The effect of client characteristics on the negotiation tactics of auditors

Paper presented at the 2006 American Accounting Association Auditing Section Mid-Year Meeting, Los Angeles, CA.Although the financial statements of an organization are considered a product of management, prior research suggests that a company’s financial statements may be affected by the negotiation strategy employed by the auditor when resolving audit differences with management. However, little subsequent research has discussed the potential strategies that auditors may employ during the negotiation process. Our study extends the literature by investigating, in a post-Sarbanes-Oxley environment, whether auditors will employ a reciprocitybased strategy for the resolution of audit differences and what client characteristics (client management’s negotiating style and client retention risk) will increase the extent to which it is utilized. Such a strategy involves bringing inconsequential items to management and subsequently waiving these items in an effort to encourage management to be more cooperative in the posting of significant income-decreasing adjustments. The results of our study indicate that client management’s negotiating style and retention risk have an interactive effect on auditors’ use of a reciprocity-based strategy. Specifically, auditors are more likely to utilize a reciprocitybased strategy when management’s negotiating style is competitive and client retention risk is high. Interestingly, the end result of the negotiation process is essentially identical (i.e., similar items are posted), regardless of client characteristics or the auditor’s utilization of a reciprocitybased strategy. Thus, it appears that use of a reciprocity-based strategy does not affect the quality of the financial statements, but simply facilitates the process of posting significant items

The effect of risk of misstatement and workload pressure on the choice of workpaper review format

Paper presented at the 2007 International Symposium on Audit Research, Shanghai, China.The advent of electronic communication and electronic workpapers at audit firms has provided workpaper reviewers with options of how to interact with their audit team. Concurrently, other review formats have developed that rely more on in-person communication (e.g., review-by-interview). Prior research indicates that in-person discussion during review results in qualitatively different workpapers and judgments than when the reviewer interacts with the workpaper preparer electronically. As reviewers typically have discretion over how to conduct their reviews, the choice of review format can be viewed as a controllable audit input. Thus, the reviewer’s choice of review format could impact the quality of the audit review team’s work. Our study extends the audit review process literature by examining reviewers’ choice of the form of their reviews and by considering factors that influence that choice. Specifically, we examine the effect of misstatement risk and workload pressure on this choice. We find that misstatement risk and workload pressure affect reviewers’ review mode choices, with both those facing low risk and those under high pressure more likely to perform their reviews electronically. Further, risk and workload pressure interact to affect reviewers’ likelihood of choosing to review electronically. Results indicate that misstatement risk moderates the effect of workload pressure such that, when risk is high, the effect of workload pressure is reduced. Our findings provide insight to firms and regulators regarding the impact of misstatement risk and workload pressure on how audit workpaper reviewers conduct their reviews. These issues are particularly relevant in light of recent changes in the regulatory environment that both emphasize the auditor’s role in detecting fraud/misstatements and exacerbate traditional workload pressures during busy times of the year

Moderate Alcohol Drinking and the Amygdala Proteome: Identification and Validation of Calcium/Calmodulin Dependent Kinase II and AMPA Receptor Activity as Novel Molecular Mechanisms of the Positive Reinforcing Effects of Alcohol

Despite worldwide consumption of moderate amounts of alcohol, the neural mechanisms that mediate the transition from use to abuse are not fully understood

The effects of audit review format on the quality of workpaper documentation and reviewer judgments

Paper presented at the 2006 American Accounting Association Auditing Section Midyear Meeting, Los Angeles, CA.The promulgation of standards (such as PCAOB Auditing Standard No. 3) highlights the recent focus on workpaper documentation quality and its influence on audit quality. Our study matches audit workpaper preparers with reviewers to examine how the choice of workpaper review method ultimately affects sequential audit review team judgments through its impact on preparer workpaper documentation. While reviewers maintain the option of reviewing workpapers on site (“face-to-face review”), they can now also perform their reviews electronically from remote locations (“electronic review”) due to technological advancements such as e-mail and electronic workpapers. Recent research has found that review mode can affect the judgments of auditors preparing the workpapers. Our study extends the literature by examining the extent to which review mode (electronic versus face-to-face) affects the quality of documentation in the workpapers and whether reviewers are able to discern and compensate for these documentation quality issues. We propose a model which predicts that the relationship between the method of review and reviewer judgment quality is mediated by a documentation quality assessment gap (i.e., actual versus reviewer assessments of documentation quality). Such a mediation model provides insight into why the review format affects reviewer judgment quality. We find that reviewers’ judgments are affected by the form of review expected by their preparer. As predicted by our mediation model, we find that the effect of review mode on reviewer judgments is mediated by a documentation quality assessment gap. Specifically, when the mode of review was electronic, reviewers were unable to recognize and compensate for the generally lower quality documentation, resulting in lower quality reviewer judgments compared to when the mode of review was face-to-face. These results suggest that the effect of review mode persists to the reviewer’s judgment through its influence on preparer workpaper documentation and the resulting documentation quality assessment gap

Screening-detected lung cancers: Is systematic nodal dissection always essential?

Background: To address whether systematic lymph node dissection is always necessary in early lung cancer, we identified factors predicting nodal involvement in a screening series and applied them to nonscreening-detected cancers. Methods: In the 97 patients with clinical T1-2N0M0 lung cancer (<3 cm), enrolled in the Continuous Observation of Smoking Subjects computed tomography (CT) screening study, who underwent curative resection with radical mediastinal lymph node dissection, we examined factors associated with hilar extrapulmonary and mediastinal nodal involvement. Nodule size plus positive/negative positron emission tomography (PET)-CT (usually as maximum standard uptake value [maxSUV]) were subsequently evaluated retrospectively for their ability to predict nodal involvement in 193 consecutive patients with nonscreening-detected clinical stage I lung cancer. Results: Among Continuous Observation of Smoking Subjects patients, 91 (94%) were pN0, and six (6.2%) were pN+. All patients with maxSUV <2.0 (p = 0.08) or pathological nodule ≤10 mm (p = 0.027) were pN0 (62 cases). Nodal metastases occurred in 6 cases among the 29 (17%) patients with lung nodule >10 mm and maxSUV ≤2.0 (p = 0.002 versus the other 62 cases). In the nonscreening series, 42 of 43 cases with negative PET-CT (usually maxSUV <2.0) or nodule ≤10 mm were pN0; 33 of 149 (22%) cases with positive PET-CT (usually maxSUV ≤ 2.0) and nodule >10 mm were pN+ (p = 0.001 versus the 43 cases). Conclusions: This limited experience suggests that in early-stage clinically N0 lung cancers with maxSUV <2.0 or pathological nodule size ≤10 mm, systematic nodal dissection can be avoided as the risk of nodal involvement is very low. Copyright © 2011 The International Association for the Study of Lung Cancer