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Audit Approach (audit + approach)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting100%

Selected Abstracts

An Experimental Investigation of Approaches to Audit Decision Making: An Evaluation Using Systems-Mediated Mental Models,

CONTEMPORARY ACCOUNTING RESEARCH, Issue 2 2005
AMY K. CHOY
Abstract The objective of this research is to articulate a decision-making foundation for the systems audit approach. Under this audit approach, the auditor first gains an understanding of the auditee's economic environment, strategy, and business processes and then forms expectations about its performance and financial reporting. Proponents of this audit approach argue that decision making is enhanced because the knowledge of the system allows the auditor to focus on the most important risks. However, there has not been an explicit framework to explain how systems knowledge can enhance decision making. To provide such a framework, we combine mental model theory with general systems theory to produce a hypothesis we refer to as a systems-mediated mental model hypothesis. We test this hypothesis using experimental economics methods. We find that (1) subjects make systematic errors under the setting without an organizing framework provided by the systems information, and (2) the presence of an organizing framework results in lower reporting errors. Importantly, the organizing framework significantly enhances decision making in the settings where the environment changed. Establishing a decision-making foundation for systems audits can provide an important building block that, in part, can contribute to the development of a more effective and efficient audit technology - an important objective now when audits are facing a credibility crisis. [source]

The Importance of Auditing Topics to Chinese Auditors

INTERNATIONAL JOURNAL OF AUDITING, Issue 2 2001
Ronald A. Davidson
This paper describes the recent history of auditing in China and reports on a survey of Chinese auditors and accounting academics on the importance of a number of auditing topics. We find that Chinese auditors are concerned about their professional responsibilities and legal liabilities, probably resulting from the recent instances of the imposition of severe penalties for breaking the law. We also find that Chinese auditors appear to be more concerned with what we might refer to as the traditional financial audit approach, and are not yet at the stage of using a risk-based audit approach. [source]

The Regulation of Public Company Auditing: Evidence from the Transition to AS5

JOURNAL OF ACCOUNTING RESEARCH, Issue 4 2010
RAJIB DOOGAR
ABSTRACT The replacement of Auditing Standard No. 2 (AS2) by Auditing Standard No. 5 (AS5) creates a natural experiment that sheds light on (1) potential inefficiencies caused by regulatory responses to a political crisis and (2) audit efficiency and effectiveness improvements resulting from the risk-based approach embodied in AS5. We study these effects by examining the impact of AS5 on audit fees. We find that AS5 audit fees are aligned with auditee fraud risk, but not AS2 audit fees. Second, relative to AS2 benchmark levels, AS5 audit fees are, on average, lower for all auditees. Third, relative to AS2 benchmarks, AS5 fees are lower for lower-fraud-risk auditees but greater for higher-fraud-risk auditees. Overall, the evidence is consistent with (1) initial overregulation (via AS2) followed by reform (via AS5) and (2) auditors deploying a risk-based audit approach to obtain both efficiency and potential effectiveness gains in audit production. [source]

Audit Programs and Audit Risk: A Study of Japanese Practice

INTERNATIONAL JOURNAL OF AUDITING, Issue 1 2006
Hironori Fukukawa
The current paradigm in audit practice for evidential planning is the Audit Risk Model. However, the notion of relevant risks has broadened with the adoption in recent years of holistic audit approaches encompassing business and process risks and an increased focus on fraud risks. This study examines whether audit planning is ,risk adjusted' using archival data from 235 clients from a well-established audit firm in Japan. We address all four aspects of audit planning (nature, extent, timing and staffing) and examine a wider variety of client risks than prior archival studies in order to reflect the current holistic audit approaches of global auditing firms. The main results indicate that although audit planning is based on the level of and change in assessments of many audit risk variables, the associations between client risks and audit plans are rather modest. In this respect, our findings are consistent with those from prior research. We also find that client risks that comprise business risk and fraud risk affect audit planning to some extent. Finally, we report exploratory results suggesting a substitution effect between audit planning judgments in response to higher client risks such as increasing the extent of validity tests while decreasing the extent of confirmations. [source]