Auditors are required to understand dynamic business environments as part of the performance of analytical procedures. Prior evidence, though, suggests that auditors have difficulty understanding such environments. This study reports an experimental investigation of techniques that help auditors to identify incorrect management representations by developing expectations that are both accurate and adaptive to changing business conditions. My predictions suggest that analyzing a dynamic client environment through a systems perspective enhances information-processing ability, which then improves both evidence discrimination and the assimilation of new audit evidence. Results reveal that participants taking a holistic systems-based view of a client environment develop more coherently organized mental models that increase their likelihood of identifying management representations that are inconsistent with industry evidence. Furthermore, these participants more efficiently use their information-processing ability, thereby improving assimilation of newly learned evidence to understand how changing business conditions affect their initial expectations.

This article cites a study which assesses the effect of the separation of ownership from control on accounting policy decisions. Many theories of management behavior in manager firms consistently argue that a gradually rising performance measure is in management's best interest. This study is an empirical investigation of the accounting policy decisions which were made by 110 firms during the 9-year period between 1954-1962. The firms considered for inclusion in this study were listed on the New York Stock Exchange in December 1954, as reported in the U.S. Senate Staff Report. Fifty-seven managers and fifty-three owner firms were selected randomly from this population for inclusion in this study. In this study, control refers to the power to direct the affairs of the corporation or to determine the broad policies guiding the corporation. Results of this study extend the research previously reported in the accounting literature by empirically drawing the distinction between owner-controlled firms and manager-controlled firms for the first time. Some of the results lend empirical evidence to the importance of distinguishing between owner and manager control.

manuscripts in process at the beginning of the year, plus new submissions, plus resubmissions).In general, this number has grown along with the increase in submissions.Column (e) of Table 1 reports the number of decision letters issued each year. 2 Commensurate with the increase in new submissions during 2018 reported in column (b) and the modest decrease in resubmissions reported in column (c), column (e) shows that the number of decision letters grew by 5.5% in 2018, from 1,113 to 1,174.Thus, driven by the growth in submissions in recent years, the number of submission letters by TAR editors also is at historically high levels.

This study examines the trade-offs that an entrepreneur makes in an initial public stock offering (IPO) between the incremental costs and benefits of selecting a Big 6 audit firm. The benefit of hiring a Big 6 auditor is assumed to be reduced underpricing, consistent with Beatty (1989) and Balvers et al. (1988). The cost of hiring a Big 6 auditor is higher auditor compensation. Evidence drawn from a sample of lPOs during the early 1990's is consistent with a differentiated market for audit services where owners select the type of auditor that minimizes the sum of underpricing and auditor compensation costs.

This paper presents a model that relates properties of the analysts' information environment of the properties of their forecasts. First, we express forecast dispersion and error in the mean forecast in terms of analyst uncertainty and consensus (that is, the degree to which analysts share a common belief). Second, were reserve the relations to show how uncertainability and consensus cab be measured by combining forecast dispersion, error in the mean forecast, and the number of forecasts. Third, we show that the quality of common and private information available to analysts can be measured using these same observable variables. The relations we present are intuitive and easily applied in empirical studies.

The current study examines the outcomes of three fraud brainstorming procedures—nominal group, round robin, and open discussion—via a randomized between-participant field experiment involving 150 audit clients and 2,614 auditors who participated in natural, hierarchical audit teams. The results indicate that nominal group and round robin brainstorming resulted in equivalent numbers of unique fraud risks and comparable increases in planned audit hours, while open discussion brainstorming yielded the least number of unique ideas and the smallest increase in planned audit hours. Furthermore, nominal group and round robin brainstorming yielded more changes/additions to the nature and timing of substantive testing than open discussion brainstorming. Study findings offer theoretical and practical insight into fraud brainstorming.

This study examines whether certain types of financial reporting fraud result in a higher likelihood of litigation against independent auditors. We expect that auditors are more likely to be judged responsible for failing to detect commonly occurring frauds of those that stem from fictitious transactions. We examine companies with SEC Accounting and Auditing Enforcement Releases and designate whether each fraud present in their financial statements in common and/ or arises from fictitious transactions. We then examine whether these types of fraud are related to auditor litigation in analyses that control for various client, auditor and case characteristics. Our results provide some support for our two primary hypotheses - auditors are more likely to be sued when the financial statement frauds are of a common variety or when the frauds arise from fictitious transactions.

Examines the effectiveness of two types of decision aids designed to alleviate the effects of one type of task-knowledge mismatch on auditors' judgments. Organization of audit planning tasks; Content and organization of auditors' knowledge; Specific processing problems caused by mismatch between task organization and knowledge organization.

Evidence evaluation in accounting often involves both the assessment of evidence relevance and the combination of its relevance and source to assess overall strength. We decompose this strength-assessment judgment into its components—relevance assessment and source and relevance combination—and consider the effects of experience. Participants in our experiment assess the strength and relevance of tax authorities in relation to a client scenario. Contrary to prior research, we find that more-experienced participants exhibit greater use of analogical reasoning when evaluating tax-authority relevance than do less-experienced participants. We find a similar experience effect in the use of configural information processing to combine authority source and relevance, a judgment not previously considered in tax. The effects of experience are particularly important in the current environment as the tax function is a leading cause of material weaknesses and restatements under Sarbanes-Oxley and tax executives cite increasing difficulty in hiring and retaining qualified professionals. Data Availability: Data are available from the authors on request.

This paper reports the results of experiments designed to examine whether investor selection of auditors enhances auditor independence. The experimental design enables us to explore the effect on independence of different institutional rules as to who hires and fires auditors and to directly measure independence violations. The results suggest that transferring the power to hire and fire the auditor from managers to investors significantly decreases the proportion of independence violations. Additional analysis suggests that a reduction in independence violations increases the overall economic surplus generated in the markets examined.