The Effective Use of the Audit Risk Model at the Account Level

I examine whether auditors effectively respond to an assessment of high control risk at the account level. The audit risk model assumes that auditors alter their audit procedures to compensate for a greater risk of material misstatement to maintain a low risk of audit failure (i.e., low audit risk). I use internal control weakness disclosures in interim and annual filings to identify assessments of high control risk within specific accounts, and restatements of these specific accounts to identify account–level audit failures. I find an increased incidence of account–level misstatements when control risk within that particular account is high, suggesting that, on average, auditors do not maintain a consistent level of audit risk at the account level in the presence of high control risk. In further analyses, I examine whether the effectiveness of the auditor’s response varies as auditor effort (measured using excess audit fees) increases. For certain accounts, I find that additional auditor effort mitigates the likelihood of an ineffective response to high control risk, but that this mitigating effect occurs only at high levels of auditor effort. The results of this study provide insight into the effectiveness of auditors’ use of the audit risk model at the account level and suggest areas of the audit where auditors can improve the link between account–level risk assessments and the design, performance, and evaluation of substantive audit tests

Does Prompt Compliance with the COSO 2013 Framework Signal a Commitment to a Strong Internal Control Environment?

In this study, we investigate the determinants of compliance with the Committee of Sponsoring Organizations of the Treadway Commission (COSO) 2013 framework and whether prompt compliance provides a signal of a commitment to a strong internal control environment. COSO 2013 framework represents the biggest change to the internal control framework in more than two decades. In firms’ first fiscal year following the supersession of the COSO 1992 framework, only 91 percent of firms in our sample were in compliance with the updated COSO 2013 framework. We find that compliance with the updated framework is more likely among firms that are larger, older, more highly leveraged, less complex, that operate in more litigious industries, and that have an effective internal control environment. Controlling for potential selection bias, we next examine whether compliance with the updated framework is indicative of a higher level of control consciousness and governance as evidenced by more conservative financial reporting. Finally, we use short-window market reactions to quarterly earnings surprises to examine whether investors perceive compliance with the updated framework as an indication of the overall control consciousness and governance of the firm. We find that firms that comply with the COSO 2013 framework exhibit more conservative financial reporting and that investors react more positively to these firms’ quarterly earnings surprises following initial compliance. Importantly, these results hold among a sample of firms without reported material weaknesses in internal controls. These results provide evidence that firms can help alleviate agency costs by signaling their commitment to a strong internal control environment

Do Accounting Firm Consulting Revenues Affect Audit Quality? Evidence from the Pre- and Post-SOX Eras

In recent years, public accounting firms have experienced a steady increase in the proportion of their revenues generated from consulting services. Although growth in consulting revenue following the Sarbanes‐Oxley Act (SOX) has been generated primarily from services provided to nonaudit clients, regulators have expressed concerns about the potential implications of this increase for audit quality. In contrast, accounting firms assert that the expertise developed by their consulting professionals helps them to provide better quality audits. We examine the relation between the proportion of accounting firm consulting revenue to total revenue and audit quality and investor perceptions of audit quality. Because SOX drastically altered the source of consulting revenues for public accounting firms, we also separately examine these relations in the pre‐ and post‐SOX eras. We find evidence suggesting that before SOX, higher proportions of audit firm consulting revenues negatively impacted both audit quality and investor perceptions of audit quality. However, we do not find a statistically significant association between audit firm consulting revenues and either audit quality or investor perceptions of audit quality following SOX. Our analyses suggest that even if these relations exist following SOX, the potential economic magnitude of the effect is small

Pluralism about Knowledge

In this paper I consider the prospects for pluralism about knowledge, that is, the view that there is a plurality of knowledge relations. After a brief overview of some views that entail a sort of pluralism about knowledge, I focus on a particular kind of knowledge pluralism I call standards pluralism. Put roughly, standards pluralism is the view that one never knows anything simpliciter. Rather, one knows by this-or-that epistemic standard. Because there is a plurality of epistemic standards, there is a plurality of knowledge relations. In §1 I argue that one can construct an impressive case for standards pluralism. In §2 I clarify the relationship between standards pluralism, epistemic contextualism and epistemic relativism. In §3 I argue that standards pluralism faces a serious objection. The gist of the objection is that standards pluralism is incompatible with plausible claims about the normative role of knowledge. In §4 I finish by sketching the form that a standards pluralist response to this objection might take

Challenges in quantifying changes in the global water cycle

Human influences have likely already impacted the large-scale water cycle but natural variability and observational uncertainty are substantial. It is essential to maintain and improve observational capabilities to better characterize changes. Understanding observed changes to the global water cycle is key to predicting future climate changes and their impacts. While many datasets document crucial variables such as precipitation, ocean salinity, runoff, and humidity, most are uncertain for determining long-term changes. In situ networks provide long time-series over land but are sparse in many regions, particularly the tropics. Satellite and reanalysis datasets provide global coverage, but their long-term stability is lacking. However, comparisons of changes among related variables can give insights into the robustness of observed changes. For example, ocean salinity, interpreted with an understanding of ocean processes, can help cross-validate precipitation. Observational evidence for human influences on the water cycle is emerging, but uncertainties resulting from internal variability and observational errors are too large to determine whether the observed and simulated changes are consistent. Improvements to the in situ and satellite observing networks that monitor the changing water cycle are required, yet continued data coverage is threatened by funding reductions. Uncertainty both in the role of anthropogenic aerosols, and due to large climate variability presently limits confidence in attribution of observed changes

Importance of strategic management in the implementation of private medicine retailer programmes: case studies from three districts in Kenya

BACKGROUND: The home-management of malaria strategy seeks to improve prompt and effective anti-malarial drug use through the informal sector, with a potential channel being the Private Medicine Retailers (PMRs). Previous evaluations of PMR programmes focused on their impact on retailer knowledge and practices, with limited evidence about the influence of implementation processes on the impacts at scale. This paper examines how the implementation processes of three PMR programmes in Kenya, each scaled up within a district, contributed to the outcomes observed. These were a Ministry of Health programme in Kwale district; and two programmes supported by non-governmental organizations in collaboration with government in Kisii Central and Bungoma districts. METHODS: The research methods included 24 focus group discussions with clients and PMRs, 19 in-depth interviews with implementing actors, document review and a diary of events. The data were analysed using the combination of a broad policy analysis framework and more specific scaling up/diffusion of innovations frameworks. RESULTS: The Kisii programme, a case study of successful implementation, was underpinned by good relationships between district health managers and a "resource team", supported by a memorandum of understanding which enabled successful implementation. It had flexible budgetary and decision making processes which were responsive to local contexts, and took account of local socio-economic activities. In contrast, the Kwale programme, which had implementation challenges, was characterised by a complex funding process, with lengthy timelines, that was tied to the government financial management system which constrained implementation Although there was a flexible funding system in Bungoma, a perceived lack of transparency in fund management, inadequate management of inter-organisational relationships, and inability to adapt and respond to changing circumstances led to implementation difficulties. CONCLUSIONS: For effective scaling up of PMR programmes, the provision of technical support and adequate resources are vital, but not sufficient on their own. An active strategy to manage relationships between implementing actors through effective communication mechanisms is essential. Successful outcomes may be realised if a strong and transparent management system, including management of financial resources, is put in place. This study provides evidence of the value of assessing implementation processes as part of impact evaluation for public health programmes

The Astropy Problem

The Astropy Project (http://astropy.org) is, in its own words, "a community effort to develop a single core package for Astronomy in Python and foster interoperability between Python astronomy packages." For five years this project has been managed, written, and operated as a grassroots, self-organized, almost entirely volunteer effort while the software is used by the majority of the astronomical community. Despite this, the project has always been and remains to this day effectively unfunded. Further, contributors receive little or no formal recognition for creating and supporting what is now critical software. This paper explores the problem in detail, outlines possible solutions to correct this, and presents a few suggestions on how to address the sustainability of general purpose astronomical software