Abstract We analyze the impact of press on behavior various economic agents by examining how media exposure board ineffectiveness affects corporate governance, investor trading behavior, and security prices. Our focus quality is motivated strong criticism to which boards America, in general, have been recently subjected. The results indicate that releases (noisy) information significant consequences. In particular, forces targeted take corrective actions enhances shareholder wealth....

ABSTRACT Audit firms are investing billions of dollars to develop artificial intelligence (AI) systems that will help auditors execute challenging tasks (e.g., evaluating complex estimates). Although assume AI enhance audit quality, a growing body research documents individuals often exhibit “algorithm aversion”—the tendency discount computer‐based advice more heavily than human advice, although the is identical otherwise. Therefore, we conduct an experiment examine how algorithm aversion...

ABSTRACT Research documents significant management bias and opportunism around the discretionary inputs of audited complex estimates, including fair value measurements (FVMs), which raises questions about auditors' ability to test these estimates. We examine how degree quantification in client evidence control environment risk influence planned substantive testing management's FVMs. find that auditors allocate a lower proportion effort subjective estimate when level are both high. Further,...

In this study I use an experiment to examine why auditors are more likely issue going–concern opinions when the client has been subject of negative press coverage prior date audit opinion. find no evidence that increases auditors’ perceptions legal liability, as was suggested in literature. do find, however, perception a client's bankruptcy probability and this, turn, leads modify Because presented provides new information, results suggest react too strongly redundant information. This...

ABSTRACT: Auditors often receive summary information or conclusions from management about account balances internal controls. They must then gather evidence to assess whether this is fairly stated. In such situations, can be considered the “first mover” and auditor “second mover.” When auditors are second mover, they vulnerable curse of knowledge bias—the inability ignore previously processed (Fischhoff 1977). Specifically, because could incorrect biased, arrive at an independent evaluation...

SUMMARY We synthesize the literature on auditors' evaluation of, and reporting on, internal control over financial (ICOFR), as required by Sarbanes-Oxley Act. The purpose of synthesis is (1) to provide information how well auditors perform task, which serves feedback Public Company Accounting Oversight Board implementation issues problems related application professional standards ICOFR; (2) identify gaps in current fruitful areas future research. Consistent with Auditing Standard No. 5, we...

SUMMARY We present evidence on the resolution of proposed audit adjustments during a unique time period, immediately following several U.S. financial scandals and surrounding calls for reforms in auditing reporting, which culminated passage Sarbanes-Oxley Act (SOX). During this auditors their clients faced increased scrutiny from investors regulators. In addition, had to contend with changed incentives, new external regulator (i.e., PCAOB), upcoming annual PCAOB inspections. extend prior...

ABSTRACT This essay provides descriptive evidence on the state of under-represented minority (URM) Ph.D. faculty in accounting academy. Despite significant growth URM last 26 years, proportion remains extremely low (below 5 percent). Over 60 percent earn their Ph.D.s at research-intensive institutions, but employment rate these and top-ranked universities, M.B.A. programs low. Although are largely excluded from leadership roles journals, contributions to research par with productivity...

SUMMARY Internal control over financial reporting (ICFR) audits have been the subject of intensive examination by Public Company Accounting Oversight Board (PCAOB) and researchers but process through which auditors make ICFR judgments is largely a “black box.” To understand judgments, we conducted semi-structured interviews with 20 audit partners. Common themes in our suggest that subjectivity inherent evaluation task contributes to resistance against findings cougnterarguments from...

ABSTRACT We investigate the joint effects of auditors' reporting choice and audit committee effectiveness on management disclosures about complex estimates. A new PCAOB standard requires auditors to report Critical Audit Matters (CAMs): issues “communicated or required be communicated committee” accounts that (1) “are material financial statements,” (2) “involved especially challenging, subjective, auditor judgment” (PCAOB 2017a, 11). Consistent with investor arguments, we find more detailed...

We analyze the impact of press on behavior various economic agents by examining how media exposure board ineffectiveness affects corporate governance, investor trading behavior, and security prices. The results suggest that releases (noisy) information have significant consequences. In particular, forces targeted to take corrective actions enhances shareholder wealth. Individual investors appear react negatively whereas investment firms act as if they anticipate firms' actions.

Audit firms are investing billions of dollars to develop artificial intelligence (AI) systems that will help auditors execute challenging tasks (e.g., evaluating complex estimates). Although assume AI enhance audit quality, a growing body research documents individuals often exhibit "algorithm aversion" – the tendency discount computer-based advice more heavily than human advice, although is identical otherwise. Therefore, we conduct an experiment examine how algorithm aversion manifests in...

We analyze interviews with valuation specialists (specialists) employed by audit firms (in the Asia-Pacific region, Europe, and U.S.) to understand how they work auditors evaluate reasonableness of fair value measurements (FVMs) for financial instruments. The rapid growth FVMs complex estimates reported on statements requires that increasingly rely perform these evaluations. Informed coopetition theory from management organizational science, we develop a framework examine tensions in...

Auditors often receive summary information or conclusions from management about account balances internal controls. They must then gather evidence to assess whether this is fairly stated. In such situations, can be considered the first mover and auditor second mover. When auditors are they vulnerable curse of knowledge bias - inability ignore previously processed (Fischhoff 1977). Specifically, because could incorrect biased, arrive at an independent evaluation item in question (e.g. year...

This study investigates how communication complexity (i.e., the presentation of technical information) in expert's advice can impact auditor integration evidence. We document that holding constant information content, readability, and understandability advice, but varying only degree its influences auditors' critical evaluation – a key concern for audit regulators worldwide. After establishing processing evidence is lower when high versus it low, we provide prompting them to take perspective...

This study addresses auditors' role in determining the quality of their client's fair value classification judgments for investment securities under ASC 820. The standard requires companies to classify assets into one three levels (i.e., Level 1, 2, or 3) and there is often significant subjectivity whether a particular security should be classified as 2 3. We examine how auditors react management's preferred that pre-test indicates could reasonably either test experienced respond skeptically...

SUMMARY On May 28, 2015 the Public Company Accounting Oversight Board (hereafter, Board) issued Staff Consultation Paper No. 2015-01 Paper) to seek information and input on potential need improve standards related auditor's use of work specialists. The requested from investors, accounting firms, specialists, companies, others (such as academics) about (1) current practices, (2) for changes, (3) possible alternative regulatory approaches, any associated economic implications, improvement in...

We synthesize the literature on auditors' evaluation of, and reporting on, internal control over financial (ICOFR), as required by Sarbanes-Oxley Act. The purpose of synthesis is (1) to provide information how well auditors perform task, which serves feedback Public Company Accounting Oversight Board implementation issues problems related application professional standards ICOFR; (2) identify gaps in current fruitful areas future research. Consistent with Auditing Standard No. 5, we...

SUMMARY Recently, the Public Companies Accounting Oversight Board (PCAOB) solicited public comments on its Staff Consultation Paper Auditing Estimates and Fair Value Measurements. This commentary summarizes contributors' views various questions asked in PCAOB Paper. Our submitted to appear below. Data Availability: The invitation comment (which invited through November 4, 2014), with links consultation paper, is available at: http://pcaobus.org/Standards/Pages/SCP _ Fair_Value.aspx

Research documents significant management bias and opportunism around the discretionary inputs of audited complex estimates, including fair value measurements ("FVMs"), which raises questions about auditors' ability to test these estimates. We examine how degree quantification in client evidence control environment risk influence planned substantive testing management's FVMs. find that auditors allocate a lower proportion effort subjective estimate when level are both high. Further, this...