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This study investigates the impact of cyber-security incidents on audit fees. Using a sample of 5,687 firms, we find that (i) breached firms are charged 12% higher audit fees, and (ii) firms operating in the same industry of a breached firm are charged 5% higher fees. Finally, using a difference-in-difference regression on a propensity score matched sample, we provide evidence suggesting that auditors do not revise their audit risk assessment following a breach. Overall, these results suggest that the increase in audit fees in the year of a breach is only temporary, and that auditors include cyber-security risk in their audit risk assessment even before an incident occurs. Higher cyber-security risk is ultimately reflected in higher audit fees paid by auditees. [ABSTRACT FROM AUTHOR]

Following its purchase of Westinghouse Electric Company and subsequent macroeconomic events, Toshiba faced declining profits. In response, Toshiba engaged in earnings management through two accounting treatments. First, it delayed the recognition of losses under long-term contracts. Second, it inappropriately applied price masking to account for transfers of components between itself and contract manufacturers. Students using this case will assess how business risks and corporate culture relate to audit risk, and how accounting for price-masking transactions can lead to increased fraud risk. Students will also research aspects of auditing standards related to fraud and accounting estimates. The case is designed for auditing courses and capstone courses with an auditing component. [ABSTRACT FROM AUTHOR]

Tracking audit of poverty alleviation policy is an important guarantee to win the battle against poverty. Effective prevention and control of audit risk in tracking audit of poverty alleviation policy is the key to ensure the improvement of audit quality. According to the characteristics of financial audit, this paper analyzes the main factors affecting the operation of loan enterprises, puts forward a neural network model for financial audit, and gives the solution of the model. This paper takes poverty alleviation audit as an example, centering on the goal of full coverage of the audit, and based on poverty alleviation data, integrating relevant data in relevant fields to build poverty alleviation fund audit, so as to achieve full coverage of poverty alleviation audit. Utilize emerging technologies, give full play to the role of full coverage of audit supervision and supervision on precision poverty alleviation, and participate in project consulting and auditing in advance, real-time online tracking audit, and post-performance performance evaluation audit. We will promote the construction of accurate poverty alleviation information, strengthen economic responsibility audits, and more effectively monitor the authenticity of poverty alleviation funds, effectively implement poverty alleviation projects, and achieve accurate poverty alleviation efficiently. The model can better help the auditors to accurately determine the basic status of the audit object and provide a strong guarantee for quickly determining the audit focus. [ABSTRACT FROM AUTHOR]

Introduction. Auditor independence is a fundamental and basic principle of the professional ethics of the auditor, which is based on the value of the audit and its difference from other forms of control. That is why the auditor, when performing the audit task, should strive to adhere to all principles of professional ethics and to promote the observance of such principles by his colleagues in order to increase confidence in the results of the audit and increase the prestige of the audit profession. Method. The theoretical, methodological and informational basis of the research are the scientific works of leading domestic scientists on the theory and methodology of auditing; legislative and regulatory documents governing independent auditing; information resources that summarize the state of audit activity in Ukraine, available on the web site of the Audit Chamber of Ukraine. The research methodology is based on theoretical developments and scientific tools, which included: statistical method (in the study of the state and trends of the market of audit services in Ukraine), critical analysis and systematic approach (in the study of potential threats affecting the independence of the auditor and the system of precautionary measures, used by the auditor to reduce audit risk). Results. Due to the fact that an independent audit involves a tripartite relationship between the auditor, the client and the users of the financial statements, the auditor's activities are always exposed to threats related to breach of the principle of independence. It has been investigated that the essence of the principle of independence implies that the auditor's independence of opinion and independence of behaviour when providing audit services. Threats that affect the auditor's independence, classified as threats to self-interest, self-assessment, protection, personal and family relationships and pressure, are discussed. The set of precautionary measures that an auditor is required to investigate in order to minimize the impact of, or eliminate, the threats to the auditor's independence is examined. Based on the conducted research, we propose our own definition of the notion of safeguards in the audit - a system of requirements, rules and appropriate measures aimed at eliminating or reducing the threat of independence of the auditor to an acceptable level, the implementation and use of which will enable the auditor to achieve the audit objective, which is to express an independent the auditor's views on the reliability of the entity's financial statements, while minimizing audit risk. Discussions. The prospect of further intelligence is to investigate the impact of the precautionary measures on auditor independence in the context of reforming the domestic audit and bringing it closer to EU requirements. [ABSTRACT FROM AUTHOR]

We examine whether the tone of corporate annual reports is associated with audit pricing decisions. A unique dataset drawn from annual reports of nonfinancial firms listed on the Australian Stock Exchange for the period from 2002 to 2014 is generated using textual analysis. We find that annual reports that convey optimistic tone are associated with lower audit fees, suggesting that annual report tone reflects factors that auditors consider in assessing audit risk. Consistent with the inverse association between tone and audit fees, results of additional analysis show that annual report tone is positively associated with earnings quality. Our results hold after controlling for firm characteristics that influence audit pricing decisions and remain robust to alternative variable measurement and test of endogeneity. Overall, the findings suggest that auditors could enhance their audit risk assessment practices by systematically considering linguistic attributes of qualitative corporate disclosures. [ABSTRACT FROM AUTHOR]

We argue that different types of leverage have different implications for audit risk and audit fees, and hence need to be separately examined. Using data from the years 2004 to 2016, we find that operating liability leverage is positively associated with audit fees and that financing leverage is negatively related to audit fees. The results suggest that the benefits from monitoring effects of financial leverage outweigh the costs associated with the risk of financial distress and financial misreporting. We also find that estimated operating liability leverage has a bigger effect on audit fees than contractual operating liability leverage, consistent with suggestions that auditors are more conservative in the presence of higher estimation risk. Thus, our findings highlight the importance of recognizing sources of leverage in audit risk in general and audit fee models in particular. [ABSTRACT FROM AUTHOR]

The aim of this research was to analyze the relationship between managerial overconfidence and audit fees. Furthermore, this study also examined the effect of audit committee characteristics on the relationship between overconfident managers and audit fees. This study used 527 observations from 218 firms listed on the Indonesian Stock Exchange for the period 2014 to 2016. We used univariate and multivariate analyses to examine the testable hypotheses. This study found that auditors perceive managerial overconfidence to be a factor that increases audit risk, for which they will charge additional fees to compensate for the increased audit effort. The existence of an audit committee in the case of companies with managerial overconfidence was characterized by having an accounting background, having more than one member serving as an independent commissioner, and conducting meetings more than four times a year; this has a positive impact on audit fees. For companies, this study provides the insight that having a good quality audit committee is a good way to reduce the risk of overconfident managers. However, this will significantly increase the audit fee. This study has provided a further understanding of how the corporate governance mechanism, through the characteristics of the audit committee, mitigates the risk of overconfident managers. [ABSTRACT FROM AUTHOR]

Data security breaches have been shown in the literature to negatively affect firm operations. Auditors serve as an important, external governance mechanism with respect to a firm's overall risk management protocol. Consequently, our study examines whether auditors price breach risk into their fees and if a firm's internal governance can mitigate the potential increases in audit fees. Using a sample of breached firms ranging from 2005–2014, we adapt the Houston, Peters, and Pratt (2005) model to explore how auditors view audit risk related to breach risk. We find that breaches are associated with an increase in fees, but the result is driven by external breaches. Our evidence suggests the presence of board-level risk committees and more active audit committees may help mitigate the breach risk audit fee premium. Additional evidence suggests that both past breach disclosures as well as future disclosures are associated with audit fees. [ABSTRACT FROM AUTHOR]

SUMMARY: We examine whether the readability of financial statement footnotes in the annual report is informative about audit engagement risk. Using various readability measures, we predict and find that firms with less readable footnotes have longer audit report lag, incur higher audit fees, and are more likely to receive a first time modified going concern opinion. We also show that readability of footnotes is associated with a higher likelihood of financial misstatements and future accounting-related litigation. Our results are robust to several measures of readability used in prior literature, as well as different specifications and design choices, revealing that financial statement footnote readability provides incremental information about audit engagement risk that affects auditor-client contracting. Data Availability: Data are obtained from public sources identified in the paper. [ABSTRACT FROM AUTHOR]

Prior studies document that managerial overconfidence potentially increases the risk of financial misstatements, and that overconfident managers purchase lower quality audits and pay lower audit fees. As a part of the research that evaluates the information value of managerial characteristics to auditors, our study examines how the relationship between managerial overconfidence and audit fees is impacted by managerial ability, and board and audit committee effectiveness in the post-Sarbanes–Oxley (post-SOX) environment. In general, we find a significantly positive relationship between managerial overconfidence and audit fees consistent with the supply-side risk based perspective of audit pricing. However, this relationship is significantly attenuated in higher managerial ability firms where overconfident managers are better able to make proper accounting estimates and judgements required for producing reliable financial statements, and synthesize firm-specific information into appropriate forward looking projections. We find that on an average, the overconfident firms with higher managerial ability pay 6.3% lower audit fees than the overconfident firms with lower managerial ability. Our analyses further show that board characteristics positively impact the relationship between managerial overconfidence and audit fees, suggesting that stronger board monitoring increases the demand for higher quality audits to mitigate the reporting risk of the overconfident firms. On an average, the firms with managerial overconfidence pay additional 9.3% higher audit fees when they are subject to stronger and more effective board oversight. However, we find weaker evidence on the effect of audit committee characteristics on audit fees of the overconfident firms. Our primary results hold for a battery of supplemental tests including the tests using propensity-score matched sample. The study contributes to audit fee and corporate governance literature, and has useful implications for regulators, accounting practitioners, and auditors. [ABSTRACT FROM AUTHOR]

The main objective of this study is to investigate the impact of complexity resulting from fair value adoption on audit fees. Using a sample of 9,619 firm‐year observations from the United States, this study finds that auditors charge higher audit fees for firms exposed to higher level of complexity due to fair value adoption. More specifically, this study focuses on research and development expenditure, intangibles, goodwill, and property, plant and equipment to compute the intensity of complexity as these items are heavily affected by the fair value which is subject to management discretion. The results suggest that the greater level of complexity arising from the above sources increase auditors' efforts and risks level, thereby, results in higher audit fees. Further analysis, however, shows that auditors do not charge additional audit fees for complexity arising from goodwill if they have intangibles. It is because of economies of scale by auditors, they design their audit program which covers goodwill audit when they do audit for intangibles. Overall, the results support the proposition that judgmental or discretionary choice available for management increases audit risks, and auditors, to compensate higher risks, charge greater audit fees. [ABSTRACT FROM AUTHOR]

We examine responses of 2,160 internal auditors to a global survey of the internal auditing profession carried out by the Institute of Internal Auditors Research Foundation from 2009 to 2013. We found that when the internal audit function's (IAF's) quality is high, the external audit fees will be low. This result confirms the substitution effect. We also found that when internal audit hours work increase, audit fees will be high; indicating a complementary effect between these variables. The internal auditor can be the external audit assistant and fully engaged in specific monitoring and control tasks. Nevertheless, he also may be an independent partner of an external audit and fully engaged in corporate governance. If the external auditor apprehends that audit risk is low due to the quality of the IAF, he will require lower fees. If the IAF's work devoted to external audit is high, a signal of a great firm commitment in reinforcing corporate governance is transmitted. Such signal proves the company's willingness to invest more in improving the external audit quality and fees will be high. [ABSTRACT FROM AUTHOR]

Copyright of Problems of Economy is the property of Research Centre for Industrial Developmen Problems of Nas and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This work is aimed at supporting the work of auditors by providing theoretical knowledge and illustrative examples regarding the inspection of inventories. Determining the actual amount of available inventory is an object of very high audit risk. It is a labour-intensive procedure; therefore, more attention should be paid to it. The paper discusses the issues, techniques and procedures that an auditor and other inspection bodies can use to get the most reliable evidence of the real size and ownership of inventories. [ABSTRACT FROM AUTHOR]

SYNOPSIS: Identifying ways to improve and maintain professional skepticism, particularly for the purpose of reducing the risk of material misstatement due to fraud, continues to be a top priority for the auditing profession. This study examines two strategies for improving skeptical behavior in a fraud-related task: (1) practicing inward-directed skepticism through repeated risk assessments and (2) performing timely fraud inquiries of operational-level employees. Results indicate auditors made more skeptical judgments when revisiting and reassessing fraud risk assessments. Further, when auditors performed operational-level fraud inquiries prior to substantive testing, participants exhibited significantly greater increases in skeptical judgment than those who performed inquiries subsequently or not at all. We also observed a greater tendency toward skeptical action, but only on the part of participants who were highly skeptical by nature. These findings support the effectiveness of two strategies for improving skepticism throughout an audit engagement that can improve fraud detection. [ABSTRACT FROM AUTHOR]

This study investigates the association between audit fees and the presence of "problem" directors on corporate boards and audit committees. "Problem" directors, in this context, are those directors who have been involved in corporate financial failures and integrity indiscretions in the past. Auditors regard the presence of such directors on boards and audit committees as audit risk, and may have to enhance their audit procedures, leading to higher audit fees. Using a sample of 9,175 firm‐year observations from 2004 to 2010 of US firms, we find that the presence of "problem" directors on boards and audit committees is associated with higher audit fees. This finding has a policy implication for corporate managers, that they should be mindful of the increase in perceived audit risk that arises from professional and personal attributes of directors when recruiting individuals to serve on their boards. [ABSTRACT FROM AUTHOR]

Literature suggests that firms engaging in irresponsible corporate social responsibility (CSR) activities are more likely to increase auditor's engagement risk. Using audit firm tenure as a continuous measure for retention decisions made by either auditors or client firms, we find a significant and negative association between CSR risk and auditor tenure. Moreover, when the continuous variable audit tenure is replaced with a dichotomous variable auditor change, the likelihood of auditor change intensifies with increases in CSR risk. These results suggest that both clients and auditors are more likely to sever relationships when client firms exhibit high CSR risk than low CSR risk. This study has implications for future research on audit firm tenure and audit outcomes. [ABSTRACT FROM AUTHOR]

A central tenet of audited financial statements is the assumption that the reporting firm will remain in business for the foreseeable future, that is, it is a going concern. However, recent years have seen a wave of highly visible corporate failures that have greatly reduced investors' confidence in auditors' work. This paper develops a tool to evaluate the going concern risk of an audit client, within the risk analysis framework suggested by the auditing literature. The study is innovative along four dimensions. First, new developments in financial statement analysis research are applied to auditing. Second, in addition to quantitative indicators reflecting trends in financial statements, the model also includes qualitative corporate governance characteristics suggested by current audit practice. Third, the concept of going concern failure is broadened and is not restricted to legal bankruptcy. Finally, complementary multivariate classification techniques, logit, linear discriminant analysis, and recursive partitioning are used to provide predictive and interpretative guidance to auditors. Results suggest that a systematic interpretation of financial statements and an evaluation of investment and accounting decisions made by managers would allow auditors to classify firms before the advent of any economic loss. Furthermore, some ratios provide consistent signals about going concern failures. Implications about audit work are then discussed. [ABSTRACT FROM AUTHOR]

The article examines the relationship between audit-related risk and the second partner review (SPR). The SPR is one of the several procedures capable of reducing the incidence of fraudulent financial reporting. If the SPR serves as an audit-related risk-reduction technique, it is reasonable to expect more extensive SPR when there is the expectation that the firm's normal audit procedures may fail to detect deficiencies in the financial statements or audit reports. A number of client and engagement-specific factors contribute to this expectation. Client characteristics that may influence the extent of SPR range from inadequate records to complex reporting requirements. Engagement specific factors include firm policies and procedures, the experience of audit personnel and the firm's experience with a specific client or industry. Binary variables are used to indicate the presence or absence of the following attributes, client reported net loss, initial audit engagement, audit report modification and client special risk situations.

This article determines if risk factors affect the type of judgment made in the experimental context. The intent of this research is to study the effect of risk attitude on auditor judgment. Since there exists no one correct assessment of the internal control system, average correlation is used as a measure of consensus to assess differences across groups. Using consensus in this manner does not presume that it is a necessary characteristic of auditor judgment. In the context of the study, consensus is used as an observable manifestation of differences in auditor behavior. Both risk-averse and risk-preferent auditors are found among the study's participants. The differences in risk attitude do not appear, however, to be related to the auditor's rank in the firm. The study hypothesizes a discernible effect of risk attitude on auditor judgments and attempted to assess the impact by comparing consensus across risk-averse and risk-preferent groups. This format is used under the assumption that if risk attitudes affected judgments, auditors with similar risk attitudes would exhibit greater consensus on the internal control evaluation than would auditors with differing risk attitudes.

The article presents the outcome of a U.S. study of CPA firm practices regarding the short-term audit opinion for government offices. The audit opinion is the basis for the certificate of conformance, which is the highest form of recognition a government office can receive in the area of financial reporting and is included in the comprehensive annual financial report issued by the office, representative of all transactions for the fiscal year. A government unit must have an independent audit to be able to receive a certificate of conformance. The auditor is required to cover only the combined statements reducing the amount of detail in the financial statements of government offices upon which the independent accountant had previously reported. It also follows that the management of a government unit will decide what detail statements and data will be covered by the independent auditor's opinion.

In a setting of numerous unsuccessful professional attempts to define materiality criteria and in light of several court decisions which held auditors liable for material misstatements in published financial statements, investors find themselves uncertain as to what is not explicitly reported in annual reports. Confusion regarding financial statement materiality derives from the fact that it doesn't appear in the place where searchers might logically look. If, indeed, financial statements are the responsibility of management, and if items are included and/or excluded from those statements on the basis of their materiality, does it not follow that materiality judgment is the responsibility of management and, therefore, that disclosure of materiality standards is a function of management? [ABSTRACT FROM AUTHOR]

Authoritative auditing literature deals with materiality only in general terms, acknowledging that it is inherent in the work of the independent auditor but not clearly specifying the relationship between materiality considerations and audit effort. This article classifies the different types of errors encountered by auditors and discusses the considerations entering into a decision as to whether a particular error should be considered material. [ABSTRACT FROM AUTHOR]

An analytic framework is provided for incorporating different user perspectives on materiality into the audit process. The framework serves as a tool for disaggregating materiality to specific accounts based on materiality criteria for accounts and account combinations. To improve audit efficiency, the planning method incorporates the relative cost of auditing various account balances. It extends existing models of audit risk and materiality by considering explicitly the materiality of account combinations (sums and ratios) to enhance audit effectiveness.

This article discusses the paper "Debiasing Framing Effects in Auditor's Internal Control Judgments and Testing Decisions," by Craig Emby and David Finley in the June 1997 issue of Contemporary Accounting Research. The author feels the paper is significant and offers valuable contributions to the literature on the subject. However, he raises some reservations such as the possibility that the study may have presented choices that were not objectively or subjectively the same. If their results are accurate, it may necessitate a reassessment of the cost/benefit of defensive auditing strategies.

This paper reports the results of an experiment examining the framing bias and a potential debiasing technique. Practicing auditors formed a judgment about a hypothetical client's inventory internal control system to determine the amount of related substantive testing. Auditors from two Big Six firms were randomly assigned to one of four treatments in a fully crossed 2 x 2 between-subjects design. The initial description of the internal control system was identical for all treatments, as were the items of additional evidence about the system. Auditors either judged the risk of the control system or the strength of the control system. The risk-strength frames were crossed with two levels of debiasing technique: "none" or "evidence rating." Results indicate that without debiasing, significant framing effects were present, but that evidence rating significantly mitigated the framing effect. In this auditing context, the framing bias appears to be easily induced, but is not robust. Although the profession should be aware of this potential problem, effective remedial or proactive steps can be easily implemented and may naturally occur in current practices. [ABSTRACT FROM AUTHOR]

Conventional wisdom holds that an auditor's optimal response to an increase in legal exposure is to double his efforts in finding errors in his client's financial reports. This paper's main result is that in a market setting where clients shop for opinions and auditors must compete for clients, the conventional wisdom may fail. Increased damages: affect all auditors reducing the competition among auditors for clients. Thus, an auditor can reduce his legal exposure by reporting more conservatively, instead of working harder. The main result is mitigated if client firms also face legal damages and if clients themselves are more conservative in preparing their unaudited financial statements. If it is more likely that a client claiming "good news" is truly good, the auditor has an incentive ' to work harder to confirm this good report and satisfy his client. This incentive to work harder to please his client may prevent the auditor from retreating into conservatism when damages are increased. Finally, if the auditors' report space were continuous, as with a continuum of client types, the main result would be reversed: additional damages would (weakly) increase the auditor's efforts. With a continuum of possible reports, the competition is not eliminated as damages increase; only the range of reports that the auditors offer is reduced. Because the competition cannot be eliminated and the incumbent cannot resort to conservatism to ' reduce his legal exposure, the auditor works hard. [ABSTRACT FROM AUTHOR]

Account balances are typically subjected to separate audit procedures (e.g., accounts receivable and inventory). Two or more assertions about a single financial balance may be subjected to separate tests (e. g., completeness and existence). Two or more transaction streams combining to form a single balance (e. g., sales on account and cash receipts on account combine into accounts receivable) may be tested separately. A financial balance may be subdivided into two or more account components for separate testing (e.g., retail accounts receivable and wholesale accounts receivable). In all of these audit testing scenarios, the question arises as to the appropriate way to combine or aggregate the evidence gathered from separate tests of subpopulations into an overall conclusion about the amount of audit risk being borne, that is, the risk of a material amount of misstatement remaining undetected in the overall population at the conclusion of such separate audit tests. A number of algorithms and heuristics have been proposed for combining audit risks at the subpopulation level into overall risk conclusions about audit risk at a more aggregate level. Some of the heuristics involve piecemeal evaluation of individual subpopulations to draw overall conclusions about the financial statements as a whole. This paper analyzes one such approach, the Poisson distribution-based "max rule," for combining judgments of audit risk based on tests of subpopulations. This prescription has been interpreted to mean that the overall risk of material misstatement in a population is the maximum of the audit risks computed with respect to the individual subpopulations, but we believe that such an interpretation is incorrect. Furthermore, given the literature that has promoted the max rule, some auditors could misapply the concurrency property of the Poisson distribution. Although the max rule may be justified at the planning stages of the audit, we show that, if it is used at the evaluation stage of the audit, it can lead to underestimation of the upper error limit and overall risk faced upon completing tests of subpopulations and should not be used to evaluate results of audit procedures applied to subpopulations to draw overall audit conclusions. [ABSTRACT FROM AUTHOR]

Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This paper systematically analyzes the factors that affect sampling risks of the two major classes of statistical estimators in auditing. It develops three approaches for identifying when a particular estimator is preferred ex ante. It also provides a simulation analysis of ex ante-ex post sampling risk differences. The paper concludes that dollar-unit sampling may be more widely used than previous research has indicated. [ABSTRACT FROM AUTHOR]

The article discusses lawsuits which allege audit failures with descriptions of suing plaintiffs, sued auditors, and the clients whose audits bring about lawsuits. It also looks at qualitative analysis of legal conditions, economic incentives of generating lawsuits, and tests the predictions of an analysis with 2 matched samples of 153 corporations where their auditors are and are not sued during 1955-94. When an auditor uses unstructured audit technology and the client represents a large proportion of the auditor's revenues there is a greater likelihood of a lawsuit.

The main point of this paper is an important one: that it is the marginal cost of litigation, not the absolute cost, which determines the cost- minimizing amount of auditor effort. While this observation, as stated, seems obvious, it is by no means immediately obvious that joint and several liability would provide smaller incentives for auditors to exert effort than proportionate liability. The paper illustrates a pitfall we face when our intuition and our models ignore the complexities of the institutions they encounter. In the case of this paper, Narayanan shows that it is not enough to represent one liability regime as imposing a higher level of liability than the other and make judgments from that viewpoint By including the institutional feature of comparative negligence and recognizing that joint and several and proportionate liability differ only when one defendant is insolvent, Narayanan creates enough institutional richness in his model to overturn conclusions that would have been reached based on the level of liability alone. [ABSTRACT FROM AUTHOR]

The article discusses auditor litigation brought under Section 10(b) of the U.S. Securities Exchange Act 1934 and Rule 10b-5 with consideration given to audit quality under the joint and several liability regime and the proportionate liability regime. The legislation to relieve accountants from the joint and several liability regime is being considered by the U.S. Congress despite expert testimonials that this could lessen audit quality. However, the litigation cost for an auditor under the proportionate liability regime is sensitive to his effort and liability must be apportioned between the auditor and the company.

This article focuses on the strategic sample size choice in auditing. The author builds upon the work by Toshiyuki Shibano, as well as D. P. Newman and J.C. Noel, on the relationship between auditor and auditee. He posits a new audit model whereby intentional error arising from defalcation is assumed. In both decision-theoretic and strategic models, audit risk from defalcation can be made as small as desired through adjustments in the auditor's payoffs. However, in a strategic model, audit risk from defalcation may increase despite a decrease in the cost of obtaining sample evidence.

This article presents a critique of assessing audit risk from errors and irregularities in auditing as analyzed by Toshiyuki Shibano. His model is based on strategic-testing theory and components of decision-theoretic testing as well. The author questions the use of exogenously given auditee and auditor payoffs. He also believes the results are influenced by endogenizing sample size or allowing sequential sampling. Other questions related to the presumption of common knowledge among the participants.

This article assesses audit risk in situations when the audit technology is imperfect and the auditor and auditee are interacting. The work is divided into nonstragic audit risk and strategic audit risk, the difference being the former contains accidential errors while the latter is intentional. The purpose of the study is to assist with new regulations aimed at greater detection of accounting fraud. The author bases his model on strategic-testing theory and components of decision-theoretic testing as well.

This article describes the cognitive computational model of risk hypothesis generation used during audit planning. The model incorporates the knowledge, processes, the forms of risk and the content of risk hypotheses devised by experienced auditors. Preliminary findings of the model suggest that auditors expand considerable energy and expertise devising risk hypotheses but less so on estimates of risk levels. They chose to concentrate on causal explanation of risk instead, which raises questions about the relevance of certain probability assessments.

In this paper I analyze the power characteristics of choosing different planned risk levels to determine sample sizes for statistical tests of details. Included in the analysis are the sample size effects of varying the materiality levels. The different risk levels might arise as a result of varying the degree of reliance on internal control or on other audit procedures. In many practical situations such an increase in planned sampling risk for tests of details could result in a sample size reduction of over 50%. Such dramatic potential variations in the risk level and the accompanying sample size changes appear to be a unique feature of the audit environment. [ABSTRACT FROM AUTHOR]

This article reports on empirical studies related to prior probability distributions (PPD) and audit risk. Simulation studies have been used to investigate the sensitivity of audit planning decisions to misspecifications of PPD parameters in the compliance and substantive testing contexts, respectively. The authors notes that these studies indicated that planning decisions were sensitive to misspecifications of both PPD means and variances. In this article, researchers have investigated the audit risk consequences of PPD extremeness, deficiencies and miscalibration in a Bayesian hypothesis-testing context. These risk consequences are complex and their identification requires an analysis of both the auditor's planning and evaluation decisions.

Researchers have previously found that different materiality thresholds explain some of the difference between auditors' materiality judgments. By treating materiality as an ordinally scaled variable rather than as a nominally scaled variable, and by using the conjoint measurement methodology, the study reported in this paper was able to focus on two other possible sources of differences-the form of the individual auditor's decision model and the scaling of levels of contributing variables. The study revealed that there were some differences in the form of auditors' decision models. The study also provided evidence that auditors scaled the contributing variables differently. Thus future efforts to explain auditors materiality decisions must give consideration to these two factors (rather than assuming additive models and linear part-worth functions for all auditors). The research methodology presented in this paper provides the researcher with a tool which will allow investigation of these two factors. [ABSTRACT FROM AUTHOR]

My background is as a professional auditor with EY, and my entire professional career has been auditing large, multinational companies, listed both in the UK and in the US. The first was the mandatory rotation of audit firms, the rule that came in a while ago, where essentially in the UK a company has to re-tender its audit at least every ten years and an auditor cannot be appointed for more than 20 years. We do not necessarily put into our audit reports everything that the audit committee has in their report, because we may decide that it is not a KAM, but certainly you are getting much richer audit committee reports, in my experience. [Extracted from the article]

The article reports on a study which examined the materiality of research and development expenditures. Researchers focused on firms where product lines were expected to have relatively limited revenue-generating lives. Materiality in this context refers to any amount that exceeded 10% of the net income. Results of the study suggest that the level of research and development expenditures in the sample firms were material, at least in relation to net income. Experts say given the disclosure standard described in accounting literature such expenditures should be identified in formal published financial statements.

In this article, the author determines the boundaries of materiality in the disclosure of changes made in the application of the generally accepted accounting principles in the United States. The author states that auditing standards refer to an acceptable level of quality which must be maintained in three general areas. The author explains that the companies examined were selected from the 1964 Fortune 600 to yield a sample of companies of sufficient size to be significant. He explains that scholar Victor H. Stempf has asserted that what is good accounting practice for the large sets a standard for all which will pervade the entire economic structure.

The article discusses the methodology of professional auditors' procedures and the purposes audits serve as well as the end results achieved by them with commentary on previous studies done on these topics. The purpose of studying auditing is to increase its usefulness as a management tool in compliment of other management tools. Two aspects of the audit are examined: operational or management auditing and the recommendations made as part of an audit. Management is concerned with these aspects because they can have a direct effect on the organizational behavior of a corporation being audited.

This study investigates whether time pressure on the audit increases the cost of professional audit services. From 2003 to 2006, filing deadlines were shortened for accelerated filers (AFs) and large accelerated filers (LAFs) by 15 and 30 days, respectively, under the SEC's accelerated filing regulation. Time-pressure engagements are identified as those whose audit report dates in the year prior to implementation fell after the new deadlines. Comparing time-pressure AFs to control engagements, findings show no significant difference in audit fee adjustments during implementation. Looking at time-pressure LAFs, findings show evidence of fee decreases. Findings counter common criticism of the regulation and suggest available slack, where significant additional audit effort was not required to meet the new deadlines. Evidence points to resource transfers to (from) time-pressure (control) engagements during the first acceleration, and increasing reliance on internal controls of time-pressure LAFs during the second acceleration, as strategies used by auditors. Additional analyses document decreases to audit quality on time-pressure AFs but maintained quality on time-pressure LAFs. [ABSTRACT FROM AUTHOR]

This study aims to create a machine learning model that can predict opinions in external audits and surpass the benchmark set in a prior study from the literature. This tool could reduce audit risk, which is a crucial task in external audits. Previous studies have shown that it is possible to create models that can predict the audit opinion a company will receive. In these studies, authors used statistics and machine learning models, and both non-financial (e.g. audit lag) and financial data (e.g. financial ratios, or absolute value items available from financial statements) to make predictions. In this study, the performance of the XGBoost model optimized by metaheuristics algorithms is examined and evaluated. This study compares the performance of six different metaheuristic algorithms used to tune the XGBoost model in two separate scenarios. The first scenario represents a realistic client portfolio, where a majority of the clients are known, while the second scenario simulates a new clients-only portfolio, a more difficult scenario where prior information such as audit lag is not available. The study uses a dataset of 12,690 observations of Serbian companies and their audit opinions from 2016 to 2019. The findings indicate an improvement over the benchmark due to a more optimized hyperparameter tuning process and the use of the iterative sine-cosine algorithm for the XGBoost model. • Utilizing XGBoost to predict audit opinions with a large dataset. • Applying enhanced metaheuristics to improve XGBoost model precision. • Conducting SHAP analysis to explore variable effects. • Offering an efficient screening tool for auditors. • Providing valuable contributions to audit opinion prediction. [ABSTRACT FROM AUTHOR]

Existing theories predict two contradict relation between industry competition and audit fees. Industry competition reduces the agency problem between manager and stockholder of firms and also increases the accuracy of financial statement. It therefore decreases the assessment of risk by auditors and they are inclined to charge low audit fee for companies operating in competitive industry. On the other hand industry competition can increase the assessment of business risk by auditor, so it would be expected as the competition in industry rises the audit fee, the current study examine empirically "The impact of monopoly or industry competition on pricing of external audit services "with the information of 96 publicly-held companies listed in Tehran Stock Exchange (TSE) Between 2009-2016. The result of study shows the significant and negative relation between audit fee and industry competition. In other words, auditor charge low audit fee for client which operate in high competitive industry.

The article presents the methodological foundations for construction stratification audit sampling for attribute-based sampling. The sampling techniques of Russian and foreign practice is studied and stratified. The role of stratification in the audit is described. Approaches to construction of the stratification are revealed on the basis of professional judgment (qualitative methods), statistical groupings (quantitative methods) and combinatory ones (complex qualitative stratifications). Grouping of accounting information for the purpose of constructing an optimal stratification and its criteria are proposed. The stratification methods are worked out and tested on the example of ABC-analysis.