Search

SUMMARY: This case is inspired by actual experiences within the accounting and accounts payable departments of a large energy company, formerly part of the S&P 500. The primary objective of the case is to provide a real-world scenario depicting the challenges that companies face in designing and implementing controls over financial reporting, as well as the challenges that external auditors face when evaluating audit findings. In completing the case, you will assume the role of a staff auditor on the audit engagement team for Herringbone Affiliates. The case includes discussion questions that have you consider the perspective of both company management and the audit team. [ABSTRACT FROM AUTHOR]

In this paper, we summarize our recent research into the association between abnormal audit report lags (the length of time between the fiscal year-end and the audit report date) and the likelihood of future restatements (Blankley, Hurtt, and MacGregor 2014). We find that as the audit report lag increases, the likelihood of a future restatement increases, and this dynamic appears to be associated with the effect of time pressure on the auditor. We will first summarize the motivation for the study, then discuss the empirical methods used, explain our results, and conclude with a discussion of the practical applications to practitioners. [ABSTRACT FROM AUTHOR]

We investigate the relationship between future financial statement restatements and audit report lags. Audit report lags are defined as the number of days between the fiscal year-end and the date of the audit report. Ex ante, it is not clear whether there should be a relationship and, if there is, whether that relationship would be negative or positive. We first discuss the underlying conceptual rationale for both negative and positive associations, then we use a two-stage approach to empirically examine the relationship. We find that compared to non-restating firms, firms that eventually restate their financial statements have longer abnormal audit report lags. In subsequent testing, we consider a number of factors that may undermine additional audit effort and, thus, influence the association between audit report lag and subsequent restatements. Of the factors examined, we find that time pressure appears to be associated with increased probability of financial restatements. [ABSTRACT FROM AUTHOR]

This article summarizes our recently published article, ''Abnormal Audit Fees and Restatements'' (Blankley et al. 2012), which discusses the relationship between abnormal audit fees and future restatements. We find that there is a negative relationship between the two; specifically, unusually low audit fees are associated with an increased likelihood of a future restatement (i.e., one or two years in the future). This relationship has important implications for auditors in terms of audit planning, pricing, and client retention. After summarizing the published study, we discuss how examining abnormal audit fees may be useful for audit professionals and audit committees. [ABSTRACT FROM AUTHOR]

We investigate the relationship between audit fees and subsequent financial statement restatements in the years following the Sarbanes-Oxley Act of 2002 (SOX). After controlling for internal control quality, we find that abnormal audit fees are negatively associated with the likelihood that financial statements are subsequently restated. This result conflicts with prior work that finds that audit fees are positively associated with future restatements. Overall, our evidence is consistent with the notion that restatements reflect low audit effort or underestimated audit risk in the periods leading up to the restatement year. [ABSTRACT FROM AUTHOR]