The value of audit services is determined by an auditor's ability to both (1) discover misstatements in the client's accounting system and (2) report those misstatements (DeAngelo [1981a, 1981b]). Audit adjustments reflect the auditor's discovery of a potential breach in the client's accounting system. The decision to waive an audit adjustment is important, since it can potentially lead to misleading financial statements. Waiving an adjustments) may also result in litigation and loss of auditor reputation. Despite its importance, we have very little empirical evidence on the decision to waive an adjustment. The purpose of this study is to initiate an understanding of the importance placed by auditors on a number of factors noted in the literature in determining whether a proposed audit adjustment is waived. The study reported here utilizes archival data gathered from actual audit engagements to examine variables that may explain the decision to waive an audit adjustment. The findings reveal that in addition to materiality, a number of factors appear to be considered, including directional impact on income, the nature of the adjustment (objective versus subjective), and size of the client. Finally, a number of adjustments exceeding materiality were waived, highlighting the need for future research to more fully understand factors affecting this important decision and to ensure that business decisions (e.g., client pressures) do not overly influence the auditor.

Enterprise Resource Planning (ERP) systems inherently present unique risks due to tightly linked interdependencies of business processes, relational databases, and process reengineering. Knowledge of such risks is important in planning and conducting assurance engagements of the reliability of these complex computer systems. Yet, there is little empirical evidence on this issue. To examine this topic, a semi-structured interview study was conducted with 30 experienced information systems auditors (from 3 of the Big 5 firms) who specialize in assessing risks for ERP systems. This approach allowed us to obtain detailed information about participants' views and client experiences. The results indicate that the implementation process of ERP systems has an important impact on system reliability. Further, interviewees identified a number of common implementation problems (e.g., improperly trained personnel and inadequate process reengineering efforts) that result in heightened risks. Interviewees also reported that ongoing risks differ across applications and across vendor packages. Finally, in providing assurance on ERP systems participants overwhelmingly indicate a focus on testing the process rather than system output.

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Negotiations are a pervasive feature of the audit process (e.g., the resolution of proposed audit adjustments and disclosures). The results of such negotiations are of great importance to the capital markets, the client, and the auditor. The purpose of this study is to examine the effectiveness of three promising, pragmatic intervention methods for enhancing auditor negotiation performance: a role-playing intervention—assuming the client's position in a mock negotiation; a passive intervention—explicitly considering the client's interests and options; and a practice intervention—engaging in a mock negotiation prior to the client negotiation. We posit that the role-playing intervention will improve negotiation results, because this approach requires direct experience in considering and arguing the client's position and more cognitive effort in obtaining an understanding of the counterpart's position, a critical factor identified in the negotiation literature for successful performance. Forty-five audit managers and partners were provided a realistic case based on an actual scenario involving the potential writedown of inventory due to obsolescence. Participants were randomly assigned to one of three groups (role-playing, passive, or practice) and asked to negotiate the issue with a confederate playing the role of the CFO. Auditor conservatism and a large actual subsequent writedown suggest that a significant adjustment is warranted. The results indicate that the role-playing intervention method led to an enhanced negotiation outcome (greater writedown) compared to the passive and practice groups. Process improvements on a number of dimensions were also found, particularly for the role-playing group compared to the practice group.

The first objective of the current study is to examine the extent to which financial auditors recognize heightened risks associated with an enterprise resource planning (ERP) system, as compared to a non-ERP (legacy) system, in the presence of a control weakness over access privileges. The second objective is to assess the propensity of financial auditors to consult with information technology (IT) audit specialists within their firm when assessing ERP and non-ERP system risks during the planning stage of an audit. One hundred sixty-five auditors participated in an experiment in which we manipulated system type (ERP versus non-ERP) and measured auditor type (IT audit specialists versus financial auditors). Both auditor types indicate significantly higher business interruption, process interdependency, and overall control risks with the ERP, as compared to the non-ERP, system. Additionally, while IT audit specialists assess significantly higher network, database, and application security risks with the ERP system, financial audits do not recognize higher security risks in these areas. Perceived risk differentials from the non-ERP to the ERP system across all risk categories are significantly greater for IT audit specialists than financial auditors. Finally, financial auditors do not indicate a greater need to consult with IT audit specialists when auditing an ERP versus a non-ERP system and they are equally highly confident in the ability of financial audit teams to assess risks in both computing environments. Overall, evidence from this study suggests that financial auditors may be overconfident in their ability to assess ERP system risks. : 20-24. Wright. A. 1988. The impact of prior working papers on auditor evidential planning judgments. Accounting, Organizations and Society 13 (6): 595-606. Wright, S., and A. Wright. 1997. The effect of industry experience on hypothesis generation and audit planning decisions. Behavioral Research in Accounting (9): 273-294. ---, and ---. 2002. Information system assurance for enterprise resource planning systems: Unique risk considerations. Journal of Information Systems 16 (Supplement): 99-113.