Hyeesoo (Sally) Chung, Sudha Krishnan, John Lauck and Jinyoung Wynn
This paper aims to investigate whether the stock market reacts to presentation options available to auditors under AS 2 (providing separate financial statement audit and internal…
Abstract
Purpose
This paper aims to investigate whether the stock market reacts to presentation options available to auditors under AS 2 (providing separate financial statement audit and internal control over financial reporting [ICOFR] audit reports, or presenting a combined report with both audit opinions).
Design/methodology/approach
Drawing on psychology theory, the authors hypothesize that presenting material weaknesses in ICOFR with an unqualified financial statement audit in a combined report effectively dilutes the weight placed on the material weaknesses perceived by investors. The authors further hypothesize the presentation format effect to vary by type of material weaknesses since some material weaknesses are considered more serious than others. The authors examine ICOFR and audit reporting and cumulative abnormal return data from 2007 to 2017 using two-stage least squares regression analysis.
Findings
The results show that a combined report of ineffective ICOFR and unqualified financial statement audit reduces the negative impact of material weakness disclosures on stock price reactions, but only when the weaknesses involve more serious entity-wide controls, as opposed to controls over specific accounts.
Practical implications
The findings help inform preparers, auditors, regulators and investors about the potentially unintended consequences of reporting format choice.
Originality/value
The findings contribute to the literature on internal control disclosures by demonstrating that market reactions to these disclosures depend not only on the types of material weaknesses disclosed but also on their presentation format.
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David N. Herda, James J. Lavelle, John R. Lauck, Randall F. Young, Stuart M. Smith and Chaoping Li
Prior research finds that auditors can be distinctively committed to multiple workplace targets (e.g., their audit firm, supervisors, profession, and clients). This study…
Abstract
Prior research finds that auditors can be distinctively committed to multiple workplace targets (e.g., their audit firm, supervisors, profession, and clients). This study investigates an underexamined target of auditor commitment – engagement teams. Given that these teams are responsible for performing key audit tasks for clients and external stakeholders, we argue that auditors' commitment to their team can affect auditor behavior. Using a sample of 121 auditors, our results indicate that quality social exchange relationships between individual auditors and their engagement teams, activated by perceptions of team fairness, and reciprocated with team commitment, are associated with beneficial group-oriented behavior. Specifically, we posit and find that perceived team fairness predicts perceived team support, perceived team support predicts team commitment, and team commitment predicts citizenship behavior directed toward the engagement team (e.g., helping the team by taking on extra responsibilities during an audit). We also find that the social exchange proxies of perceived team support and team commitment sequentially mediate the positive effect of perceived team fairness on team citizenship behavior, and that team commitment is a stronger predictor of team citizenship behavior than auditors' commitment to their firm.
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Nathan Robert Berglund and John Daniel Eshleman
The purpose of this study is to examine the role of ethnic similarity in the audit partner–client manager relationship and its impact on auditor selection and retention decisions.
Abstract
Purpose
The purpose of this study is to examine the role of ethnic similarity in the audit partner–client manager relationship and its impact on auditor selection and retention decisions.
Design/methodology/approach
The authors use name matching analysis to infer ethnicity of audit partners and client managers in the US nonprofit reporting environment. The authors examine the degree of ethnic similarity (co-ethnicity) between the two parties and model auditor selection and retention decisions as a function of co-ethnicity. The authors also model reporting attributes as a function of co-ethnicity.
Findings
The authors find that the ethnic similarity between the client manager and their external audit partner is a significant determinant of auditor-client alignment. Specifically, the authors find that clients are more likely to select and retain an audit partner who is ethnically similar to the client manager. The authors find that co-ethnicity is associated with a lowered propensity to issue a going concern opinion to a financially distressed client and an increased occurrence of underreporting of fundraising and administrative expenses.
Research limitations/implications
Taken together, the evidence suggests that ethnic diversity (the opposite of co-ethnicity) in the auditor-client relationship is associated with higher audit quality. These findings are relevant to client managers, audit committees and public accounting firms as they make auditor selection and reporting decisions.
Originality/value
Prior studies have found that co-ethnicity influences the formation and future success of various business partnerships. The auditor-client relationship is a unique setting within the business environment where the two parties must balance their desire to maintain a close relationship with their need to maintain independence. The study is the first to examine the role of ethnicity in the auditor-client relationship.
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Charles R. McCann and Vibha Kapuria-Foreman
Robert Franklin Hoxie was of the first generation of University of Chicago economists, a figure of significance in his own time. He is often heralded as the first of the…
Abstract
Robert Franklin Hoxie was of the first generation of University of Chicago economists, a figure of significance in his own time. He is often heralded as the first of the Institutional economists and the impetus behind the field of labor economics. Yet today, his contributions appear as mere footnotes in the history of economic thought, when mentioned at all, despite the fact that in his professional and popular writings he tackled some of the most pressing problems of the day. The topics upon which he focused included bimetallism, price theory, methodology, the economics profession, socialism, syndicalism, scientific management, and trade unionism, the last being the field with which he is most closely associated. His work attracted the notice of some of the most famous economists of his time, including Frank Fetter, J. Laurence Laughlin, Thorstein Veblen, and John R. Commons. For all the promise, his suicide at the age of 48 ended what could have been a storied career. This paper is an attempt to resurrect Hoxie through a review of his life and work, placing him within the social and intellectual milieux of his time.
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Chester Whitney Wright (1879–1966) received his A.B. in 1901, A.M. in 1902 and Ph.D. in 1906, all from Harvard University. After teaching at Cornell University during 1906–1907…
Abstract
Chester Whitney Wright (1879–1966) received his A.B. in 1901, A.M. in 1902 and Ph.D. in 1906, all from Harvard University. After teaching at Cornell University during 1906–1907, he taught at the University of Chicago from 1907 to 1944. Wright was the author of Economic History of the United States (1941, 1949); editor of Economic Problems of War and Its Aftermath (1942), to which he contributed a chapter on economic lessons from previous wars, and other chapters were authored by John U. Nef (war and the early industrial revolution) and by Frank H. Knight (the war and the crisis of individualism); and co-editor of Materials for the Study of Elementary Economics (1913). Wright’s Wool-Growing and the Tariff received the David Ames Wells Prize for 1907–1908, and was volume 5 in the Harvard Economic Studies. I am indebted to Holly Flynn for assistance in preparing Wright’s biography and in tracking down incomplete references; to Marianne Johnson in preparing many tables and charts; and to F. Taylor Ostrander, as usual, for help in transcribing and proofreading.
The chapter provides a case study of the strategic-level employee involvement (EI) program at a high-performance company, Delta Air Lines. EI at Delta – probably the most…
Abstract
The chapter provides a case study of the strategic-level employee involvement (EI) program at a high-performance company, Delta Air Lines. EI at Delta – probably the most extensive in breadth, depth, and representational structure for nonunion workers at an American company – extends from shop floor to board room. Attention here is on the board component: a group of five peer-selected employees called the Delta Board Council (DBC) which has a nonvoting seat on the board of directors and participates in a wide range of strategic decisions and roles. The chapter discusses why this kind of representational EI group, although widespread up to the 1930s, is now quite rare in the United States. The main part of the chapter focuses on the structure, purpose, and accomplishments of the DBC, presented through a question and answer (Q&A) interview with a founding DBC member. Provided are numerous EI “lessons-learned” and “do’s” and “don’ts” for managers.
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Khanh Nguyen, John Sands and Karen Trimmer
This paper systematically reviewed research on accounting fraud in the non-profit organisation (NPO) sector during 2004–2024 to identify gaps in theory and practice with the aim…
Abstract
Purpose
This paper systematically reviewed research on accounting fraud in the non-profit organisation (NPO) sector during 2004–2024 to identify gaps in theory and practice with the aim of producing a new parsimonious global fraud model.
Design/methodology/approach
This paper utilised a structured literature review methodology.
Findings
We propose a new holistic approach for the NPO sector worldwide, with two foci of “what may contribute to fraud” and “what may prevent fraud”.
Research limitations/implications
The future research agenda for the new holistic approach is provided.
Practical implications
The approach helps donors promote accountability and transparency in the NPO sector worldwide, thereby sustaining the development of this sector.
Originality/value
To the best of the authors’ knowledge, this paper is the first comprehensive worldwide fraud research review, making distinct contributions. Globally, the approach is the first dedicated to the NPO sector, including different stages of fraud occurrence (undetected, suspected, actual/detected and future), and using a multi-disciplinary approach to prevent these stages. The approach is also the first to incorporate individual-level, organisational-level, industry-level and country-level factors into predicting future fraud.
Details
Keywords
- Undetected fraud
- Suspected fraud
- Actual/detected fraud
- Future fraud
- Individual-level
- Organisational-level
- Industry-level
- Country-level factors
- Organisational ethical culture
- Organisational ethics programme
- Organisational internal control
- Non-governmental organisation (NGO)
- Non-profit organisation (NPO)