Auditing and Society: Research on Audit Practice and Regulations

History of Auditing, Audit Research, and Audit TheoryA brief overview of the origins of auditing, accounting, and accountabilityA brief history of the auditing professionA brief history of changes in audit and accounting standardsACCOUNTING STANDARDSReview of some prior audit researchAuditing theoryEnd-of- chapter questionSocial Theory and Auditing: Role of Social Norms, Culture, Politics, Institutions, and IdeologyGlobalization of auditing and basic theories of the sources of demand for auditsSome critical perspectives on auditingOverview of accounting and social theoryInstitutional economicsReview of Ramana (2015)Argumentation concepts in integrated auditing, accounting, and ethical reasoningINTRODUCTIONInternational Code of EthicsProfessional judgment and skepticism as per ISA 200.13(k), (I) A20-A29KEY CONCEPTS OF ARGUMENTATION FOR ACCOUNTANTSInductive and epistemic probabilitiesKey parts of an argumentSyllogisms and standard form of argumentsSocial norms and value statementsSoundness of argumentsArgument perspectiveConsistency in argumentationArgumentation as it applies to principles-based accounting and fair presentationFurther discussion of audit argumentationEnd-of- chapter questionProfessional Ethics and ReputationIntroductionWhat is professional ethics?Why is it important for an auditor to uphold ethical standards?HOW TO IMPROVE ETHICSEnd-of- chapter questionNotesAudit RegulationIntroductionSelf-regulation and governmental regulationsAICPASOXThe Public Company Accounting Oversight Board (PCAOB)Auditor independenceCorporate responsibilityEnhanced financial disclosuresAnalyst conflicts of interestCommission resources and authorityStudies and reportsCorporate and criminal fraud accountabilityWhite-collar crime penalty enhancementCorporate tax returnsCorporate fraud accountabilityResearch relating to SOXPCAOB activitiesPCAOB-related researchCanadian Public Accountability Board (CPAB)Effects of changing auditor reports on audit qualityResearch on disclosure of audit partner namesMandatory audit firm rotationThe impact of joint audits on audit quality and audit market structureEnd-of- chapter questionNotesAuditing StandardsIntroductionAuditing standards around the worldThe International Auditing and Assurance Standards Board (IAASB)The PCAOB standard-setting activitiesEconomics of auditing standardsCharacteristics of auditing standardsPreferences on auditing standardsLiterature on auditing standardsEnd-of- chapter questionNotesAuditor Liability and Litigation RiskIntroductionLegal environment for auditors in various countriesProportionate vs. joint and several liabilities rulesThe joint effect of multiple legal system characteristics on auditing standards and auditor behaviorThe relation between auditor liability and PCAOB inspectionsEnd-of- chapter questionNotesMeasurement of Audit QualityIntroductionAudit quality is measured by the findings from inspection of the audit practiceAudit quality is measured by audit failuresLawsuits against auditors and their resolutionsAccuracy of auditor reports measured by ex post eventsAudit quality is measured by the quality of the audited financial statementsDiscretionary accrualsProbability of meeting the pre-set expectationsAudit quality is measured by audit feesOther proxies for audit qualityAudit firmsAuditor market shareAuditor tenureSummaryEnd-of- chapter questionNotesDetermination of Audit FeesIntroductionThe theoretical determinants for audit fees and their empirical proxiesThe size of the auditeeThe complexity of the auditee's operationAuditing problems associated with certain financial statement componentsThe industry of the auditeeThe risk of the auditeeAuditor characteristicsReview of selected studies of audit service pricing in the literatureSimunic (1980)Big Eight auditors and audit feesLOWBALLING OF AUDIT FEES IN INITIAL ENGAGEMENTSClient's financial healthAudit qualityAuditor efficiencyNumber of biddersClient risk and audit feesAudit approach and audit feesAuditing standards and audit feesAuditor concentration and audit feesSummaryEnd-of- chapter questionResearch on the Impact of AuditsIntroductionClient security price reactions to accounting firms' bankruptcyCLIENT SECURITY PRICE REACTIONS TO AUDIT FAILURESArthur Andersen and EnronKPMG and ComROAD AGImpact of audit on loan pricingLoan to private companiesPricing of public bond"Subject to" audit opinions and abnormal security returnsSummaryEnd-of- chapter questionAudits of Compliance Reporting with GAPIntroductionOverall objective of the audit of financial statements: ISA 200ISA 210: AGREEING TO THE TERMS OF AN AUDIT ENGAGEMENTNature of evidence and burden of proofThe need for an audit theory based on argumentation conceptsThe audit risk modelRisk-based auditing and sources of misstatementsISA 230: AUDIT DOCUMENTATIONISA 300 PLANNING AN AUDIT OF THE FINANCIAL STATEMENTSISA 315: IDENTIFYING AND ASSESSING RISK OF MATERIAL MISSTATEMENT (RMM = IR x CR THROUGH UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT)ISA 330: THE AUDITOR'S RESPONSE TO ASSESSED RISKSEnd-of- chapter questionsAudits of Fair Presentation ReportingIntroductionSocial acceptability of visions of possible futures as reflected by accounting standardsDo accounting standards always represent suitable criteria?Going concern assumption as a vision of the futureLimitations of using expected values as visions of the future in auditingLinking auditing and accounting uncertaintiesCalibrated ranges as visions of the future and their role in financial reportingThe auditability concept: are all future events verifiable?Auditability and note disclosuresThe age of Ponzi Scheme financial reportingSummary of how current accounting standards can facilitate fraudulent financial reportingKEY CONCEPTSHOW DO FRAUD RISKS RELATE TO OTHER RISK ASSESSMENTS BY AUDITORS?CAN GAAP BE A FRAUD RISK FACTOR?Moving toward better auditingEnd-of- chapter questions
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