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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.)

Regulators and researchers indicate that auditors do not exercise sufficient professional skepticism (hereafter skepticism) in auditing accounting estimates. Drawing on regulatory fit theory, we propose and find that priming auditor regulatory focus along with the goal pursuit strategy could enhance auditors' skepticism. Specifically, auditors with a promotion focus exercise greater skepticism when primed with an eager-means goal. Auditors with a prevention focus exercise greater skepticism when primed with a vigilant-means goal. In contrast, auditors in 'nonfit' conditions exercise lower skepticism. We also find that auditors experiencing a 'fit' between their regulatory focus and goal pursuit strategy engage in more effortful evaluation of evidence items, leading to greater skepticism. Additional analyses show that auditors 'feeling right' because of experiencing regulatory fit will exercise greater skepticism. Our findings suggest that a goal pursuit strategy enhances skepticism when the goal fits with the auditors' regulatory focus. [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.)

We investigate how a disclosed risk item and key audit matter (KAM) relatedness combine to affect investors' riskiness assessment in financial and non‐financial contexts. When management disclose a high‐risk item, we find that investors react the same way across contexts with KAM relatedness having no effect. When management disclose a low‐risk item, investors react differently in each context. When a KAM is related to the disclosed financial (non‐financial) low‐risk item, investors assess investment riskiness higher (lower) than when a KAM is unrelated to the low‐risk item. Our findings indicate the varying communicative value of KAMs across financial and non‐financial contexts. [ABSTRACT FROM AUTHOR]

SYNOPSIS: Motivated by regulator concerns that auditors do not always demonstrate sufficient professional skepticism (hereafter skepticism), we consider whether a brief mindfulness intervention can assist. Research has demonstrated that mindfulness interventions help people focus on tasks in a range of settings. We draw on this research to predict, and find, that when novice auditors undertake a mindfulness intervention, they demonstrate greater skepticism than other novice auditors. This exploratory study provides preliminary evidence of an accessible intervention that can encourage greater skepticism. [ABSTRACT FROM AUTHOR]

As integrated reports evolve to meet the needs of stakeholders, it is increasingly important to establish reliable information. We examine the effect of a new technique to enhance the reporting reliability, referred to as 'combined assurance' (through which the audit committee coordinates the assurance roles of management, internal assurance and external assurance providers and concludes on the effectiveness of risk management, internal controls and reporting quality), on restoring investors' willingness to invest when there are significant reporting reliability risks. We conduct a series of experiments with different operationalizations of reporting reliability risks. We find that the communication of combined assurance can restore investors' perceived reliability of reported information and willingness to invest when there is bad news (Experiment 1); when there is a non-financial key audit matter (KAM) indicating estimation uncertainty in the non-financial information (Experiment 2); and when there is a financial KAM indicating risks of manipulated financial reporting (Experiment 3). Our study has implications for practitioners, standard setters, and regulators who are exploring possible mechanisms to enhance the reliability of financial and non-financial information in the integrated reports. [ABSTRACT FROM AUTHOR]

While prior studies have considered the effect of the enhanced auditor's report (EAR) on a range of auditor, management and investors' judgments, we consider whether the inclusion of key audit matters (KAMs) in the EAR affects investor perceptions of the value of the audit as well as the credibility of the auditor. These are important issues linked to the rationale for the introduction of the EAR. As prior studies have demonstrated that audit firm size affects investor perceptions across a range of measures, we predict that the link between KAMs (absent versus present) and investor perceptions around value and credibility is affected by audit firm size. We find that the inclusion of KAMs improves perceived value and credibility only when a Non-Big 4 firm conducts the audit. When a Big 4 firm conducts the audit, perceived value and credibility are high whether KAMs are included or not. We also find that perceived credibility mediates the joint effect of KAMs and audit firm size on the perceived value of the audit. In additional analysis, we find that the inclusion of KAMs draws investors' attention to new and expanded messages, taking their attention away from messages considered core to the audit report. [ABSTRACT FROM AUTHOR]

This study investigates the underlying causes affecting auditors' approaches to subsequent events. As auditors are required to perform the majority of subsequent events procedures near the due date of the audit report, I examine whether auditors are less likely to make adjustments or disclosures regarding subsequent events that occur after the audit completion, but before issuing the audit report. Results indicate that auditors were less likely to adjust Type I events that occurred after audit completion when the risk was low, but not when the risk was high. This was not the case for Type II events, which only require disclosure. [ABSTRACT FROM AUTHOR]

Adding to prior research on internal control material weaknesses (ICMW), our study investigates whether information technology material weaknesses (ITMWs) are associated with CEO/CFO turnover, and whether their turnover will promote subsequent remediation. We find that disclosures of ITMW are positively associated with CEO/CFO turnover; however, only CEO turnover promotes subsequent remediation. Our findings on ITMW are different from the prior findings on ICMW – aligned with prior research on ICMW, ITMWs are associated with CEO/CFO turnover; however, unlike prior research on ICMW suggests, dismissals of CFOs do not promote subsequent remediation of ITMW. Thus, future research should consider ICMW and ITMW separately in the examination of their consequences and remediation. [ABSTRACT FROM AUTHOR]

SUMMARY: A judgment problem associated with auditing subsequent events is that auditors fail to adequately respond to subsequent events identified late in the audit. One possible source of this failure to respond could be that subsequent events are typically discovered near the end of the audit when the auditor has established an initial view regarding the fair presentation of the financial statements. Our first experiment provides evidence that auditors propose smaller audit adjustments to subsequent events following prior commitment when the control environment risk is low, relative to when there is no prior commitment. Our second experiment examines whether a requirement for process accountability can mitigate the effect of prior commitment on auditor judgment. We find that process accountability (a requirement to justify the processes leading to a decision), rather than outcome accountability (the need to justify a final decision), can effectively mitigate auditors' biases arising from prior commitment. [ABSTRACT FROM AUTHOR]

As the Financial Reporting Foundation (FRF) and Malaysian Accounting Standard Board (MASB) announced their plan to bring Malaysia to full International Financial Reporting Standards (IFRS) convergence by 1 January 2012, it is envisaged that Malaysian public listed companies will be prepared for the IFRS convergence. Our study was carried out during the peak of the convergence preparation in Malaysia. We aim to identify external drivers that influence the preparedness of companies for IFRS convergence by applying institutional theory perspectives as well as examine internal barriers that may impede the implementation of IFRS through the lens of a resource-based view. Of 859 questionnaires sent out, a total of the 150 responses were used in the data analysis of this study contributing a usable response rate of 17.46%. The general results show that respondents are prepared for the IFRS convergence. Our findings specifically reveal that the majority of respondents agree that coercive forces from stakeholders, especially regulatory forces influence their preparedness to implement IFRS. Additionally, this study points to the important roles of national accounting regulators and external auditors in influencing the degree of preparedness for IFRS convergence. The findings further demonstrate that it is not an easy task to implement IFRS and hence proper preparatory actions taken by companies are necessary in the convergence process. Overall, this study contributes to the research study's gap of limited exploration study on the IFRS adoption at organisation field from institutional theory perspectives, as previous institutional research focused on isomorphism influence on the IFRS adoption at the national level perspectives. Further, this study uses a resource-based view to explore the responses of companies for full convergence with IFRS. Hence, this study contributes to literature on IFRS adoption by offering insights into the internal barriers faced by companies in the IFRS convergence process. From a practical standpoint, this study provides several implications for accounting regulators, standard setters, external auditors and Malaysian public listed companies. [ABSTRACT FROM AUTHOR]