Managerial Auditing Journal

Behrend, Matthew J.; Pitman, Marshall K.

2022 Managerial Auditing Journal

doi: 10.1108/maj-08-2019-2383

This study aims to investigate the effect of cash versus equity compensation on audit committee decision-making after the Public Companies Oversight Board’s 2007 censure of Deloitte.Design/methodology/approachUsing a sample of 2,588 firms, this paper uses two different compensation measurements to empirically examine the effect of audit committee compensation on decision-making.FindingsThe authors find that audit committee compensation effects the post-censure decision-making of Deloitte’s clients. The results support the hypothesis that cash compensation paid to audit committees influences audit committee members to retain their auditors post-censure. Additionally, there is some evidence to support the hypothesis that equity compensation increases the propensity to switch auditors post-censure.Practical implicationsThis study will be of interest to regulators, policymakers and researchers as it provides further evidence in the area of audit committee decision-making and the effect of cash and stock compensation paid to audit committee members.Originality/valueThis study provides empirical evidence of the association between audit committee compensation and audit committee decision-making by investigating the effect of cash-based compensation and stock-based compensation on audit committee decision-making.

Vagner, Brandon; Blix, Leslie Helen; Ortegren, Marc; Sorensen, Kate

2022 Managerial Auditing Journal

doi: 10.1108/maj-09-2020-2845

The purpose of this paper is to explore how firms can enhance feedback systems by studying the effects of offering junior auditors an opportunity to provide upward feedback and acknowledging their voice has been heard and will be considered for evaluation purposes.Design/methodology/approachThis study uses a 2 × 1 + 1 (voice confirmation × opportunity + no opportunity) between-subjects experimental design that manipulated upward feedback opportunity (i.e., opportunity or no opportunity) and voice confirmation for those that do receive upward feedback opportunity (i.e., receive indication upward feedback was heard and will be considered or receive no indication upward feedback was heard). Within the no upward feedback opportunity condition participants did not have a chance to receive voice confirmation.FindingsThrough analysis of 117 upper-division undergraduate accounting students, the authors find the receipt of upward feedback opportunity and voice confirmation positively influence justice perceptions. Furthermore, the authors find interactional justice is positively associated with organizational citizenship behaviors (OCB), negatively associated with counterproductive work behaviors (CWB) and mediates the association between upward feedback voice confirmation and both OCB and CWB through indirect-only mediation. The authors also find distributive justice facilitates competitive and indirect-only mediation between upward feedback opportunity and OCB and CWB.Originality/valueThis is the first study to examine the influence of giving staff auditors the opportunity to provide upward feedback and informing upward feedback providers (e.g., staff) their voice has been heard and will be considered for evaluation purposes.

Ho, Nam

2022 Managerial Auditing Journal

doi: 10.1108/maj-11-2020-2910

Fears over public accounting becoming increasingly concentrated have inspired several attempts to study the relationship between competition and audit quality. These studies have yielded conflicting results without a clear reason as to why. This paper aims to propose a new approach and empirically demonstrate a non-monotonic association between competition and audit quality.Design/methodology/approachUsing metropolitan statistical area level data from the USA over the period of 2000–2014, the author shows that the effect that changes in the competition will have on audit quality depends upon the current competitive state of the market.FindingsAudit quality is at its highest level when competition is neither too high nor too low. In addition, the point of inflection at which competition turns from being helpful to harmful is influenced by the saturation of the Big 4 auditors in the market.Practical implicationsThese findings can help explain the mixed results of the literature and provide insight into the role that regulators can play in modulating competition.Originality/valueThis is the first paper to document a non-monotonic relationship between competition and audit quality. By introducing and exploring the validity of a non-monotonic component in the audit quality equation, the authors can better determine, which competitive structures generate desired levels of audit quality.

Ghafoor, Zeshan; Ahmed, Irfan; Hassan, Arshad

2022 Managerial Auditing Journal

doi: 10.1108/maj-12-2020-2942

This study aims to examine the impact of audit committee (AC) characteristics and enterprise risk management (ERM) on stock price synchronicity (SYNCH).Design/methodology/approachBased on a sample of 437 US-based firms over the period 2010 to 2017, the current study uses fixed-effect and ordinary least square to test the formulated hypotheses. Majority of the sample firms are based on the S&P 500 index. This study also performs a battery of robustness checks.FindingsThe authors find that overall female members and female financial experts and female chairpersons of the AC are negatively associated with SYNCH. Similarly, the study endorses the monitoring role of financial experts and the diligence of the AC (threshold of four annual meetings), as both are negatively associated with SYNCH. However, the authors find that the AC chaired by the financial expert is also negative but insignificantly associated with SYNCH. Finally, the study finds that ERM is also negatively linked with SYNCH.Practical implicationsThe findings of the current study offer some important policy implications. For instance, the shareholders can benefit from the monitoring abilities of women and financial experts by increasing their ratio in the AC. The study also offers some useful insights regarding the financial experts and chair of the AC and ERM.Originality/valueThe current study examines the association of AC characteristics with SYNCH, while the prior literature only assesses the impact of various board characteristics (such as size, independence and gender diversity). The study also contributes to the literature of ERM by providing new insights on the influence of the presence of ERM framework/program on SYNCH.

Alzeban, Abdulaziz

2022 Managerial Auditing Journal

doi: 10.1108/maj-02-2021-3012

This study aims to advance the discussion on internal audit (IA) findings by empirically investigating the relationship between chief executive officer (CEO) characteristics and the IA function, particularly IA findings and implementing IA recommendations and examining whether CEO and management support for IA moderate the effect of the recommendations on corporate performance.Design/methodology/approachData were gathered from two sources. A survey was conducted, directed at 217 heads of internal audit (HIAs) in listed companies on the Bursa Malaysia, and the annual reports of these companies for the period of 2018–2019 were consulted. A second survey was directed at audit committee chairs to obtain a perspective from other parties.FindingsThe results indicate that although CEO characteristics are not significantly associated with the number of IA findings, only CEO experience has a significant relationship with the level of the implementation of IA recommendations. The study also demonstrates that management support for IA is positively associated with corporate performance. Further, CEO experience and management support for IA increase the effects of the level to which those recommendations are implemented on corporate performance. However, the effect of management support on corporate performance is eliminated when it interacts with the involvement of CEOs in the HIA appointment and when these HIAs report directly to CEOs.Practical implicationsThese outcomes provide implications for policymakers, regulators and researchers. Malaysia’s regulatory authorities, as well as those in other countries, particularly emerging markets where the institutional and cultural environments have similar characteristics, could consider the evidence of the relationship between the CEO’s financial background, management support for IA and IA recommendations when guiding companies about the mechanisms for appointing HIAs. Simultaneously, the results obtained could be useful when auditors are involved in risk assessment and rely on IA recommendations.Originality/valueThis study adds to the literature on the significant relationship between CEO characteristics (particularly CEO experience) and the level of implementing IA recommendations. It advances the research efforts on management support for IA by providing empirical evidence of how such support fosters a greater role for IA in improving corporate performance, as well as moderates the effect of IA in that endeavour. Further, the present study contributes to the developing literature on determinants of corporate performance by considering how these variables perform in the Malaysian setting.

Ho, Shuk Ying; Phang, Soon-Yeow; Moroney, Robyn

2022 Managerial Auditing Journal

doi: 10.1108/maj-02-2021-3019

This paper aims to investigate the combined effect of two interventions, perspective taking and incentives, on auditors’ professional skepticism (hereafter skepticism) when auditing complex estimates. Specifically, this paper examines the different ways that perspective taking (management versus inspector) and incentives (absent versus reward versus penalty) combine to impact skepticism.Design/methodology/approachThis paper uses an experiment with 177 experienced Big 4 auditors. The experiment used a 2 (management vs inspector perspective) × 3 (absent vs reward vs penalty incentives) between-subjects design.FindingsIn the absence of incentives, adopting a management perspective raises situational skepticism when measuring skepticism as appropriateness of management’s fair value estimate while adopting an inspector perspective raises situational skepticism when measuring skepticism as need for more evidence. The authors find some evidence that incentives complement perspective-taking by enhancing those aspects of skepticism for which perspective-taking performs poorly. When assessing management assumptions, auditors adopting an inspector perspective enhance their skepticism more substantially than those adopting a management perspective, and this enhancement is greater with rewards than with penalties. However, this study does not detect an interaction between incentive type and perspective-taking on auditor skepticism in relation to gathering additional evidence.Originality/valueThis paper extends the literature by shifting the focus from a single perspective to a comparison of two perspective-taking approaches and discusses how each of these approaches enhances different aspects of skepticism. This paper also illustrates the importance of the interplay between perspective-taking and incentives in enhancing auditor skepticism.

Dong, Lei; Wang, Lei; Chien, Wen-Wen

2022 Managerial Auditing Journal

doi: 10.1108/maj-02-2021-3034

The purpose of this paper is to examine the joint effect of supervisor influence and investor perspective on novice auditors’ assessments of accounting estimates.Design/methodology/approachThe experiment used a 2 × 2 between-subjects design, randomly assigning proxies of novice auditors among four conditions. The authors manipulated the supervisor’s level of emphasis on evidence that suggests accounting estimate adjustment and whether auditors are prompted to take an investor perspective. Participants were asked to assess the misstatement risk of the allowance for doubtful accounts of the client company.FindingsThe authors find that auditors assign a higher (lower) risk of misstatement when their supervisor places high (low) emphasis on evidence suggesting accounting adjustment. The authors also find that contrary to the belief that taking the perspective of investors could enhance objectivity and independence, investor perspective leads to a decrease (rather than an increase) in auditors’ perceived risk of misstatement when the supervisor places low emphasis on evidence suggesting accounting adjustment.Originality/valueThis study provides early evidence on the efficacy of investor perspective and is one of the first to document an unintended consequence of asking auditors to take an investor perspective.

Nagirikandalage, Padmi; Binsardi, Arnaz; Kooli, Kaouther

2022 Managerial Auditing Journal

doi: 10.1108/maj-06-2020-2695

This paper aims to investigate how professionals such as accountants, auditors, senior civil servants and academics perceive the use of audit sampling strategies adopted by professionals to increase detection rates of frauds and corruption within the public sector in Africa. It also examines the respondents’ perceived values regarding the reasons for committing frauds, types of fraud and corruption, as well as the aspects of audit sampling strategies to tackle frauds.Design/methodology/approachThis research uses non-parametric statistics and logistic regression to analyse the respondents’ opinions regarding the state of frauds and corruption in Africa (particularly in Tunisia and non-Tunisia countries), the common factors behind people committing frauds, including the types of frauds and corruption and the respondents’ opinions on the use of audit sampling strategies (non-random and random) to examine the instances of frauds and corruption.FindingsThe findings indicate that most respondents prefer to use non-probabilistic audit sampling rather than more robust sampling strategies such as random sampling and systematic random sampling to detect frauds and corruption. In addition, although there are some minor statistical differences between the countries in terms of the respondents’ perceived values on skimming fraud and on the use of audit random sampling to tackle rampant corruption in Africa, the overall findings indicate that opinions do not significantly differ between the respondents from Tunisia and other countries in terms of the types of fraud, the reasons for committing fraud and the auditing sampling strategies used to investigate the frauds.Research limitations/implicationsThis research serves as an analytical exploratory study to instigate further audit sampling research to combat rampant fraud and corruption in the public sector in Africa.Originality/valueThere are few or non-existent studies investigating the application of audit sampling strategies in Africa countries, particularly to examine the application of audit random sampling and audit non-random sampling strategies to detect fraudulent activities and corruption. Correspondingly, this research carries strategic implications for accountants and auditors to successfully detect fraudulent activities and corruption in Africa.