The Effects of the Internal Control Opinion and Use of Audit Data Analytics on Perceptions of Audit Quality, Assurance, and Auditor Negligence

Advanced audit data analytics tools allow auditors to analyze the entire population of accessible client transactions. Though this approach has measurable benefits for audit efficiency and effectiveness, auditors caution that it does not incrementally increase the level of assurance they can provide relative to the fair presentation of the financial statements. We experimentally examine whether the audit testing methodology (audit data analytics versus traditional sampling) and the type of internal control (ICFR) opinion auditors issue (unqualified versus adverse) are signals of audit quality that affect jurors’ perceptions of auditor negligence after an audit failure. We predict and find that jurors’ perceptions of auditors’ personal control over the audit failure influence their assessment of negligence. We also find that when auditors issue an unqualified ICFR opinion, jurors make higher negligence assessments when auditors employ traditional statistical sampling techniques than when they employ audit data analytics. Lastly, we find that when auditors issue an adverse ICFR opinion, jurors attribute less blame to auditors and correspondingly more blame to management and the investor for an audit failure. Our study informs regulators, practitioners, and academics about the contextual effects of the ICFR opinion as well as the perceived assurance and potential litigation effects of using advanced technological tools in the audit

Critical review of strategic planning research in hospitality and tourism

Strategic planning remains one of the most popular management tools, but theoretical and empirical developments in the academic literature have been a slow burn. This paper addresses this gap and provides an up-to-date review of hospitality and tourism strategic planning research. We review strategic planning research from 1995 to 2013 in seven leading tourism academic journals, and adopt a modern and broad conceptualization of strategic planning. While there is some awareness of effective tourism strategic planning processes, academic research has not kept pace with practice. To stimulate a resurgence of research interest, we provide future research directions. We observe a methodological introspection and present some new research methodologies, which are critically important in researching the turbulent, chaotic and nonlinear tourism environment

Visual ecology of aphids – a critical review on the role of colours in host finding

We review the rich literature on behavioural responses of aphids (Hemiptera: Aphididae) to stimuli of different colours. Only in one species there are adequate physiological data on spectral sensitivity to explain behaviour crisply in mechanistic terms. Because of the great interest in aphid responses to coloured targets from an evolutionary, ecological and applied perspective, there is a substantial need to expand these studies to more species of aphids, and to quantify spectral properties of stimuli rigorously. We show that aphid responses to colours, at least for some species, are likely based on a specific colour opponency mechanism, with positive input from the green domain of the spectrum and negative input from the blue and/or UV region. We further demonstrate that the usual yellow preference of aphids encountered in field experiments is not a true colour preference but involves additional brightness effects. We discuss the implications for agriculture and sensory ecology, with special respect to the recent debate on autumn leaf colouration. We illustrate that recent evolutionary theories concerning aphid–tree interactions imply far-reaching assumptions on aphid responses to colours that are not likely to hold. Finally we also discuss the implications for developing and optimising strategies of aphid control and monitoring

Embracing a Paradoxical Environment to Promote Technological Advancements in the Auditing Profession: Prospective from Paradox Theory

Data analytics is fundamentally changing the way enterprises operate. Despite the acknowledged power of data analytics to significantly transform the auditing profession and the significant financial investments that organizations make in data analytic tools, internal audit departments and auditing firms are slow to incorporate data analytics fully. Through interviews with 27 internal and external auditors, we explain why the audit profession is slow to adopt. The auditing environment contains pressures for stability (i.e., pressure to change and transform the profession) and pressures to change (i.e., pressure for the profession to remain the same). Through our interviews, we find evidence that our participants’ responses to the environmental contradictions (stability vs change) are the primary reason the audit profession has been slow to incorporate data analytics. Consistent with paradox theory, we identify the underlying assumptions that our participants use when experiencing the stability/change contradiction during the audit process. We find that our participants’ assumptions toward the stability/change are consistent with Either/Or or moderation assumptions. For example, when participants use an Either/Or assumption to interpret the stabilize/change contradiction, the actors create unintended consequences by reinforcing traditional and outdated audit practices that do not promote technological advancement in the audit profession. When actors use a Moderation assumption to interpret the stabilize/change contradiction, we find evidence consistent with hindering technological change, suggesting that the actors perform redundant audit tasks that affect audit efficiencies and effectiveness

Management Engaged vs. Employed Valuation Specialist: The Effect on Evidential Planning Assessments for the Audit of Fair Value Measurements

We examine the differential effect of management engaged versus employed valuation specialists on auditor planned evidential procedures related to auditing fair value measurements (FVMs). Accounting estimates are inherently difficult to audit, and the complex finance-based modeling that underlies estimates of many financial instruments may be beyond auditor expertise. Thus, we also examine to what extent auditor fair value expertise mitigates overreliance on management’s process, rather than engaging in a critical analysis of the overall estimate. Inspection reports issued by the PCAOB consistently cite audit firms for deficiencies related to FVMs, raising concerns about auditors' application of professional skepticism and consideration of potential management bias. These deficiencies have led to the perception that auditors may not effectively evaluate FVMs or the inputs and assumptions made by management or specialists used in them. Using auditors with varying levels of fair value domain-specific expertise, we conduct a quasi-experiment to examine how management’s valuation specialists (engaged vs. employed) affects auditors’ evidential planning judgments for complex FVMs of financial instruments. We rely on psychological distance theory to predict how auditors process information and reach judgments for FVMs. We find that when the valuation specialist is management-engaged (outsourced FMV specialists), auditors with higher domain-specific expertise are more likely than auditors with lower domain-specific expertise to conduct a higher percentage of evaluative (i.e., judgment based) as compared to confirmatory audit procedures. Further, the judgment of auditors with less domain-specific expertise is influenced by the source of management provided evidence. Overall, these findings suggest that the source of FVMs impacts the perceived reliability of evidence gathered from management, resulting in differential perceptions of persuasiveness and nature of evidence gathered beyond assessments of the risk of material misstatement

The Effect of Corporate Social Responsibility Investment, Assurance, and Perceived Fairness on Investors’ Judgments

Both the supply and demand for corporate social responsibility (CSR) information are increasing (e.g., Simnett et al. 2009a; Holder-Webb et al. 2009; Cohen et al. 2011; Dhaliwal et al. 2011). An overarching question is whether CSR disclosures matter to individual investors. An issue of importance is what CSR factors affect investors‟ judgments. This paper investigates whether and how information about a company‟s CSR investment (either above or below the industry average) and whether the information has received third-party assurance services or not affects an investor‟s judgments about the company. Given the research that has documented how fairness affects business decision making (Cohen et al. 2007; Bierstaker et al. 2011), we also examine how the perceived fairness of the CSR activities affects investors‟ judgments. To examine these issues, we conducted a 2 x 2 between-subjects online sequential experiment in which investors provide an initial stock price assessment in the presence of financial information, then provide a revised assessment after viewing CSR information. Consistent with expectations, CSR investment and the perceived fairness of the CSR activities are associated with higher stock price assessment revisions, holding constant the positive nature of CSR performance. In addition, consistent with attribution theory (Hirst et al. 1995; Coram et al. 2009), the stock price revisions are higher in the presence of CSR assurance only when the CSR information is positive (i.e., above industry average). Implications for CSR research and practice are discussed

Effects Of Earnings Forecasts And Heightened Professional Skepticism On The Outcomes Of Client-Auditor Negotiation

Ethics has been identified as an important factor that potentially affects auditors\u27 professional skepticism. For example, prior research finds that auditors who are more concerned with professional ethics exhibit greater professional skepticism. Further, the literature suggests that professional skepticism may lead the auditor to more vigilantly resist the client\u27s position in financial reporting disputes. These reporting disputes are generally resolved through negotiations between the auditor and client to arrive at the final reported amounts. To date, the role that professional skepticism potentially plays in the negotiation process has been relatively unexplored. The literature prior to the enactment of Sarbanes-Oxley (SOX) suggests that auditors are more likely to approve a client position when the matter in dispute is relatively ambiguous and when changing the client\u27s position will result in the client failing to meet analysts\u27 expectations. However, changes resulting from SOX have led auditors to be more vigilant and therefore results found in the pre-SOX environment may not hold in the current environment where auditors are held more accountable for their actions. Results from an experiment with experienced audit managers and partners suggest that in the post-SOX climate, auditors\u27 negotiations do not appear to be substantively influenced by management being able to meet or beat forecasts. Moreover, we find that when auditors exhibit heightened professional skepticism, they are more ethical by being conservative and they stand more resolute than when auditors do not exhibit heightened professional skepticism. Finally, although we do not find a main effect for the influence of earnings forecast, we do find a significant interaction between earnings forecast and heightened professional skepticism. Implications for practice and research are then presented. © 2012 Springer Science+Business Media B.V