The Effects of Offshoring on Judgment Quality in a Management Accounting Task

This study investigates the effects of offshoring on judgment quality in a management accounting context (i.e., capital budgeting). The effects of offshoring on judgment quality are understudied and might explain the ineffective and inefficient use of information in offshoring arrangements (Srikanth and Puranam, 2011). A 3x2 between-subject experiment was conducted where participants were assigned to one of three experimental conditions: onshore team, offshore team, or no team. Two dependent variables were measured for judgment quality: effectiveness and efficiency. My results suggest that offshoring may have detrimental effects on efficiency. However, I also find that offshoring does not affect effectiveness

Sys Trust Liability

The Certified Public Accountant has always been subject to scrutiny by the legal system to ensure that the interest of the public is best served. In fact, over the last thirty years, the number of malpractice suits against accountants has increased. The increase in accountant malpractice litigation is a result of the public\u27s perception that the CPA guarantees the accuracy of financial statements, and that the CPA has sizeable financial resources, along with malpractice insurance. Prior to the Elliott Report in 1997, CPA liability was limited to fraud, breach of contract, and negligence in the traditional areas of audit, accounting, and tax. As with any other industries, the public accounting profession recognized the need to expand the services performed by CPAs in order to increase their revenues, add value to their clients, and maintain a presence in the financial services industry. With advances in technology, such as ecommerce, maintaining a presence in financial services is becoming more challenging for today\u27s CPAs. Therefore, in 1994, the American Institute of Certified Public Accountants (AICPA) formed a committee called the Special Committee on Assurance Services (SCAS) to address the changing dynamics of the public accounting. The responsibility of this committee was to develop a strategic plan to expand the assurance services offered by the accounting profession. Ultimately, this committee produced the Elliott Report in 1997. This report indicated that systems reliability, system risk identification, and impact analysis would be key potential areas where CPAs could increase their revenues. Hence, the SysTrust assurance service was born

The Influence of Irrelevant Information on IS Auditor Key Risk Factor Predictions

Can information systems (IS) auditors ignore irrelevant information when they assess key risk factors (KRFs)? Irrelevant information is information that is of little or no value to a specific task or predicted future outcome. When assessing a KRF, IS auditors sift through numerous pieces of information to target items that are relevant to understanding the KRF. Some items encountered by IS auditors may be relevant to understanding the KRF, while other items encountered may be irrelevant. IS auditors should ignore irrelevant information when they assess KRFs. An example of irrelevant information that an IS auditor may encounter during a financial statement audit is obsolete code that was written for an application that was replaced in a previous audit period—the data that were saved in the prior application have been saved in the new application. Although IS auditors are aware that the old code is irrelevant, the old code may still influence IS auditors’ KRF assessments. Irrelevant information may influence IS auditors to reduce their assessments of KRFs when higher assessments would be more appropriate. If IS auditors were exposed to irrelevant information during a financial statement audit and decreased their assessment of KRFs, too few resources may be allocated toward gaining a better understanding of the KRFs. As a result, audit failure could occur. Thirty-seven IS auditors participated in a repeated-trial experiment in which they all read the same case and responded to the same questions about a multinational, publicly traded bank that provided e-banking services. During the experiment, the participants rated the effectiveness of e-banking KRFs, estimated the risk of material misstatement for e-banking KRFs and suggested revisions to the audit plan for e-banking services KRFs. The participants also completed a knowledge test and provided information about their backgrounds. The change in the IS auditors’ KRF assessments when irrelevant information is present vs. when the irrelevant information is not present is the dependent variable in this study. The results of this study reveal that IS auditors’ KRF assessments are significantly lower when irrelevant information is present vs. when irrelevant information is not present. This study also presents evidence that knowledge of automated controls can help mitigate the effects of irrelevant information on IS auditors’ KRF assessments

Do External Financial Statement Auditors Sufficiently Adjust Their Audit Plans for Automated-Control Deficiencies?

Shelton (1999) found that experience, based on rank, mitigates the influence of less-than diagnostic evidence in going concern assessments. But, numerous studies (e.g., Abdolmohammadi and Wright 1987) question the external validity of studies that use rank to determine experience. I suspect that specialized domain experience is a better measure because all auditor ranks do not have procedural knowledge in going concern decisions but many auditors may have procedural knowledge in audit planning (AICPA 2008) and automated controls (Hunton et al. 2004). I investigate whether external financial statement auditors (henceforth auditors) sufficiently adjust their audit plans for material-automated-control-weaknesses. I determine the sufficiency of auditors’ audit plan adjustments by comparing their adjustments for material-automated-control weaknesses to professionals with specialized domain experience in automated-controls, IT audit specialists. Auditors’ audit plan adjustments are significantly lower than IT audit specialist when less-than-diagnostic evidence is present. Thus, specialized domain experience mitigates the influence of less-than-diagnostic evidence. Meanwhile, experience based on rank, does not mitigate the influence of less-than-diagnostic evidence. The implication of my study is that consulting with IT audit specialists while revising plans for material-automated-control weaknesses may improve the likelihood that adequate resources will be allocated to address automated-control weaknesses and reduce the likelihood of audit failure

Can Financial Statement Auditors Identify Risk Patterns in IT Control Evidence?

Anecdotal evidence suggests that audit clients are automating more internal controls over time. Audit firms customarily respond to their clients’ increasing IT (information technology) risks by including more IT audit specialists in their external audit engagements. But, using IT audit specialists on the audit engagement to examine the IT risks that external financial statement auditors can examine may be detrimental in the long-run for audit firms. First, IT audit specialists receive higher compensation than financial statement auditors. So, using IT audit specialists to perform tasks that could be performed by financial statement auditors may increase audit costs and decrease audit firms’ profits. Second, using IT audit specialist would deny financial auditors the opportunity to gain the procedural-knowledge required to evaluate automated portions of Internal Control Over Financial Reporting (ICFR). This paper investigates whether financial statement auditors can interpret risk patterns in automated-control evidence. I find that financial statement auditors with procedural-knowledge of automated-controls interpret risk patterns in automated-control evidence, whereas financial statement auditors with no procedural-knowledge of automated-controls do not. My results suggest that audit firms may benefit by allowing their financial statement auditors to gain procedural knowledge of automated-control evidence

Do Auditors Adjust Their Audit Plans Accordingly When They Encounter Material Automated Control Weaknesses?

Automated control weaknesses are associated with defects in computer hardware or computer applications. AU 319 does not require auditors to add professionals with specialized skills in automated controls (or IT audit specialists) to the audit engagement. Auditors may encounter a material automated control weakness and adjust their audit plan without the assistance of an IT audit specialist. Thus, auditors may not adjust their audit plan enough to gain an understanding of the material automated control weakness. This is an important problem for auditors because this problem may result in misstated financial statements and incorrect internal control opinions if auditors fail to effectively examine automated control weaknesses. I conduct an experiment where Big Four auditors and IT audit specialists make audit planning adjustments. Results suggest that auditors’ audit plan adjustments are influenced by non-diagnostic evidence. Results also suggest auditors do not adjust their audit plans for material automated control weaknesses as they much as they do for material manual process evidence. Finally, auditors do not adjust their audit plans for automated control weaknesses as much as IT audit specialists’ adjust their audit plans for automated control weaknesses

The Effect of Audit Committee Independence on the Distribution of Earnings Levels and Changes

This study investigates whether audit committee independence affects the distribution of earnings levels and changes. We compare the distribution of earnings levels and changes of firms with majority independent audit committees to those of firms with minority independent audit committees. We use the distribution of earnings between the two types of firms to examine whether the high frequency of small earnings increases (and/or profits) relative to small earnings decreases (and/or losses) reported by public firms will be attenuated by the existence of the independent audit committee. We expect that audit committee independence effectively monitors management\u27s discretionary behavior so that firms with majority independent audit committees have smoother earning distributions around zero than firms with minority independent audit committees. Consistent with this expectation, we find that relative to firms with majority independent audit committees, firms with minority independent audit committees (1) report fewer small earnings declines (and/or losses), and (2) report more small earnings increases (and/or profits). These results suggest that the asymmetric pattern of more small earnings increases (and/or profits) than decreases (and/or losses), first documented by Burgstahler and Dichev (1997), can be attributed to earnings management, and the discontinuity of earnings around zero can be attenuated by effective monitoring by an independent audit committee

Will It be a Tough Year?

While there may be some glimmers of hope about a turnaround to the U.S. economy, such as decreasing unemployment, Virginia CPAs aren\u27t betting on a huge recovery in the next year. The second annual VSCPA Economic Outlook Survey reveals Virginia CPAs are more pessimistic about the United States and Virginia economies than they were last year, but they are actually more optimistic about Virginia\u27s economy compared to the United States as a whole. Likewise, VSCPA members continue to feel good about the economic outlook in Virginia relative to neighboring states

Releasing Information in XBRL: Does It Improve Information Asymmetry for Early U.S. Adopters?

Information released in XBRL is intended to improve the quality and accessibility of SEC filings, leading to less information asymmetry in the equity market. Research findings on the effects of XBRL on information asymmetry in the US., however, are mixed. Kim et al. (2012) reports that XBRL reduces information asymmetry while Blankespoor et al. (2012) reports that XBRL increases information asymmetry. In contrast to these prior studies, we report that the answer as to whether XBRL affects information asymmetry is matter of firm size. In this study we examine shifts in two measures of information asymmetry for early adopters of XBRL in the US. Specifically, we find that the bid-ask spreads of early XBRL adopters significantly decrease after they adopt XBRL; yet, we find no overall change in trading volume associated with XBRL filings for early adopters. However, when examining the larger early adopting firms, we find evidence of reduced information asymmetry (bid-ask spreads significantly decrease and trading volume significantly increase). Our results generally support the SEC requirement of XBRL formatted financial information on the grounds that it may reduce information asymmetry of large filers in the US. equity market

Boundedness of Spacecraft Hovering Under Dead-Band Control in Time-Invariant Systems

Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/76297/1/AIAA-20179-984.pd