How Following Regulatory Guidance Can Increase Auditors’ Litigation Risk Exposure

This study investigates how following explicit regulatory guidance can result, unintentionally, in increased litigation risk exposure for auditors. We do so by examining the unique and specific context where the PCAOB directly instructs auditors how to apply professional judgment - to rely on a client’s competent and objective internal audit function (IAF) during multi-location audits. Consistent with theoretical predictions based on numerosity heuristic processing and norm theory, we find that holding all other factors constant, following explicit regulatory advice not only fails to limit auditors’ litigation risk but can actually increase jurors’ assessments of auditor negligence. Because the numerosity heuristic leads jurors to believe that there is a higher likelihood of misstatement on multi-location compared to single location audits, jurors perceive that auditor reliance on the IAF during multi-location audits is not normal. Accordingly, they judge auditors to be more negligent when they rely on the IAF in multi-location audits than when they do not, but IAF reliance does not impact negligence assessments on single location audits. Our results suggest auditor reluctance to use a qualified IAF, despite client and regulatory pressure, can be a rational and defensible strategy to limit their litigation risk exposure

Managing Audits to Manage Earnings: The Impact of Baiting Tactics on an Auditor’s Ability to Uncover Earnings Management Errors

This study examines an aspect of earnings management that I refer to as audit management. I define audit management as a client\u27s strategic use of techniques (e.g., baiting tactics) to prevent auditors from discovering earnings management during the audit. Specifically, I examine whether two baiting tactics, diversionary statements and distracting errors, affect an auditor\u27s ability to uncover an accounting error used to manage earnings. Auditors performed analytical review on financial statements that contained an earnings management error (i.e., an intentional error that results in the client meeting an earnings target). I manipulated whether management provided a diversionary statement that explicitly identified risk in other areas of the audit, and whether management seeded easier, distracting errors into those other areas, both of which were designed to lure the auditor away from the earnings management error. I found that when auditors were intentionally directed to error free accounts they were unlikely to uncover an earnings management error elsewhere in the financial statements. On the other hand, auditors were most accurate in identifying earnings management when they were directed to audit areas that contained distracting errors. These results suggest that managers can use certain baiting tactics to strategically manage the outcome of the audit, but that, in some circumstances, baiting tactics may actually make auditors more likely to uncover managed earnings

Managing audits to manage earnings: The impact of baiting tactics on an auditor\u27s ability to uncover earnings management errors

This study examines an aspect of earnings management that I refer to as audit management. I define audit management as a client\u27s strategic use of techniques (e.g., baiting tactics) to prevent auditors from discovering earnings management during the audit. Specifically, I examine whether two baiting tactics, diversionary statements and distracting errors, affect an auditor\u27s ability to uncover an accounting error used to manage earnings. Auditors performed analytical review on financial statements that contained an earnings management error (i.e., an intentional error that results in the client meeting an earnings target). I manipulated whether management provided a diversionary statement that explicitly identified risk in other areas of the audit, and whether management seeded easier, distracting errors into those other areas, both of which were designed to lure the auditor away from the earnings management error. I found that when auditors were intentionally directed to error free accounts they were unlikely to uncover an earnings management error elsewhere in the financial statements. On the other hand, auditors were most accurate in identifying earnings management when they were directed to audit areas that contained distracting errors. These results suggest that managers can use certain baiting tactics to strategically manage the outcome of the audit, but that, in some circumstances, baiting tactics may actually make auditors more likely to uncover managed earnings

\u3ci\u3eDrosophila\u3c/i\u3e Muller F Elements Maintain a Distinct Set of Genomic Properties Over 40 Million Years of Evolution

The Muller F element (4.2 Mb, ~80 protein-coding genes) is an unusual autosome of Drosophila melanogaster; it is mostly heterochromatic with a low recombination rate. To investigate how these properties impact the evolution of repeats and genes, we manually improved the sequence and annotated the genes on the D. erecta, D. mojavensis, and D. grimshawi F elements and euchromatic domains from the Muller D element. We find that F elements have greater transposon density (25–50%) than euchromatic reference regions (3–11%). Among the F elements, D. grimshawi has the lowest transposon density (particularly DINE-1: 2% vs. 11–27%). F element genes have larger coding spans, more coding exons, larger introns, and lower codon bias. Comparison of the Effective Number of Codons with the Codon Adaptation Index shows that, in contrast to the other species, codon bias in D. grimshawi F element genes can be attributed primarily to selection instead of mutational biases, suggesting that density and types of transposons affect the degree of local heterochromatin formation. F element genes have lower estimated DNA melting temperatures than D element genes, potentially facilitating transcription through heterochromatin. Most F element genes (~90%) have remained on that element, but the F element has smaller syntenic blocks than genome averages (3.4–3.6 vs. 8.4–8.8 genes per block), indicating greater rates of inversion despite lower rates of recombination. Overall, the F element has maintained characteristics that are distinct from other autosomes in the Drosophila lineage, illuminating the constraints imposed by a heterochromatic milieu

Post-anaesthesia pulmonary complications after use of muscle relaxants (POPULAR): a multicentre, prospective observational study

Background Results from retrospective studies suggest that use of neuromuscular blocking agents during general anaesthesia might be linked to postoperative pulmonary complications. We therefore aimed to assess whether the use of neuromuscular blocking agents is associated with postoperative pulmonary complications. Methods We did a multicentre, prospective observational cohort study. Patients were recruited from 211 hospitals in 28 European countries. We included patients (aged ≥18 years) who received general anaesthesia for any in-hospital procedure except cardiac surgery. Patient characteristics, surgical and anaesthetic details, and chart review at discharge were prospectively collected over 2 weeks. Additionally, each patient underwent postoperative physical examination within 3 days of surgery to check for adverse pulmonary events. The study outcome was the incidence of postoperative pulmonary complications from the end of surgery up to postoperative day 28. Logistic regression analyses were adjusted for surgical factors and patients’ preoperative physical status, providing adjusted odds ratios (ORadj) and adjusted absolute risk reduction (ARRadj). This study is registered with ClinicalTrials.gov, number NCT01865513. Findings Between June 16, 2014, and April 29, 2015, data from 22803 patients were collected. The use of neuromuscular blocking agents was associated with an increased incidence of postoperative pulmonary complications in patients who had undergone general anaesthesia (1658 [7·6%] of 21694); ORadj 1·86, 95% CI 1·53–2·26; ARRadj –4·4%, 95% CI –5·5 to –3·2). Only 2·3% of high-risk surgical patients and those with adverse respiratory profiles were anaesthetised without neuromuscular blocking agents. The use of neuromuscular monitoring (ORadj 1·31, 95% CI 1·15–1·49; ARRadj –2·6%, 95% CI –3·9 to –1·4) and the administration of reversal agents (1·23, 1·07–1·41; –1·9%, –3·2 to –0·7) were not associated with a decreased risk of postoperative pulmonary complications. Neither the choice of sugammadex instead of neostigmine for reversal (ORadj 1·03, 95% CI 0·85–1·25; ARRadj –0·3%, 95% CI –2·4 to 1·5) nor extubation at a train-of-four ratio of 0·9 or more (1·03, 0·82–1·31; –0·4%, –3·5 to 2·2) was associated with better pulmonary outcomes. Interpretation We showed that the use of neuromuscular blocking drugs in general anaesthesia is associated with an increased risk of postoperative pulmonary complications. Anaesthetists must balance the potential benefits of neuromuscular blockade against the increased risk of postoperative pulmonary complications