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Three incentives for hiring auditing services have been proposed in the literature: (1) to signal outsiders about the company's prospects, (2) to provide a potential source of loss recovery for investors (insurance), and (3) to reduce agency costs. The objective of this study is to examine the potential for the first two (signaling and insurance) to interact while controlling for agency costs. We conduct an experiment in which highly experienced financial analysts provide stock price estimates for a company that is under financial stress. We manipulate, between participants, the signal provided by the audit opinion (going-concern modification, yes/no) and the ability of investors to recover losses from auditors. The key finding is that the effect of the going-concern opinion on investor value judgements is moderated by the extent to which the auditor provides an insurance function. Specifically, the negative effect of a going-concern opinion on the analysts' stock price estimates is reduced by the extent that the environment treats the auditor as an insurer. [ABSTRACT FROM AUTHOR]

LARRY RITTENBERG and BRADLEY J. SCHWIEGER, Auditing: Concepts for a Changing Environment, Third Edition (New York, NY: Harcourt College Publishers, 2000, PP., xxiii, 855). This updated edition retains several key [...]

Approximately one-third of the PCAOB's inspection reports and several SEC enforcement releases identify deficiencies in the audit of subsequent events (SEs). Despite these issues, little research has been conducted to understand how and why these deficiencies occur. This paper integrates the psychology and behavioral accounting literatures to develop a model of the factors that influence the effectiveness of SE audit procedures. The model suggests that the effectiveness of these procedures is largely influenced by the auditor's cognitive processing mode, which is initially affected by environmental, individual, and task-specific factors. Our model provides a theoretical basis for future research into the causes of these deficiencies and suggests potential mitigating strategies that auditors can employ to improve the effectiveness of the audit of SEs. We conclude with a discussion of the implications arising from the model for professionals, standard setters, and researchers. Approximately one-third of the PCAOB's inspection reports and several SEC enforcement releases identify deficiencies in the audit of subsequent events (SEs). Despite these issues, little research has been conducted to understand how and why these deficiencies occur. This paper integrates the psychology and behavioral accounting literatures to develop a model of the factors that influence the effectiveness of SE audit procedures. The model suggests that the effectiveness of these procedures is largely influenced by the auditor's cognitive processing mode, which is initially affected by environmental, individual, and task-specific factors. Our model provides a theoretical basis for future research into the causes of these deficiencies and suggests potential mitigating strategies that auditors can employ to improve the effectiveness of the audit of SEs. We conclude with a discussion of the implications arising from the model for professionals, standard setters, and researchers. [ABSTRACT FROM AUTHOR]

This study examines whether auditors, when making a series of similar, independent judgments are non-normatively influenced by their earlier judgments. Two judgment biases are considered: contrast effect and assimilation effect. We conducted an experiment where experienced auditors classified a number of commercial loans based on collection risk. The auditors' judgments displayed a significant contrast effect, and range-frequency theory explains a significant portion of the variance in their judgments (Parducci 1965). The results suggest that auditors tended to use the range principle more than the frequency principle to classify loans. This bias has potential implications for audit practice. By comparing auditors to graduate accounting students we find evidence that task experience moderates the magnitude of the judgment bias. [ABSTRACT FROM AUTHOR]

Management inquiry is a particularly important source of information for subjective accounts that require estimation, as auditors' ability to obtain reliable information from other sources may be limited for such accounts. Given the increasing importance of subjective accounts and estimates in the financial reporting process, it is critical to understand how auditors evaluate management-provided information about such accounts and estimates. The features are: whether the explanation is quantified or not; and the strength of the manager's incentives to manage earnings. To examine this issue, an experiment was conducted using 113 experienced auditors as participants. In the experiment, the auditors performed planning analytical procedures and, in doing so, discovered an unusual fluctuation in revenue. They then inquired with management about the fluctuation and were provided with an explanation from them. Results show that auditors' planning judgments are primarily determined by the manager's incentives to manage earnings, and that quantification of the explanation does not influence auditors' planning judgments.

This report describes a 37-year-old female patient who after seven years on intermittent overnight enteral feeding supplementation was noted to have an increased whole blood manganese concentration. Manganese toxicity is well documented after pathological absorption through inhalation via the lungs, or after intravenous administration to patients on long-term total parenteral nutrition. A dietary history revealed high tea consumption. The association between high blood manganese concentrations and enteral/oral nutrition does not appear to have previously been described. [ABSTRACT FROM AUTHOR]