Do auditor judgment frameworks help in constraining aggressive reporting? Evidence under more precise and less precise accounting standards

Backof, Ann G.; Bamber, E. Michael; Carpenter, Tina

doi:10.1016/j.aos.2016.03.004

Cited by 50 publications

(58 citation statements)

References 28 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…To mitigate these cognitive or motivational biases and enhance the professional skepticism when auditing accounting estimates, recent studies have examined the use of various debiasing strategies. In addition to the efforts targeted at changing auditors' ways of thinking (e.g., Backof, Bamber, & Carpenter, ; Griffith, Hammersley, Kadous, & Young, ; Plumlee, Rixom, & Rosman, ; Rasso, ), another strategy aims to change auditors' motivations. In this latter line of research, a central area of interest is the creation of accountability (e.g., Kennedy, , ), such as through different forms of disclosure or justification requirements.…”

Section: Introductionmentioning

confidence: 99%

Real effects of reporting key audit matters on auditors' judgment and choice of action

Asbahr

Ruhnke

2019

Int J Auditing

View full text Add to dashboard Cite

This experimental study analyzes whether reporting an accounting estimate as a key audit matter (KAM) can influence auditor judgment about the accounting estimate and the corresponding action. We find that skeptical action in the form of proposed adjustment amounts is significantly lower when the accounting estimate is reported as a KAM. Thus, the disclosure of a KAM can serve as a moral license to waive an adjustment. Taking into account that the KAM disclosure does not affect auditors' skeptical judgments in the form of a reasonableness assessment of the accounting estimate, our results indicate the existence of a judgment–action gap. Furthermore, implicit client pressure does not enlarge the moral licensing effect of the KAM disclosure. We also find evidence that audit effort is not affected by reporting a KAM. Overall, our study contributes to the current debate about the audit reporting model by showing that reporting a KAM might have unintended “real effects” on auditors' actions.

show abstract

Section: Introductionmentioning

confidence: 99%

Real effects of reporting key audit matters on auditors' judgment and choice of action

Asbahr

Ruhnke

2019

Int J Auditing

View full text Add to dashboard Cite

show abstract

“…Accounting standards provide the requirements and guidelines for companies' financial reporting and therefore play a key role in auditors' judgments (Backof, Bamber, & Carpenter, 2016;Cohen et al, 2013;Peytcheva et al, 2014). Auditors must be able to make judgments whether clients' transactions comply with accounting standards and discuss or negotiate these matters with management.…”

Section: Principles-based Versus Rules-based Accounting Standards Amentioning

confidence: 99%

Auditors' Response to Different Reporting Environments: Experimental Evidence From the Quantity and Quality of Auditors' Evidence Demands in China

Cao

Coram

2020

Int J Auditing

View full text Add to dashboard Cite

There has been a significant worldwide movement to adopt International Financial Reporting Standards (IFRS), which are more principles-based compared to many of the more rules-based national accounting standards that they replaced. The majority of previous studies focus on how this financial reporting environment change influences earnings quality, while there has been limited research on how auditors respond to IFRS. We perform an experiment using Chinese professional auditors to test the joint effects of the type of accounting standards and the strength of the financial regulatory regime on both the quantity and quality of auditors' evidence demands. We find that auditors are likely to have more evidence demands and, particularly, more diagnostic evidence demands under principles-based accounting standards. This influence is more pronounced under the stronger financial regulatory regime. The effect of the institutional environment on IFRS standards is an important international reporting topic particularly for emerging markets like China where there is strong economic growth with an increased focus on reporting standards and regulation. China is an ideal environment to examine this topic because it is the largest country in the world to adopt IFRS, and many Chinese auditors have experienced both rules-and principles-based accounting standards.

show abstract

“…Backof, Bamber, and Carpenter () investigate how different judgment frameworks affect auditors' constraint of management's aggressive financial reporting under accounting standards that differ in their level of precision. The authors find that judgment frameworks are more effective when accounting standards are less precise.…”

Section: Literature Review By Audit Taskmentioning

confidence: 99%

External Auditors' Judgment and Decision Making: An Audit Process Task Analysis

MacTavish

McCracken

Schmidt

2018

Accounting Perspectives

View full text Add to dashboard Cite

This manuscript reviews the external auditor judgment and decision making (JDM) literature from the past decade by specific tasks in the auditing process. Decomposing the literature review by audit task was chosen to enable audit and behavioral researchers and graduate students to identify the trends of JDM research subsequent to Nelson and Tan's (2005) literature review. In addition to identifying gaps/omissions in the current literature, suggestions for future research are also advanced based on forthcoming transformations in the auditing institutional environment.

show abstract

Do auditor judgment frameworks help in constraining aggressive reporting? Evidence under more precise and less precise accounting standards

Cited by 50 publications

References 28 publications

Real effects of reporting key audit matters on auditors' judgment and choice of action

Real effects of reporting key audit matters on auditors' judgment and choice of action

Auditors' Response to Different Reporting Environments: Experimental Evidence From the Quantity and Quality of Auditors' Evidence Demands in China

External Auditors' Judgment and Decision Making: An Audit Process Task Analysis

Contact Info

Product

Resources

About