Download or read book The Effect of Increased Audit Disclosure on Investors Perceptions of Management Auditors and Financial Reporting written by Marcus Mason Doxey and published by . This book was released on 2013 with total page 170 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Effects of Auditor Disclosures Regarding Management Estimates on Financial Statement Users Perceptions and Investments written by Marcus Doxey and published by . This book was released on 2015 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: Regulators worldwide have recently proposed expanding the auditor's report in a number of ways, with investors showing particular interest in additional information surrounding management estimates. This study uses an experiment to examine the effects of auditor-provided estimate disclosures on financial statement users' perceptions of auditor independence, management credibility, reporting quality, and investment decisions. I manipulate auditor agreement with management's estimates and whether the estimates are incentive-consistent for management. I find that estimate disclosures are value-relevant for users' investment decisions. Additionally, given an unqualified opinion, users view auditors as more (less) independent when auditors agree (disagree) with management and management as less (more) credible when estimates are incentive consistent (inconsistent). In turn, independence and credibility perceptions influence perceived misstatement probability, financial reporting quality, and investment. The findings empirically support investors' arguments that auditor disclosures regarding management estimates increase the transparency and value-relevance of the audit report.
Download or read book The Effect of Expanded Audit Report Disclosures on Users Confidence in the Audit and the Financial Statements written by Peter Kipp and published by . This book was released on 2017 with total page 160 pages. Available in PDF, EPUB and Kindle. Book excerpt: I investigate how nonprofessional investors confidence in the financial statements and the audit report is influenced by the firm specific details of a critical audit matter (CAM) disclosure in conjunction with the description of the audit procedures engaged to address the CAM in the audit report. Using participants recruited from Amazon Mechanical Turk as a proxy for nonprofessional investors in a 2x2 +1 (control) between-participants experiment manipulating CAM disclosure detail (Detailed/Generic) and the description of the audit procedures engaged to address the CAM (Detail/Generic) I find that greater detail in the description of the CAM results in higher confidence in the accuracy and reliability of the financial statements than a generic description of the CAM, consistent with boundary condition of Support Theory. Further, I find that greater detail in the description of the related audit procedures engaged to address the CAM increases nonprofessional investors perceptions of audit quality. Evidence of an effect of CAM and audit procedure disclosure language on investment judgments is also presented. These results have implications for researchers, practitioners, and regulators to carefully consider the language used to disclose CAMs in the auditors report.
Download or read book Auditor Going Concern Reporting written by Marshall A. Geiger and published by Routledge. This book was released on 2021-06-09 with total page 160 pages. Available in PDF, EPUB and Kindle. Book excerpt: Auditor reporting on going-concern-related uncertainties remains one of the most challenging issues faced by external auditors. Business owners, market participants and audit regulators want an early warning of impending business failure. However, companies typically do not welcome audit opinions indicating uncertainty regarding their future viability. Thus, the auditor’s decision to issue a "going concern opinion" (GCO) is a complex and multi-layered one, facing a great deal of tension. Given such a rich context, academic researchers have examined many facets related to an auditor’s decision to issue a GCO. This monograph reviews and synthesizes 182 recent GCO studies that have appeared since the last significant review published in 2013 through the end of 2019. The authors categorize studies into the three broad areas of GCO: (1) determinants, (2) accuracy and (3) consequences. As an integral part of their synthesis, they summarize the details of each study in several user-friendly tables. After discussing and synthesizing the research, they present a discussion of opportunities for future research, including issues created or exacerbated as a result of the global COVID-19 pandemic. This monograph will be of assistance to researchers interested in exploring this area of auditor responsibility. It will also be of interest to auditing firms and individual practitioners wanting to learn what academic research has examined and found regarding this challenging aspect of audit practice. Auditing standard-setters and regulators will find it of interest as the authors review numerous studies examining issues related to audit policy and regulation, and their effects on GCO decisions. The examination of GCO research is extremely timely given the financial and business disruption caused by the worldwide COVID-19 pandemic. This unprecedented global event has caused companies, auditors and professional bodies to revisit and reassess their approach to going concern, and to think even more deeply about this fundamental business imperative.
Download or read book Consequences of the Sarbanes Oxley Act Financial Accounting and Reporting Quality Capital Market written by Carolin Peters and published by Grin Publishing. This book was released on 2017-12-22 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2017 in the subject Business economics - Accounting and Taxes, grade: 1,7, University of Potsdam, language: English, abstract: The Sarbanes-Oxley Act (SOX) was introduced by President George W. Bush in the year 2002. This regulation changed disclosure and reporting requirements and aims to increase trust of the investors in capital markets again, after facing several balance and accounting scandals between the years 2000 and 2002, for example at Enron and WorldCom . The SOX affects companies with a registration at the Securities and Exchange Commission (SEC). There are two sections that are considered having a high impact on the corporate governance of complying firms, Section 302 (SOX 302) and Section 404 (SOX 404). SOX 302 - "Corporate Responsibility for Financial Reports"- demands the executives to assess whether firms' financial statements represent the financial situation and the results of the operations and the period. Executives should design, establish and maintain internal controls. An evaluation of the effectiveness, disclosures of deficiencies concerning internal controls, frauds et cetera is necessary (SOX, 2002, Section 302). SOX 404 - "Management Assessment of Internal Controls"- extends prior requirements and demands that the company's external auditor must report on the reliability of management's assessment of internal control every fiscal year. It also requires an annual attestation by the management that evaluates the reliability of financial statements (SOX, 2002, Section 404). Especially SOX 404 is considered a cost driver of the SOX and demands significant changes in financial reporting. Aim of SOX 302 and 404 is to improve internal controls, and to reduce opportunistic behaviour of executives. Prior studies show evidence that there seem to be differences between the perceived benefits and the target effects of the SOX, for example regarding audit quality after the SOX. Furthermore, there is a discussion question
Download or read book Do Critical Audit Matter Disclosures Impact Investor Behavior written by Qian Huang and published by . This book was released on 2021 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The Public Company Accounting Oversight Board (PCAOB) has recently required auditors to disclose critical audit matters (CAMs), which are financial statement matters that involve especially challenging, subjective, or complex auditor judgments. The PCAOB contends that CAMs will increase the decision usefulness of the auditor's report and indirectly benefit investors by increasing audit and financial reporting quality. I examine whether investors react to CAM disclosures and whether they perceive any change in adopting firms' financial reporting quality. Using a difference-in-differences design, I find that (1) while there is no significant stock price reaction to CAMs on average, investors react negatively to CAMs disclosed by firms with high levels of short interest; (2) there is a significant increase in the quarterly earnings response coefficient for adopting firms. The effect is driven by big-N audit firms, and increases with the number of CAMs reported. Collectively, the evidence suggests that investors use CAMs to confirm their pre-existing opinions about a firm, and that they perceive an improvement in audit quality and financial reporting reliability due to the CAM disclosure requirement.
Download or read book Nonprofessional Investors Reactions to the PCAOB s Proposed Changes to the Standard Audit Report written by Brian Todd Carver and published by . This book was released on 2017 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: As part of its efforts to improve the informational value of the standard audit report, the Public Company Accounting Oversight Board (PCAOB) proposed a new auditing standard that would require the auditor to report critical audit matters (CAMs) in the body of the audit report. The proposal met with approval from investor groups, while preparers have suggested the new disclosures could negatively affect the quality of the audit and the informational content of the audit report. This study examines how the proposed standard influences experienced, nonprofessional investors' perception of the readability of the audit report, their valuation judgments, and their evaluations of management's credibility. We find that the disclosure of a CAM negatively impacts the readability of the audit report, but does not, either directly or through its effect on readability, incrementally inform investors' valuation judgments. Instead, investors focused on earnings benchmark performance when making valuation judgements. The disclosure of a CAM does, however, lower investors' perceptions of management's credibility when earnings just meet expectations. Our results suggest that the PCAOB's proposed standard will have a significant, negative effect on the readability of the audit report but only a limited impact on the informational content of the audit report for investors.
Download or read book The Effect of Auditor Changes on Earnings Opinions and Stock Prices written by Nancy Rueyhwa Mangold and published by . This book was released on 1984 with total page 352 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Emergence of Second Tier Auditors in the US written by Cory A. Cassell and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine changes in the association between auditor type (Big 4, Second-Tier, and Other non-Big 4) and perceived financial reporting credibility in the wake of events (e.g., Andersen's failure, the implementation of SOX, creation of the PCAOB, etc.) which led to significant growth in Second-Tier client portfolios and increased scrutiny of Second-Tier audit practices. Our results reveal that financial reporting credibility of Second-Tier clients was lower than that of Big 4 clients and was indistinguishable from that of Other non-Big 4 clients pre-Andersen. However, post-Andersen, we find that financial reporting credibility of Second-Tier clients is higher than that of Other non-Big 4 clients and is indistinguishable from that of Big 4 clients. We expect that our results will be of interest to regulators, both in the United States and in the European Union, who have expressed concerns about the current state of competition in the audit market, management and boards of directors that are contemplating switching to a Second-Tier audit firm, and academics investigating quality differences among audit firm types.
Download or read book Do Audit Report Disclosures Lead to Increased Liability Exposure An Investigation of Jurors Consideration of Auditors Disclosure of Significant Deficiencies in Internal Control written by Jillian Alderman and published by . This book was released on 2015 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: Proposals for increased transparency and disclosure within audit reports are consistently met with conflict. Some suggest that auditor disclosures increase liability exposure for auditors, and should be the responsibility of management. Others suggest that such disclosures are beneficial to the users of the financial statements. Currently, the PCAOB is proposing a requirement for increased disclosure within the audit report on financial statements. This study proposes a similar requirement within the Section 404 auditor's report on internal controls. A 2x2 between-subjects experiment manipulated the disclosure level (disclosed/not disclosed) and the auditability of the significant deficiency in controls (less auditable/more auditable) for a sample of 93 jury-qualified individuals. Results indicate that auditors may experience benefits of decreased liability exposure when they provide additional disclosure within the Section 404 report on internal controls. However, these favorable conditions are only present when the auditor discloses a deficiency in internal controls that is more auditable (less subjective), and not when the control is less auditable (more subjective). Results suggest that auditors are perceived as more blameworthy for their inaccurate judgments in subjective situations, and that this perception cannot be overcome by providing a disclosure within the 404 report. Implications for standard setters, auditors, and regulators are discussed.
Download or read book Have Critical Audit Matter Disclosures Indirectly Benefitted Investors by Constraining Earnings Management Evidence from Tax Accounts written by Katharine D. Drake and published by . This book was released on 2020 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior research indicates that expanded audit reports, which disclose financial statement matters that involved especially challenging, subjective, or complex auditor judgment (known as critical audit matters [CAMs] in the U.S.), have fallen short of their objective to provide investors with useful information. In this study, we investigate whether the disclosure of tax-related CAMs indirectly benefits investors by constraining tax-related earnings management. Such a finding would indicate that CAM disclosure has increased auditor and/or management scrutiny of the underlying financial statement areas. We find that tax-related CAM disclosures are associated with (1) a lower likelihood that the audited company uses tax expense to meet analysts' consensus forecasts, and (2) increases in the reported reserve for prior-period unrecognized tax benefits (UTBs). Our findings should assist the Public Company Accounting Oversight Board (PCAOB) with their post-implementation review of the new U.S. auditor reporting requirement.
Download or read book The Effects of Audit Committee Financial Accounting Expertise and Recognition Versus Disclosure on Chief Audit Executives Tolerance for Financial Misstatements written by Ik Seon Suh and published by . This book was released on 2009 with total page 194 pages. Available in PDF, EPUB and Kindle. Book excerpt: The present study examines and finds that internal auditors, particularly Chief Audit Executives, recognize financial accounting expertise as a significant base of audit committee (AC) power in the financial reporting process. However, such an AC expertise (i.e., financial accounting expertise) does not "counterbalance" internal auditors' perceived dependency on management or influence their decisions to monitor financial reporting quality. Instead, the cost-benefit analysis affects their decisions: (1) benefits of staying resolute to monitor financial reporting quality (i.e., "psychological empowerment"), and (2) costs of potential adverse reactions of management who exerts power over the internal audit.
Download or read book The Impact of Disclosing Auditor Independence and Tenure on Non professional Investor Judgment and Decision making written by Lonnie Tyler Williams and published by . This book was released on 2016 with total page 115 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study experimentally investigates how disclosing both the auditor’s obligation to remain independent of its client and auditor tenure in the audit report influence non-professional investors’ judgments and decision-making, especially the decision about whether to invest in a particular auditee. In the Auditor’s Reporting Model (ARM) proposal, the Public Company Accounting Oversight Board (PCAOB) asserts that inclusion of additional information in the audit report will improve the informativeness of the audit report for investors and as a result will modify its relevance to investment decisions. Using an experiment, I find that these disclosures positively influence non-professional investor judgments of auditor attributes – specifically auditor independence and auditor competence. Further, I note that the disclosures augment judgments of auditor credibility and audit quality as well as the report’s perceived informativeness. I also find that the disclosure of long tenure has a significant positive effect on consequent investment decisions. The findings of this study are important to informing regulators on how reform to the audit report increases report readers’ sensitivity to the perceptions of the financial statement auditor, which ultimately influences non-professional investor decision-making.
Download or read book Two Essays on Investors Perceptions about Management Disclosures written by Hailan Zhou and published by . This book was released on 2007 with total page 236 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Changing Auditors and the Effect on Earnings Auditors Opinions and Stock Prices written by Nancy Rueyhwa Mangold and published by . This book was released on 1988 with total page 184 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Effects of Internal Audit Role and Reporting Relationships on Investor Perceptions of Disclosure Credibility written by Travis Paxton Holt and published by . This book was released on 2009 with total page 81 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study assesses whether internal audit role and reporting relationships affect investor judgment and decision-making. Specifically, the study examines whether investor perceptions of disclosure credibility of financial statement information are increased by the inclusion of an Internal Audit Report (IAR) that details an internal audit function whose role is primarily assurance-related (versus consulting-related) and who reports strategically to the audit committee and administratively to the CEO (versus strategically and administratively to the CFO). The study also tests whether the effects on investor perceptions of disclosure credibility are mediated by investor perceptions of the level of assurance provided by internal audit. The study is motivated by a lack of information about firms' internal audit functions given the function's key role in corporate governance and by the need to better understand the influence of various internal audit characteristics on investor judgment and decision-making. The lack of this governance information is costly to firms due to investors demanding a premium to bear the risks associated with the uncertainty. The experiment used a 2x2 design with internal audit role (i.e. primarily assurance vs. primarily consulting) and reporting relationship (i.e. reports strategically to the audit committee and administratively to the CEO vs. strategically and administratively to the CFO) randomly manipulated between subjects. The participants of the study were comprised of 84 MBA students serving as proxies for nonprofessional investors. The results indicate that participants perceived disclosure credibility to be significantly higher when the Chief Audit Executive reported strategically to the audit committee and administratively to the CEO (versus both strategically and administratively to the CFO). Mediation testing indicates that this increase in perceived disclosure credibility was attributable to an increase in the level of assurance provided for the disclosed financial information. The results reveal no significant differences in perceived disclosure credibility from the differing internal audit roles. Finally, supplemental analysis indicate that the reporting relationship judgments ultimately affected participants' price-earnings multiple decisions.
Download or read book The Effects of Audit Quality Disclosure on Audit Effort and Investment Efficiency written by Qi Chen and published by . This book was released on 2018 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine how disclosing information about audit quality affects auditors' effort and investors' investment efficiency. In our setting, the usefulness of audited financial reports for investors depends on both the quality of the underlying financial reporting (e.g., as embodied by GAAP) and the quality of auditors' reports (i.e., the likelihood with which audit evidence uncovers managerial misreporting). An auditor exerts an unobservable effort to influence audit quality and is motivated by liability in the event of audit failure. We show that audit quality disclosure increases auditors' effort incentives only when the underlying financial reporting quality is relatively weak. Our analyses contribute to the debate about the costs and benefits of policies aimed at improving audit transparency.
