The ability to develop bots to automate tasks and processes using robotic process automation (RPA) is receiving significant attention in accounting. Auditors often struggle to know what tasks to automate and how to prioritize bot development. Drawing upon socio‐technical systems (STS) theory and using a design science methodology, we develop and validate a three‐step evaluation framework to assist auditors as they decide what activities to automate. We validate this framework using interviews, surveys of experienced internal and external auditors, and two case studies. By developing and validating our framework through the lens of STS theory, we also provide several insights that help explain the mixed findings in prior research regarding the effectiveness and adoption of emerging technologies in audit. The implications of our study yield many opportunities for future research in the areas of RPA and emerging technologies in audit.

Regulation requires auditors to raise significant audit issues and concerns to the attention of audit engagement leadership and requires leadership to encourage such communication. This research demonstrates, using an experiment and a survey, that audit team members' willingness to speak up about such issues is associated with their intrinsic motivational orientation. Based on this result, we test whether audit leadership can leverage this relationship to increase speaking up, particularly when audit issues are more ambiguous, by emphasizing intrinsic goals. Results across three additional experiments indicate that auditors whose leaders emphasize intrinsic goals, whether directly or through tone at the top and firm culture, are more likely to speak up than are other auditors. We also find that auditors are more likely to speak up when an audit issue is less versus more ambiguous. We conclude that leadership can fulfill their obligation to encourage upward communication by emphasizing intrinsic versus extrinsic goals, regardless of the level of ambiguity surrounding the audit issue.

This study examines the effect of capitalizing acquired in‐process research and development (IPR&D) on information asymmetry under Statement of Financial Accounting Standards No. 141 (R) (SFAS 141R). SFAS 141R requires acquirers to fully recognize IPR&D at fair value as an indefinite‐lived intangible asset until completion or discontinuation of the project. Prior research suggests IPR&D capitalization will result in an improvement in the information environment. In contrast, we find no evidence that capitalizing IPR&D improved the information environment for IPR&D acquirers. Instead, most of our results suggest no significant change in information asymmetry for IPR&D acquirers during the post‐SFAS 141R period, relative to the concurrent changes for non‐IPR&D acquirers. In cases in which the results suggest a statistically significant increase, the economic magnitudes are relatively small. In addition, we find no evidence that IPR&D acquirers engaged in increased classification shifting between IPR&D and goodwill during the post‐SFAS 141R period, as critics of capitalization had feared.

In this paper, we first develop a model in which national legal environments play a crucial role in determining auditor effort and audit fees. Our model predicts that: (1) audit fees increase monotonically with the strength or strictness of a country’s legal liability regime; (2) given a legal liability regime, Big 4 auditors charge higher audit fees than non-Big 4 auditors; and (3) the Big 4 fee premium decreases as a country’s legal regime shifts from a weak to a strong regime. We then test the model’s predictions using a large sample of audit clients from 15 countries with different legal regimes where audit fee data are publicly available. The results of our cross-country regressions strongly support the above three predictions, and are robust to a variety of sensitivity checks. Furthermore, we find that the effects of a legal regime on audit pricing and the Big 4 premium are more salient for the small client segment than for the large client segment. Overall, our regression results indicate that a country’s legal environment plays an important role in determining both audit fees and the fee spread between Big 4 and non-Big 4 auditors.

As audit technology becomes more widespread, practice and academia are raising concerns about the costs and benefits of these technologies. We examine how internal auditors use technology‐based audit techniques (TBATs) and how TBATs impact the efficiency and effectiveness of their audits. We use two surveys and interviews of individual auditors and chief audit executives (CAE) to examine their perceptions of TBATs. Auditors perceive TBATs as beneficial. Specifically, an increase in the use of TBATs is associated with completing more audits, finding more risk factors, providing more recommendations, and decreasing audit days. However, CAEs also perceive TBATs to be costly. An increase in the use of TBATs is associated with an increase in the size of the internal audit function. Finally, interviews with CAEs suggest that TBATs are not used more often because of difficulties in quantifying their benefits, observing their benefits in a timely manner, and hiring auditors with appropriate skills. Overall, TBATs stand to increase the efficiency and effectiveness of audit tasks, but auditors struggle to quantify their net cost‐benefit tradeoff. Our findings validate the issues raised by both proponents and opponents of audit technologies and help provide empirical data to inform their decision‐making process regarding the future of these tools. Additionally, our study prompts several avenues for future research that can help inform regulators, practitioners, and researchers on how these technologies are impacting the auditing profession.

Recent accounting research indicates that capital markets price firms' greenhouse gas (GHG) emissions and that disclosed emissions levels are negatively associated with firms' market values. The departure point for this study is to investigate whether investors value firms differently based on the strategies firms use to mitigate GHG emissions. These strategies include making operational changes, which reduces emissions attributable to the firm, and purchasing offsets, which reduces emissions unattributable to the firm. Using an experiment, we hold constant a firm's financial performance, investment in emissions mitigation, and net emissions, and find evidence that nonprofessional investors perceive the firm to be more valuable when it primarily uses an operational change strategy versus an offsets strategy. However, consistent with theory, this result only occurs when the firm's prior sustainability performance is below the industry average and not when it is above the industry average. This difference in firm value is consistent with the notion that nonprofessional investors believe information about a firm's emissions management strategy is material. Supplemental exploratory analyses reveal that our results are mediated by investors' perception that an operational change strategy is more socially and environmentally responsible than an offsets strategy for below industry average firms. Implications for our findings on theory and practice are discussed.

We examine whether the presence of female directors and female audit committee members affect audit quality in terms of audit effort and auditor choice by using observations from a sample of U.S. firms, spanning the years 2001–2011. We find, after controlling for endogeneity and other board, firm, and industry characteristics, that firms with gender‐diverse boards (audit committees) pay 6 percent (8 percent) higher audit fees and are 6 percent (7 percent) more likely to choose specialist auditors compared to all‐male boards (audit committees). Our findings suggest that boards (audit committees) with female directors (members) are likely to demand higher audit quality, ceteris paribus.

This paper examines the relations between three board characteristics (independence, diligence, and expertise) and Big 6 audit fees for Fortune 1000 companies. To protect its reputation capital, avoid legal liability, and promote shareholder interests, a more independent, diligent, and expert board may demand differentially higher audit quality (greater assurance, which requires more audit work) than the Big 6 audit firms normally provide. The audit fee increases as the auditor's additional costs are passed on to the client, such that we expect positive relations between audit fees and the board characteristics examined. We find significant positive relations between audit fees and board independence, diligence, and expertise. The results persist when similar measures of audit committee “quality” are included in the model. The results add to the growing body of literature documenting relations between corporate governance mechanisms and various facets of the financial reporting and audit processes, as well as to our understanding of the determinants of audit fees.

In this paper, we embed the double entry accounting structure in a simple belief revision (estimation) problem. We ask the following question: Presented with a set of financial statements (and priors), what is the reader's “best guess” of the underlying transactions that generated these statements? Two properties of accounting information facilitate a particularly simple closed form solution to this estimation problem. First, accounting information is the outcome of a linear aggregation process. Second, the aggregation rule is double entry.

Customer referencing is a strategy that firms can use to disclose their connections with reputable customers as a means of enhancing their own reputations. We study the capital market benefits of naming reputable nonmajor customers in firms' financial reports to provide empirical evidence on whether this form of customer referencing has important practical implications. We predict and find that firms enjoy a lower cost of equity when they engage in customer referencing in their financial reports, consistent with the argument that this form of voluntary disclosure increases investor attention and customer certification. In cross‐sectional analyses, we predict and find that the benefits of customer referencing are more pronounced for firms that (1) lack major customers or reputable major customers, (2) name customers whose reputations exceed their own, and (3) face higher competition. Overall, our study provides evidence that communicating certain interorganizational connections can generate capital market benefits for disclosing firms.