Download or read book Implications of Financial and Non Financial Measures on the Refinement of the Assessments of Audit Risk written by Abdelmoneim Awadallah and published by . This book was released on 2017 with total page 14 pages. Available in PDF, EPUB and Kindle. Book excerpt: Identifying and assessing audit risk is a key part of the audit process. Prior research documented that auditors primarily look at financial data, information, and measures when assessing the audit risk for an audit engagement. However, professional standard setters, regulators, and academic researchers have discussed the potential for non-financial data, information, and measures to provide a powerful and independent benchmark for evaluating the validity of the numbers of financial statements of an audit client. A field study was conducted in Egypt during the years 2013 and 2014 to explore how auditors perceive and assess audit risk for an audit engagement in the period following the Egyptian revolution of January 25, 2011. The results of the field study indicated that auditors appear not to give sufficient attention to non-financial data, information, and measures when assessing the audit risk during an audit engagement. Auditors seem to rely on financial data, information, and measures when assessing the audit risk of an audit engagement. Furthermore, auditors do not seem to consider the inconsistencies between financial and non-financial data, information, and measures of an audit client as an indicator of the existence of fraud or material misstatements in the financial statements of an audit client.

Download or read book Auditors Reactions to Inconsistencies Between Financial and Nonfinancial Measures written by Joseph F. Brazel and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Nonfinancial measures (NFMs), such as employee headcount and production space, are operational measures that are not included on the face of the financial statements but are often disclosed elsewhere in the annual report or 10-K (e.g., in Management's Discussion and Analysis). Professional standards, auditing texts, and prior research suggest that external auditors can use NFMs to verify their clients' reported financial information and, in turn, improve audit quality. In an initial experiment where auditors develop an expectation for a client's sales balance, they generally fail to identify a seeded inconsistency between the client's sales and related NFMs. In our second experiment, where we introduce an NFM prompt and manipulate fraud risk as high and low, auditors are more likely to react to the inconsistency (i.e., rely more on inconsistent NFMs/develop expectations that reflect the client's current year decline in NFMs) when they are specifically prompted to consider the implications of NFMs and fraud risk is high (vs. low). Our results suggest the following: (1) a minority of auditors use NFMs as an information source for testing and do not increase their reliance on NFMs when the NFMs point to a fraud red flag; (2) the presence of high fraud risk alone is insufficient to increase auditor consideration of inconsistent NFMs; (3) auditors are able to react appropriately to an inconsistency if they are effectively prompted; and (4) the influence of a prompt on auditor reliance on NFMs and account balance expectations is stronger when fraud risk is assessed as high.

Download or read book Risk Assessment in Accounting and Auditing written by Theodore J. Mock and published by Canadian Certified General Accountants' Research Foundation = Fondation de recherche de l'Association des comptables généraux licenciés du Canada. This book was released on 1985 with total page 86 pages. Available in PDF, EPUB and Kindle. Book excerpt: From the Preface: The major objective of this monograph is to provide a critical overview of risk assessment in accounting and auditing. Many of the intellectual roots of the treatment of uncertainty and risk in accounting can be found in other disciplines. The monograph, therefore, attempts to synthesize conceptual frameworks, and empirical findings from a variety of disciplines and relate them to developments in risk assessment in accounting. The conceptual framework which is developed should be useful for both practitioners and academics who would like to employ a broader perspective in viewing their own work in the field.

Download or read book Auditors Usage of Non Financial Data and Information During the Assessment of the Risk of Material Misstatement for an Audit Engagement written by Abdelmoneim Awadallah and published by . This book was released on 2017 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: Audit firms that fail to detect fraud or material misstatements in the financial statements of their audit clients may suffer substantial monetary penalties and negative publicity in the event of audit failure. The present study investigates auditors' perception regarding the use of non-financial data and information to verify the validity of financial data and information reported by an audit client during an audit engagement. In addition, the current study considers the sources of information that auditors may depend on when searching for explanations for unusual trends in the financial statements of an audit client. The present study is based on a field study conducted in Egypt during the year 2014.Using a questionnaire supplemented by in-depth interviews, the present study showed that auditors are likely to make moderate use of non-financial data and information when assessing the risk of material misstatements during an audit. However, it seems that auditors prefer to depend on financial data and information more than non-financial data and information when developing expectations about account balances during an audit engagement. Furthermore, the present study pointed out that auditors appear to rely more on inquiries of audit client personnel than other sources of information when searching for explanations for unexpected trends in the financial statements of an audit client.

Download or read book Modeling External Auditors Evaluations of Audit Risk and the Effect of the Task Environment on Consensus written by Frank Alan Orth Buckless and published by . This book was released on 1989 with total page 554 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Risk Identification and Assessment in a Risk Based Audit Environment written by Michelle Chandler Diaz and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Risk based audit (RBA) approaches represent a major trend in current audit methodology. The approach is based on risk analysis used to identify business strategy risk. The RBA has created a new set of research issues that need investigation. In particular, this approach has important implications for risk identification and risk assessment. The success of the RBA approach is contingent on understanding what factors improve or interfere with the accuracy of these risk judgments. I examine how budget constraints and decision aid use affect risk identification and risk assessment. Unlike previous budget pressure studies, I cast budget constraints as a positive influence on auditors. I expect more stringent budget constraints to be motivating to the auditor as they provide a goal for the auditor to achieve. I also expect budget constraints to induce feelings of pressure leading to the use of time-pressure adaptation strategies. When auditors have use of a decision aid, they take advantage of these motivational goals and/or use beneficial adaptive strategies. Overall, I find that auditor participants tend to be more accurate when identifying financial statement risks compared to business risks. Budget constraints have no effect on risk identification for financial or business risks; they also have no effect on financial risk assessments. On the other hand, business risk assessments are improved by implementing more stringent budget constraints, but only when a decision aid is also provided. Budget constraints can affect performance through a goal theory route or a time-pressure adaptation route. I investigate the paths through which budget constraints improve business risk assessments under decision aid use. I find that budget constraints directly affect performance, supporting a goal theory route. However, I do not find that budget constraints are mediated by perceived budget pressure as expected. Auditors appear to use a positive adaptive strategy to respond to perceived budget pressure, however perceived budget pressure is not induced by providing a more stringent budget.

Download or read book Audit Risk Alert written by AICPA and published by John Wiley & Sons. This book was released on 2017-05-15 with total page 96 pages. Available in PDF, EPUB and Kindle. Book excerpt: This Audit Risk Alert is intended to help auditors understand and implement the requirements of the new AU-C section 600, Statement on Auditing Standards -Special Considerations - Audits of Group Financial Statements (Including the Work of Component Auditors) It was developed to present issues that auditors may face in their current audits; focusing on emerging practice issues and current auditing developments. The new AU-C section 600 is much more broad than previous guidance and introduces a number of new terms, concepts, and requirements related to group audits that will significantly affect current practice. To assist auditors in implementing the provisions of AU-C section 600, this alert includes a variety of useful resources including: Technical Questions & Answer sections An analysis of applicability A breakdown of new terminology An exploration of how practice will be affected Special considerations for state and local governments Implementation case studies This alert has been updated for the issuance of SAS No. 127, Omnibus Statement on Auditing Standards.

Download or read book The Routledge Companion to Accounting and Risk written by Margaret Woods and published by Routledge. This book was released on 2017-03-27 with total page 289 pages. Available in PDF, EPUB and Kindle. Book excerpt: To date, there has been little consideration of the many different ways in which accounting and risk intersect, despite organisations being more determined than ever to build resilience against potential risks. This comprehensive volume overcomes this gap by providing an overview of the field, drawing together current knowledge of risk in a wide range of different accounting contexts. Key themes such as corporate governance, trust, uncertainty and climate change are covered by a global array of contributing scholars. These contributions are divided into four areas: The broader aspects of risk and risk management Risk in financial reporting Risk in management accounting Risk monitoring The book is supported by a series of illustrative case studies which help to bring together theory and practice. With its wealth of examples and analyses, this volume provides essential reading for students, scholars and practitioners charged with understanding diverse facets of risk in the context of accounting in the business world.

Download or read book The Effect of Non Strategic Risk of Error on Auditor Sensitivity to Managers Reporting Incentives in a Multi Account Setting written by Dereck Barr-Pulliam and published by . This book was released on 2016 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the effects of making multiple contemporaneous risk assessments on auditor sensitivity to the strategic and non-strategic risk related to managers' financial reporting decisions. We address our research question using a 2x2 between-subjects experiment conducted under the tenets of experimental economics in a multi-account setting. We manipulate whether the two accounts differ in non-strategic risk. We find that when auditors allocate audit resources among accounts that differ in the non-strategic risk of error, auditors will use that difference as a heuristic basis for allocating resources among the accounts, and they will be relatively insensitive to strategic aspects of the audit including the client managers' financial reporting incentives. However, when financial statement accounts do not differ in non-strategic risk, auditor resource allocations are more sensitive to strategic information such as managers' penalties for detected misreporting. Consistent with the neglect of probability literature in psychology, we also find that even when auditors attend to managers' incentives, they do not respond as predicted by game theory but instead increase audit effort when managers' face large penalties for misreporting compared to when those penalties are more modest. This study is of interest to accounting academics, auditors, and regulators.

Download or read book The Impact of Assessment Procedures and Need for Cognition on Fraud Risk Assessments written by Pailin Trongmateerut and published by . This book was released on 2011 with total page 173 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Beyond Perceptions Crafting Meaning written by Cheryl R. Lehman and published by Emerald Group Publishing. This book was released on 2019-05-28 with total page 121 pages. Available in PDF, EPUB and Kindle. Book excerpt: Researching accounting’s participation in financial regulation, banking practices, managerial incentives and environmental disclosures this volume presents scholarly work adopting interdisciplinary approaches in auditing and accountability realms.

Download or read book Assessing and Responding to Audit Risk in a Financial Statement Audit written by and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book A Reexamination of the Dilution of Auditor Misstatement Risk Assessments written by Suzanne M. Perry and published by . This book was released on 2015 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many external parties such as investors, creditors, and regulatory agencies, use a company's financial statements in their decision-making. In doing so, they rely on audit opinions on whether financial statements are fairly stated. However, evidence suggests that there are factors in the audit environment that influence auditor judgments. For example, nondiagnostic client information dilutes auditor judgments when compared to judgments based on diagnostic information alone, especially for less experienced auditors (Hackenbrack 1992; Hoffman and Patton 1997; Glover 1994; Shelton 1999). High time pressure conditions mitigate this effect by refocusing auditor attention toward relevant client information, therefore reducing the impact of nondiagnostic information (Glover 1994, 1997). This research study examines other common audit environment factors to determine if they too influence audit judgment results. An online questionnaire of 149 auditors, CPAs and other accounting professionals indicate that the inclusion of nondiagnostic client information results in a significant change in auditor judgments. The direction of this change follows a theorized pattern; risk assessments that were initially high are reduced, while those that were initially low are increased. Significance was not consistently found for a workload and PCAOB effect on auditor judgment. However, a comparison of the absolute value of dilution effect means across conditions reveals some trending for the proposed unwanted effect of high workload, and the beneficial effect of PCAOB guidance. These results have important implications for auditing research and practice. It extends previous archival research on workload effects and uses a unique questionnaire design to reexamine workload pressures in a behavioral setting. The results of hypothesis testing on workload pressure and PCAOB guidance, although lacking consistent statistical significance; exhibit trends that agree with proposed theoretical relationships. Tests on the effects of nondiagnostic information show strong statistical support for previous studies in the area of psychology and audit. This study's greatest contribution suggests that audit pressures do not produce equivalent effects on auditor judgment; time pressure improves audit judgment, while workload pressure does not (Glover 1994, 1997). These results can be explained by examining the relationship between stress and audit judgment performance (Choo 1995, Yerkes and Dodson 1908). Different types and different degrees of audit pressures may correspond to different levels of audit pressure. Low to moderate levels of audit pressure, such as the level of time pressure used in Glover's (1994, 1997) study improve audit performance. Higher audit pressures, such as high workload during an auditor's busy season, may lower audit performance.

Download or read book The Effects of Fraud and Going Concern Risk on Auditors Assessments of the Risk of Material Misstatement and Resulting Audit Procedures written by Allen D. Blay and published by . This book was released on 2007 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study uses audit file data to analyze the association between the auditors' preliminary assessments of going-concern and fraud risk and the planning and performance of the financial statement audit. We analyze the association between the above risks and the auditor's assessment of the risk of material misstatement (RMM) within the revenue cycle, and examine whether going-concern and fraud risk assessments have an effect on the persuasiveness, timing and extent of audit evidence gathered. Our results indicate that both fraud risk and going-concern risk are significantly related to RMM. Our results also indicate that although the effect of fraud risk is fully mediated by the RMM, moderate going-concern risk remains significantly related to our proxies for the persuasiveness and timing of audit evidence, even after controlling for RMM.

Download or read book Auditors Quantitative Materiality Judgments written by Preeti Choudhary and published by . This book was released on 2019 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze data made available through the PCAOB (Public Company Accounting Oversight Board) to provide descriptive evidence on the properties of auditors' actual quantitative materiality judgments and the implications of those judgments for financial reporting. Auditors' quantitative materiality judgments do not appear to result simply from applying conventional rules-of-thumb, (e.g., 5% of pre-tax income), but instead are associated with size-related financial statement outcomes (income, revenues and assets), where the relative importance of the size-related outcomes varies with client characteristics such as financial performance. Using the distribution of actual materiality amounts reported by auditors to the PCAOB as part of the audit-inspection process, we construct a materiality-judgment measure that locates a specific materiality amount within a normal range that is both comparable across varying client characteristics and supported by guidance in audit firm internal policy manuals. We find that looser materiality (an amount closer to the high end of a normal materiality range) is associated with fewer audit hours and lower audit fees, supporting the construct validity of this measure. We also find that looser materiality is associated with lower amounts of proposed audit adjustments and, in extreme cases, with a greater incidence of restatements, highlighting the importance of auditor materiality assessments for financial reporting reliability.

Download or read book Differences in Auditors Materiality Assessments When Auditing Financial Statements and Sustainability Reports written by Robyn Moroney and published by . This book was released on 2018 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: With increased interest in voluntary sustainability reports from investors and other stakeholders, more companies are having these reports assured. The issue of what is considered material in these assurance engagements is important, and yet research on materiality has focused only on financial statement audits. This article reports the results of an experiment where auditors assess the materiality of audit differences in the same magnitude for both a financial audit and a sustainability (water) assurance engagement. Two factors, the risk of breaching a contract and community impact, are manipulated between-subjects. We find that auditors assess the materiality of an audit difference significantly higher for a financial case than for a water case. This difference is significantly greater when there is no risk of breaching a contract than when there is a risk of breaching a contract. The risk of breaching a contract has a stronger effect on the difference in auditors' materiality assessments when there is no community impact than when there is a community impact. Overall our findings suggest that qualitative factors have a greater impact on sustainability (water) materiality assessments than on financial statement materiality assessments when an audit difference is between 5 percent and 10 percent of a relevant base. Understanding the factors that impact material judgments in sustainability reports is important as these factors affect the reliability of the reported disclosures.

Download or read book Waste is Our Business Inc written by Jeffrey R. Cohen and published by . This book was released on 2012 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: The objectives of this case are: (a) to alert students to the importance of non-financial information in the audit process; (b) to develop students' ability to search for relevant financial and non-financial information in the audit planning process; and (c) to emphasize the importance of maintaining professional skepticism and to resist the natural tendency to over-rely on financial information when conducting the financial statement audit. Students are asked to consider both financial and non-financial information when evaluating the client's account balances. The client is in the waste business where there are a number of market, regulatory, and political factors that may affect the valuation of different accounts. Students are also directed to consider the importance of non-financial information in the integrated audit mandated by PCAOB Standard 2 and in fraud detection. The case can help students learn to explicitly consider non-financial information and understand the significance of integrating such information with financial data. The case is suitable for use in undergraduate or graduate auditing and assurance courses.