The role of risk management and governance in determining audit demand.

Most prior research into audit fees has been based on a theoretical model which treats audit fees as the by-product of a production function (Simunic, 1980) hereby ignoring potential demand forces that may drive the level of the audit fee. In such a production-oriented view of auditing, alternative control mechanisms (such as internal auditing and corporate governance) are hypothesized to be substitutes for external auditing, and hence more of one control mechanism is expected to be negatively associated with the level of external auditing, and hence the audit fee. In this paper we examine the impact of risks and controls in the determination of audit fees. Inspired by prior 'anomalous' results, we take a different perspective by focusing on some omitted demand factors that may affect the level of the audit fee. Based on Hay and Knechel (2004), we argue that when multiple stakeholders are included in the analysis a positive association between various risk management / control mechanisms and external audit demand is a very likely outcome, which is attributable to sharing of control costs between stakeholders and positive control externalities amongst stakeholders. Using data collected from a sample of listed companies in Belgium, we consider both disclosures about risk and risk management and actual decisions about corporate governance to examine whether audit fees are higher when hypothesized demand forces exist. Consistent with our expectations, our results indicate that audit fees are higher when a company has an audit committee, discloses a relatively high level of financial risk management, and has a larger proportion of independent Board Members. Audit fees are lower when a company discloses a relatively high level of compliance risk management. The latter result indicates that controls are only complementary as long as they are voluntary, as mandated controls act as substitutes for non-mandated controls.Auditing; Belgium; Companies; Cost; Decision; Stakeholders;

Do industry specialists and business risk auditors enhance audit reporting accuracy?.

A number of prior studies have examined audit reporting quality using size (Big 8/6/5/4) as a proxy for quality (i.e. Lennox, 1999b; Francis and Krishnan, 1999; Weber and Willenborg, 2003). In this paper we move beyond the traditional definition of a high quality auditor, and investigate whether enhanced industry knowledge or an increased focus on business risk auditing methodologies improve audit reporting accuracy. In addition, we examine whether industry specialists and business risk auditors have a comparative advantage in judging the adequacy of mitigating management actions implemented by financially distressed companies. Using a sample of US companies from manufacturing industries (SIC 20-39) that went bankrupt between 1998-2001, we do not find evidence supporting that specialist auditors are more likely to issue a going concern opinion for companies that subsequently go bankrupt. However, our evidence does indicate that specialists are not fooled by operating initiatives (whereas non-specialists are). Interestingly and counter to our expectations, we find that audit firms using a business risk methodology are less likely to issue a going–concern opinion for a firm that subsequently goes bankrupt. Further, our evidence also suggests that business risk auditors may be 'fooled' by short term operating efforts to reduce financial distress. Finally, we also find very strong evidence that auditors, irrespective of their type, are 'fooled' into not issuing a going concern opinion for clients that subsequently go bankrupt when the client is planning on raising cash in the short term.Behavior; Control; Cost; Exchange; Information; Negotiations; Performance; Power; Research; Theory; Law; Effects; Trade; Flows; Country; Intensity; Imports; Import; United States; Trade liberalization; Industry; Industries; Business; Risk; Reporting; Studies; Quality; Size; Knowledge; Auditing; Comparative advantage; Management; Companies; Manufacturing; Firms; Planning;

The Effects of Exposure of Political Affiliation and Race on Perceptions of White Privilege and Anti-black Discrimination

This thesis explored the effects of exposure to different political affiliations and races on participants’ perceptions of white privilege and anti-black discrimination. Recent research has studied the effects of race, framing, and guilt on the acknowledgement of white privilege, but none have explored how political affiliation can affect these perceptions. If simple exposure to these symbols of political affiliation can alter the perceptions of those exposed, perhaps the results of this study could be used to bring about awareness and ease political tensions. Participants were placed in one of six groups consisting of either a white or black experimenter wearing a Black Lives Matter shirt, Make America Great Again shirt, or a plain black shirt. Participants completed a series of three surveys: a demographic survey, a belief in White Privilege Scale, and the Other Focused Belief in Discrimination Scale. A two-way ANOVA was used to analyze the data. There were no significant differences in scores on the White Privilege Scale based on race or shirt of the experimenter

Political Affiliation and White Privilege: The Effect of Exposure to Symbols of Political Affiliation and Race on Perceptions of White Privilege and Anti-Black Discrimination

This thesis explored the effects of exposure to different political affiliations and races on participants’ perceptions of white privilege and anti-black discrimination. Current research has studied the effects of race, framing, and guilt on the acknowledgement of white privilege, but none have explored how political affiliation can affect these perceptions. If simple exposure to these symbols of political affiliation can alter the perceptions of those exposed, perhaps the results of this study could be used to bring about awareness and ease political tensions. Participants were placed in one of six groups consisting of either a white or black experimenter wearing a Black Lives Matter shirt, Make America Great Again shirt, or a plain black shirt. Participants completed a series of three surveys: a demographic survey, a belief in White Privilege Scale, and the Other Focused Belief in Discrimination Scale. A two-way ANOVA was used to analyze the data. There were no significant differences in scores on the White Privilege Scale based on race or shirt of the experimenter

The Role of the Independent Accountant in Effective Risk Management

The purpose of this paper is to present a perspective on the ways in which an independent accountant can contribute to the management of risk in a business organization. Business conditions and challenges have heightened the interest in risk management by many stakeholders. Independent accountants have an important role to play in providing assurance related to the quality of risk management processes which extends beyond their traditional role as the auditor of financial statements. As organizations become more and more affected by externa1 and internal risks, and increasingly dependent on integrated information systems and the expansion of nonfinancial information for monitoring risk, the value of extemal assurance services should increase. However, while presenting an opportunity to the profession, the focus on risk management also comes with a few challenges, including obtaining market permission to provide risk-based assurance services, acquiring the necessary skills and expertise, avoiding regulatory intervention and maintaining independence as the scope of services provided by independent accountants increases. Overcoming these challenges should position the accountancy profession to well serve its clients in a broad array of risk-related services.

The individual style of audit partners influences how firms are rated

Aggressive partners may end up penalising firms, argue W. Robert Knechel, Ann Vanstraelen and Mikko Zern