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SUMMARY: According to the World Economic Forum (WEF) (2022), cybersecurity risk is the most immediate and financially material sustainability risk that organizations face. Companies experience significant financial and reputational losses in the market after a cyberattack. However, companies are only required to disclose a trivial amount of information about their cybersecurity risk management efforts (SEC 2014; Newman 2018). This paper summarizes Frank, Grenier, and Pyzoha (2019), which examines whether voluntarily providing additional disclosures regarding a company's cybersecurity efforts, with or without assurance, increases investment attractiveness. Absent assurance, voluntary disclosures about the nature and effectiveness of cybersecurity efforts are sufficient to increase investment attractiveness for companies that have not (versus have) disclosed a prior cyberattack, as investors are less likely to question the disclosure's reliability. Assurance provides a greater benefit to companies that have (versus have not) disclosed a prior cyberattack, as they benefit more from the reliability enhancement of assurance. [ABSTRACT FROM AUTHOR]

Recent research suggests that adopting imprecise accounting standards elevates audit firm litigation exposure and could undermine auditor objectivity if audit firms respond by herding to industry norms. This paper reports the results of two experiments that demonstrate how audit firms can effectively mitigate the elevated litigation exposure without herding to industry norms by staffing engagements with recognized technical experts, using judgment frameworks and automated decision aids, and providing persuasive evidence of adherence to auditing standards. We find that judgment frameworks are particularly well-suited for defending judgments under imprecise standards, and represent a cost-effective alternative to using technical experts. However, our results also indicate that judgment frameworks may provide a safe harbor for relatively low-quality judgments when those frameworks are used under precise standards. We discuss implications for audit firms, courts, and regulators that currently conduct or evaluate audits within and across jurisdictions where the precision of accounting standards varies considerably. [ABSTRACT FROM AUTHOR]

SYNOPSIS: The Big 4 accounting firms have expanded their legal service arms to historic proportions over the last decade, employing thousands of lawyers around the world. Although most of the Big 4's revenue from legal services is presently generated outside the U.S., they are now making inroads into the U.S. legal market, and rule changes are being considered that would further allow the Big 4 to offer legal services in the U.S. This essay summarizes the current status of Big 4 firms as legal service providers, discusses potential implications of legal offerings for their U.S. audit practices, and suggests directions for future research. Our proposed research questions are informed by several literatures, interviews with former Big 4 partners and practicing attorneys, and a survey of the general public. They center on the fundamental difference between audit and law practices, brand equity considerations, and culture changes within the Big 4. [ABSTRACT FROM AUTHOR]

SYNOPSIS: Public accounting firms have developed reliable substantive tests using data and analytics based procedures to improve audit quality and efficiency. However, firms need to convince audit stakeholders that relying on data and analytics based procedures will improve, or at least maintain, audit effectiveness for them to be allowed and accepted. This study provides exploratory, experimental evidence to indicate how three key audit stakeholder groups—non-professional investors, peer reviewers, and jurors—perceive population testing and predictive modeling data and analytics based procedures relative to traditional sample-based substantive testing. Results suggest that while key audit stakeholders are generally open to or favorably disposed to the use of data and analytics based audit procedures, they also expressed some concerns about the appropriateness of relying on data and analytics based procedures, particularly predictive modeling, as primary sources of substantive evidence. This paper develops an agenda for future research to help firms better address stakeholder concerns. [ABSTRACT FROM AUTHOR]

SUMMARY: This article summarizes "The Effects of Specialist Type and Estimate Aggressiveness on Juror Judgments of Auditor Negligence" (Brown, Grenier, Pyzoha, and Reffett 2019), which examines two critical factors auditors consider when auditing complex estimates: type of specialist to engage and relative estimate aggressiveness. In an experiment involving an alleged audit failure, jurors were less likely to find auditors negligent when the auditors consulted with a valuation specialist, but only when managements' estimate was more aggressive. The study does not find similar litigation benefits of using a specialist for a less aggressive estimate. A second experiment extended these results by demonstrating that jurors were less likely to find auditors negligent when the auditors consulted with an external rather than an internal specialist. Further, the benefits of using an external specialist extended to auditors who initially engaged an internal specialist and brought in an external specialist to review the internal specialist's work. [ABSTRACT FROM AUTHOR]

SUMMARY: We examine the effects of two critical factors auditors consider when auditing complex estimates, the decision to use a specialist and the relative aggressiveness of management's estimate, on jurors' auditor negligence assessments. Experiment 1 finds jurors view auditors' acceptance of a more aggressive estimate as more justifiable, and are thus less likely to find them negligent, when auditors consult with either internal or external specialists. However, these litigation benefits do not extend to audits of less aggressive estimates. Experiment 2 finds jurors are less likely to find auditors negligent when auditors use an external versus an internal specialist, due to greater perceptions of external specialist independence. We also find auditors accrue similar litigation benefits when an external specialist reviews the internal specialists' work. We conclude that utilizing external specialists, either to directly test complex estimates or to review internal specialists' work, limits auditors' litigation exposure when auditing relatively aggressive estimates. JEL Classifications: M40; M41; M42. Data Availability: Available upon request from the authors. [ABSTRACT FROM AUTHOR]

This paper provides methodological guidance to individuals interested in audit-related, juror judgment and decision-making (JDM) research. Specifically, we discuss key issues surrounding experimental design including participant selection, case selection and design, and identifying important independent, process, and dependent variables—discussions often omitted from published research in this area. We also address several issues encountered during the review process and through discussions with or presentations by other scholars. Overall, this paper is aimed at (1) increasing scholars', particularly newer scholars', awareness of the different design options that are available when planning juror JDM studies; (2) enhancing scholars' understanding of the costs and benefits of those options; and (3) helping scholars better foresee how different design choices ultimately will impact the inferences that can be drawn from their studies. Thus, this paper provides an easily accessible resource to help newer scholars make more informed choices when planning juror JDM studies. Further, this paper should help individuals who are interested in audit-related juror JDM, but who are not active researchers in this area (e.g., archival researchers, practitioners), better understand the methods used to conduct, and the inferences drawn from, juror JDM studies. Finally, we hope that some of the principles discussed are helpful to newer scholars beyond the juror JDM setting. [ABSTRACT FROM AUTHOR]

This paper provides an empirical examination of the corporate social responsibility (CSR) assurance market in the United States. Various constituencies have found this market puzzling, as the level of assurance significantly lags international levels (Simnett et al. 2009; KPMG 2011). Results shed light on this enigma by demonstrating that, unlike their international counterparts, U.S. finance and utilities firms are not more likely (than firms in other industries) to obtain CSR assurance despite facing significant social and environmental risks. As these industries are highly regulated in the United States, regulatory oversight may be acting as a substitute for CSR assurance. We also find that highly leveraged firms are less likely to obtain CSR assurance, potentially due to stringent bank monitoring indirectly suppressing demand. Nonetheless, examining the capital market responses to CSR assurance makes the low demand even more puzzling. Specifically, CSR assurance is associated with lower cost of equity capital along with lower analyst forecast errors and dispersion. Furthermore, the reductions in cost-of-capital and forecast dispersion are significantly higher when CSR assurance is provided by an accounting firm. These results have implications for companies that are considering CSR assurance and accounting firms in developing and marketing their CSR assurance services. [ABSTRACT FROM AUTHOR]