business School and KU Leuven.

Dr. Evelien Reusen
FAR Practice Note: Copycat behavior by junior auditors – The impact of their senior’s working style and the role of promotion incentives Prof. dr. Eddy Cardinaels Prof. dr. Kristof Stouthuysen Dr. Evelien Reusen Details
 

As a key attribute to audit quality, regulators specify that more experienced staff (i.e. managers, senior auditors) should provide less experienced staff with appropriate coaching and on-the-job training (IAASB 2014). It is fairly common for junior auditors to start their auditing career by mimicking a more senior person who performs similar tasks; as the saying goes, “Monkey see, monkey do” (Cannon, 2016). Yet, while imitation is an inherent human tendency, limited evidence exists on the impact of such imitative behavior on the quality of an individual auditor’s judgment. The objective of our research project is to examine the extent to which mimicking behavior occurs in junior–senior auditor relationships and its consequences for audit quality. In particular, we advance the argument that this imitation tendency may lead junior auditors to follow seniors’ auditing practices, even when those practices are not always ideal. We also examine whether promotion opportunities for the junior can be an important contributor in mimicking an audit style of a senior (which in turn would affect audit quality). The tendency to imitate their senior – even though his working practices might not be ideal - might be higher when the direct senior has a strong voice in the promotion decision of the junior.

Authors

Prof. dr. Eddy Cardinaels

Eddy Cardinaels (1975) is full Professor of accounting at Tilburg University and part-time professor at KU Leuven. His work combines new insights from psychology and behavioral economics to study how different information presentation (ABC, BSC, summaries of earnings releases) can affect decision making of managers within companies. Other experimental work focuses on drivers of honest reporting and social motives in inter-firm negotiations. He also conducts archival work on corporate governance examining how social connections between board members affect financial reporting, how companies use their networks to engage in tax avoidance and factors that drive (excess) compensation. Eddy has published in leading journals such as The Accounting Review, Journal of Accounting Research, and Accounting, Organizations and Society, and Review of Accounting Studies. Eddy’s work has been recognized with several prestigious awards including the greatest impact on practice award (AAA).

Prof. dr. Kristof Stouthuysen

Professor in Accounting and Control at Vlerick Business School and KU Leuven.

Dr. Evelien Reusen
FAR Practice Note: Imitatiegedrag bij junior auditors: de impact van de werkstijl van de senior en de rol van promotiedruk Prof. dr. Eddy Cardinaels Prof. dr. Kristof Stouthuysen Dr. Evelien Reusen Details
 

Om audit kwaliteit te waarborgen, hebben meer ervaren auditors (i.e., senior auditors) de taak om minder ervaren auditors (i.e., junior auditors) tijdig te beoordelen en te voorzien van gepaste coaching en ‘on-the-job’ training (IAASB 2014). Het geven van het goede voorbeeld door de senior is hierbij belangrijk, zeker wanneer we erkennen dat junior auditors in het begin van hun carrière vaak geneigd zijn het gedrag en de werkstijl van senior auditors te imiteren. Hoewel het imiteren van anderen deel uitmaakt van het menselijke gedrag, hebben we tot op heden nog maar weinig inzicht in hoe imitatiegedrag de oordeelsvorming bij junior auditors beïnvloedt. Het doel van dit onderzoeksproject is om de rol van imitatiegedrag in junior-senior auditor relaties na te gaan en inzicht te krijgen in de gevolgen hiervan op auditkwaliteit. Tegelijkertijd onderzoeken we ook hoe promotiedruk dit imitatiegedrag kan versterken. De neiging van junior auditors om hun senior te imiteren – zelfs wanneer deze laatste zijn werkstijl niet in lijn is met de verwachte professioneel-kritische houding – kan meer uitgesproken zijn wanneer de senior auditor een doorslaggevende stem heeft bij toekomstige promotiebeslissingen. De bevindingen van deze studie zullen leiden tot waardevolle inzichten voor het wereldwijde auditberoep. 

Authors

Prof. dr. Eddy Cardinaels

Eddy Cardinaels (1975) is full Professor of accounting at Tilburg University and part-time professor at KU Leuven. His work combines new insights from psychology and behavioral economics to study how different information presentation (ABC, BSC, summaries of earnings releases) can affect decision making of managers within companies. Other experimental work focuses on drivers of honest reporting and social motives in inter-firm negotiations. He also conducts archival work on corporate governance examining how social connections between board members affect financial reporting, how companies use their networks to engage in tax avoidance and factors that drive (excess) compensation. Eddy has published in leading journals such as The Accounting Review, Journal of Accounting Research, and Accounting, Organizations and Society, and Review of Accounting Studies. Eddy’s work has been recognized with several prestigious awards including the greatest impact on practice award (AAA).

Prof. dr. Kristof Stouthuysen

Professor in Accounting and Control at Vlerick Business School and KU Leuven.

Dr. Evelien Reusen
FAR Masterclass Report - 9 December 2019: Masterclass by Marshall Geiger, Anna Gold and Philip Wallage on Going Concern Opinions (GCO's) in Theory and Practice Prof. Marshall Geiger PhD Prof. dr. Anna Gold Prof. dr. Philip Wallage Details
 

On 9 December 2019, Marshall Geiger, Anna Gold and Philip Wallage presented a masterclass on Going Concern Opinions (GCOs). In this report, a summary of the masterclass is presented. The main purpose of the session was to communicate the main results of their literature synthesis (see Part I below) and to extend and corroborate the findings of the focus group meeting that was part of the research project, by means of an in-depth discussion concerning eight broad GCO topics (see Part II below).

Authors

Prof. Marshall Geiger PhD

CSX Chair in Management and Accounting Professor of Accounting University of Richmond

Prof. dr. Anna Gold

Anna Gold obtained her Ph.D. from the University of Amsterdam in 2004, worked as an assistant professor at Rotterdam School of Management, Erasmus University for six years and is currently professor at the Vrije Universiteit Amsterdam where she teaches Auditing at the BSc and MSc level, as well as PhD courses in Auditing and Experimental Methods. Anna’s research interests are in the judgment and decision-making area, primarily applied to the field of Auditing. Her research has focused on the impact of regulatory changes, on judgments and decisions of auditors and financial statement users. Her recent work focuses on how auditors and audit firms handle errors and whether varying the error management climate affects auditors’ error reporting willingness and audit firm learning. Anna’s work and her publications have appeared in a number of prestigious journals such as The Accounting Review, Accounting Horizons, Journal of Business Ethics, and International Journal of Auditing.

Prof. dr. Philip Wallage

Professor of Auditing at VU University Amsterdam and University of Amsterdam

FAR Masterclass Report - 9 October 2019: Masterclass by Kris Hardies and Sanne Janssen on 'Professional Skepticism' Prof. dr. Kris Hardies Drs. Sanne Janssen Details
 

On October 9 2019, Kris Hardies and Sanne Janssen presented their FAR-masterclass on professional skepticism. Professional skepticism is an important topic, which is high on the agenda of regulators and policy makers. A lack of professional skepticism appears to be related to insufficient audit quality. In this masterclass, the importance and difficulties were discussed of applying professional skepticism during an audit. In addition, some insights from current research were presented. Furthermore, potential ways to improve professional skepticism were considered.

Authors

Prof. dr. Kris Hardies

Kris Hardies obtained his Ph.D. from the Vrije Universiteit Brussel in 2011, worked at the University of Florida in 2012 and is currently an associate professor at the Universiteit Antwerpen where he teaches accounting and auditing at the BSc and MSc level. His research interests include professional skepticism, personality and individual differences, capital markets and firm behavior, and gender inequality. His recent research focuses on the effects of personality and individual differences among auditors on audit quality. His work has been published in journals such as Auditing: A Journal of Practice & Theory, Accounting Horizon, European Accounting Review, International Journal of Auditing, and Economics Letters.

Drs. Sanne Janssen

PhD Researcher at University of Antwerp & Maastricht University

FAR Practice Note - The Effect of Audit Culture on Audit Quality Prof. dr. Jasmijn Bol Prof. dr. Isabella Grabner Dr. Katlijn Haesebrouck Prof. Mark E. Peecher PhD Details
 

In this research note, we discuss why designing a management control system that directs effort towards audit quality is so tricky. We discuss the different ways that audit firms motivate effort and highlight “culture controls” where, through selection and socialization, audit firms create a workforce of auditors that value and, therefore, work hard to ensure audit quality. We also discuss the importance of directing auditors’ efforts towards audit quality and distinguish three critical elements. Auditors must: (1) understand the importance of audit quality, (2) possess the right tools and capabilities, and (3) prefer those tasks that lead to audit quality. We share some preliminary results of our research that examines how successful five Dutch audit firms are at this non-trivial task. This provides firms with the knowledge to critically examine and improve their own current management control system. Our study is relevant for Dutch audit firms as well as for auditors all over the world.

 

Authors

Prof. dr. Jasmijn Bol

Professor Jasmijn Bol teaches Accounting and Controls for Operational Risk, a master’s-level class about risk and control systems at Tulane University, Freeman School of Business, USA. Her classes go beyond lectures and textbooks, incorporating interactive pedagogy and lessons drawn from her own research.

Born and raised in the Netherlands, Professor Bol has studied at universities in The Netherlands, Spain and in the U.S., and she consistently presents her research to communities across the globe. Professor Bol’s research focuses on subjectivity in compensation contracting, and she has authored and co-authored several articles that have appeared in prestigious scholarly journals. She has also earned awards for her teaching and research.

Prof. dr. Isabella Grabner

Isabella Grabner is a Professer of Management Control and Strategy Implementation at WU (Vienna University of Economics and Business).

She holds a Master’s degree in International Business from the University of Vienna and a PhD in Business Administration from WU Vienna (Title of dissertation "Creativity and Control: Conflicting Objectives?"). Before joining WU Vienna, she was a tenured faculty member at the Department of Accounting and Information Management at Maastricht University School of Business and Economics. She has also worked as visiting researcher at Emory University Goizueta Business School and the University of Technology Sydney.

Dr. Katlijn Haesebrouck

Assistant Professor Accounting & Information Management, School of Business and Economics, Maastricht University

Prof. Mark E. Peecher PhD

Mark E. Peecher, CPA, is a professor of accountancy and a Deloitte Teaching Fellow at the University of Illinois, specializing in behavioral auditing and accounting research. He holds a bachelor’s, master’s, and Ph.D. degrees in accountancy from Illinois. Prior to returning to his alma mater, he was a faculty member at the University of Washington. An active member in the AAA’s Audit Section, Mark currently serves as the Audit Section’s past president.

Professor Peecher’s business-press writings about auditing have appeared in The Wall Street Journal, and his scholarly writings have appeared in AccountingOrganizations & SocietyAuditing: A Journal of Practice & TheoryContemporary Accounting ResearchInternational Journal of AuditingJournal of Accounting ResearchOrganizational Behavior and Human Decision Processes, and The Accounting Review. He has presented his research at numerous conferences, consortia, and universities, and he has served on the editorial boards at Auditing: A Journal of Practice & TheoryThe Accounting Review, and Issues in Accounting Education. Mark enjoys teaching both undergraduate courses and doctoral seminars related to auditing. He particularly likes helping to mentor doctoral students, three of whom have won outstanding doctoral dissertation awards.


FAR Literature review - The Effect of Audit Culture on Audit Quality Dr. Katlijn Haesebrouck Prof. Mark E. Peecher PhD Prof. dr. Jasmijn Bol Prof. dr. Isabella Grabner Details
 

In 2014, the professional body for accountants in the Netherlands (NBA) indicated that audit quality did not live up to the public’s expectations. One of the main corrective measures suggested by the NBA was an improvement in audit culture (NBA, 2014). Although audit culture can be an important determinant of audit quality, the extant academic literature has not payed much attention to audit culture. This paper provides an overview of the literature on audit quality and audit culture as a determinant of audit quality.

Authors

Dr. Katlijn Haesebrouck

Assistant Professor Accounting & Information Management, School of Business and Economics, Maastricht University

Prof. Mark E. Peecher PhD

Mark E. Peecher, CPA, is a professor of accountancy and a Deloitte Teaching Fellow at the University of Illinois, specializing in behavioral auditing and accounting research. He holds a bachelor’s, master’s, and Ph.D. degrees in accountancy from Illinois. Prior to returning to his alma mater, he was a faculty member at the University of Washington. An active member in the AAA’s Audit Section, Mark currently serves as the Audit Section’s past president.

Professor Peecher’s business-press writings about auditing have appeared in The Wall Street Journal, and his scholarly writings have appeared in AccountingOrganizations & SocietyAuditing: A Journal of Practice & TheoryContemporary Accounting ResearchInternational Journal of AuditingJournal of Accounting ResearchOrganizational Behavior and Human Decision Processes, and The Accounting Review. He has presented his research at numerous conferences, consortia, and universities, and he has served on the editorial boards at Auditing: A Journal of Practice & TheoryThe Accounting Review, and Issues in Accounting Education. Mark enjoys teaching both undergraduate courses and doctoral seminars related to auditing. He particularly likes helping to mentor doctoral students, three of whom have won outstanding doctoral dissertation awards.


Prof. dr. Jasmijn Bol

Professor Jasmijn Bol teaches Accounting and Controls for Operational Risk, a master’s-level class about risk and control systems at Tulane University, Freeman School of Business, USA. Her classes go beyond lectures and textbooks, incorporating interactive pedagogy and lessons drawn from her own research.

Born and raised in the Netherlands, Professor Bol has studied at universities in The Netherlands, Spain and in the U.S., and she consistently presents her research to communities across the globe. Professor Bol’s research focuses on subjectivity in compensation contracting, and she has authored and co-authored several articles that have appeared in prestigious scholarly journals. She has also earned awards for her teaching and research.

Prof. dr. Isabella Grabner

Isabella Grabner is a Professer of Management Control and Strategy Implementation at WU (Vienna University of Economics and Business).

She holds a Master’s degree in International Business from the University of Vienna and a PhD in Business Administration from WU Vienna (Title of dissertation "Creativity and Control: Conflicting Objectives?"). Before joining WU Vienna, she was a tenured faculty member at the Department of Accounting and Information Management at Maastricht University School of Business and Economics. She has also worked as visiting researcher at Emory University Goizueta Business School and the University of Technology Sydney.

Crossing the Divide - Behavioral Research in Auditing Prof. dr. Olof Bik Details
 

Inaugural address of prof. dr. Olof Bik RA
Abridged version given in acceptance of the Professorship of Behavioral Research in Auditing at Nyenrode Business Universiteit on Tuesday September 17th, 2019.  

 

Authors

Prof. dr. Olof Bik

Olof Bik is professor Behavioral Research in Auditing at Nyenrode Business University. He is also a member of the daily board of the Foundation for Auditing Research (FAR). Bik worked in accounting practice for 18 years, since 2002 always in combination with a university appointment. He obtained his PhD at the University of Groningen with a dissertation on the effects of culture on accountant behavior.

FAR Practice Note: Auditor Reporting for Going-Concern Uncertainty: Research Findings and implications for practitioners Prof. Marshall Geiger PhD Prof. dr. Anna Gold Prof. dr. Philip Wallage Details
 

The auditor’s decision regarding a going concern opinion (GCO) is among their most important judgments, as GCOs impact the client company, markets, financial statement users, and auditors themselves. Such a sensitive and complex judgement call requires expertise and experience. In the academic literature, GCO decisions are often seen as related to audit quality, and they are among the few observable outcomes of the audit that vary across engagements. In the last decades, academic researchers have spent considerable effort examining GCO decisions. We believe that audit practitioners can benefit from improved awareness of the insights that research has generated. In our complete report (Geiger, Gold, and Wallage, 2019), we review and synthesize 149 academic studies authored since 2013, the end of the previous synthesis by Carson et al (2013). In this practitioner note, we make a selection of what we deem the most interesting insights from our review, and discuss their implications for practice. We then report on our focus group engagement with audit practitioners where we obtained their perceptions regarding some the academic findings, the issues faced in making GCO decisions, as well as areas where additional research would be helpful.

Authors

Prof. Marshall Geiger PhD

CSX Chair in Management and Accounting Professor of Accounting University of Richmond

Prof. dr. Anna Gold

Anna Gold obtained her Ph.D. from the University of Amsterdam in 2004, worked as an assistant professor at Rotterdam School of Management, Erasmus University for six years and is currently professor at the Vrije Universiteit Amsterdam where she teaches Auditing at the BSc and MSc level, as well as PhD courses in Auditing and Experimental Methods. Anna’s research interests are in the judgment and decision-making area, primarily applied to the field of Auditing. Her research has focused on the impact of regulatory changes, on judgments and decisions of auditors and financial statement users. Her recent work focuses on how auditors and audit firms handle errors and whether varying the error management climate affects auditors’ error reporting willingness and audit firm learning. Anna’s work and her publications have appeared in a number of prestigious journals such as The Accounting Review, Accounting Horizons, Journal of Business Ethics, and International Journal of Auditing.

Prof. dr. Philip Wallage

Professor of Auditing at VU University Amsterdam and University of Amsterdam

A Synthesis of Research on Auditor Reporting on Going-Concern Uncertainty: An Update and Extension Prof. Marshall Geiger PhD Prof. dr. Anna Gold Prof. dr. Philip Wallage Details
 

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), 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. As requested by the Foundation for Audit Research (FAR), the primary purpose of this research synthesis is to review and discuss the recent academic literature pertinent to the auditor’s decision to issue, or not issue, a GCO. Our review begins with research available after the going-concern research synthesis provided in Carson, Fargher, Geiger, Lennox, Raghunandan and Willekens (2013). We attempt to minimize the gap and the overlap in the research discussed in Carson et al. (2013) and our work. Further, in an attempt to be as comprehensive as possible, we do not limit our coverage to only published research, but also include well-developed working papers in the public domain, particularly if we determine they add significant contribution to the literature.

Authors

Prof. Marshall Geiger PhD

CSX Chair in Management and Accounting Professor of Accounting University of Richmond

Prof. dr. Anna Gold

Anna Gold obtained her Ph.D. from the University of Amsterdam in 2004, worked as an assistant professor at Rotterdam School of Management, Erasmus University for six years and is currently professor at the Vrije Universiteit Amsterdam where she teaches Auditing at the BSc and MSc level, as well as PhD courses in Auditing and Experimental Methods. Anna’s research interests are in the judgment and decision-making area, primarily applied to the field of Auditing. Her research has focused on the impact of regulatory changes, on judgments and decisions of auditors and financial statement users. Her recent work focuses on how auditors and audit firms handle errors and whether varying the error management climate affects auditors’ error reporting willingness and audit firm learning. Anna’s work and her publications have appeared in a number of prestigious journals such as The Accounting Review, Accounting Horizons, Journal of Business Ethics, and International Journal of Auditing.

Prof. dr. Philip Wallage

Professor of Auditing at VU University Amsterdam and University of Amsterdam

FAR Practice Note: How is auditor commercialism related to audit quality? Prof. William Ciconte PhD Dr. Justin Leiby Prof. dr. Marleen Willekens Details
 

It is taken for granted that a fundamental conflict exists between auditors’ professional responsibilities and their commercial interests. While there is no direct evidence to support this widely held belief, it nonetheless fuels extensive, costly regulatory and standard-setting activities. We propose to examine whether auditors’ commercial and professional motivations actually conflict. Moreover, we argue that quality control mechanisms in audit firms—e.g., performance evaluation and technical consultation procedures—create conditions in which the two sets of motivations are likely mutually reinforcing.

Authors

Prof. William Ciconte PhD

Assistant Professor of Accountancy University of Illinois

Dr. Justin Leiby

Associate Professor of Accountancy and Professor Ken Perry Faculty Fellow University of Illinois

Prof. dr. Marleen Willekens

Full Professor of Accounting and Auditing at KU Leuven

Literature review: How is auditor commercialism related to audit quality and efficiency? Prof. William Ciconte PhD Dr. Justin Leiby Prof. dr. Marleen Willekens Details
 

Authors

Prof. William Ciconte PhD

Assistant Professor of Accountancy University of Illinois

Dr. Justin Leiby

Associate Professor of Accountancy and Professor Ken Perry Faculty Fellow University of Illinois

Prof. dr. Marleen Willekens

Full Professor of Accounting and Auditing at KU Leuven