This document provides the conclusions of all 35 required articles for the course Advanced Auditing, given in the Master Accountancy at Tilburg University.
AA Conclusions articles
Week 1
Paper 1: Jamal & Sunder 2011 – Independence and audit quality
This paper studies the online baseball card certification market to assess the value of independence.
Conclusion:
- Market participants pay a significant premium for certified cards
- The market is dominated by cross-sellers (companies: PSA & BECKETT)
- Cross-sellers also * provide higher quality service
* command larger price premiums
* dominate in market share
à Independence is not a necessary pre-condition
Paper 2: Watts & Zimmerman 1983 – Agency problems, auditing and theory of the firm
This paper provides an overview of audit history, to see how important monitoring is to firms.
Conclusion:
- The audit existed early in the development of corporations (so audit arose endogenous)
- This gradually evolved to mandatory audit by first English company Act (exogenous)
- So monitoring is crucial to the formation of firms
- Long survival of audit: efficient tool for organizing a firm
Paper 3: Houston, Peters and Pratt 1999 – Audit risk model, business risk
This study identifies conditions under which the audit risk model does, and does not, describe audit-
planning (investment and pricing) decisions.
Conclusion:
When the likelihood of an error in the client’s financial statements is high:
- The audit risk model dominates business risk in terms of audit investment
- No risk premium in the fee
When the likelihood of an irregularity in the client’s financial statements is high:
- The business risk model dominates audit risk model in terms of audit investment
- The fee included a risk premium
à This suggest that the ability of the audit risk model to describe auditor behavior depend upon the
nature of the risk present.
- In the presence of errors, the audit risk model adequately described audit-planning decisions; in the
presence of irregularities, it did not.
, Paper 4: Low 2004 – Industry specialization and audit risk assessments
This study investigates the effects of industry specialization on auditor’s risk assessments and audit-
planning decisions
Conclusion:
An industry matched auditor
- Better discerns the audit risks of an engagement
- Makes more procedure-changes (involves modifications to the planned audit procedures), and
those procedure-changes are of higher quality
- Their procedure-changes and staff-changes (changes to the assigned staff level) are more sensitive
to the audit risk assessments.
à This is not the case for hour-changes (changes to the budgeted audit hours)
Paper 5: Becker 1968 – Crime and punishment
This essay gives a normative answer to the question ‘how many resources and how much
punishment should be used to enforce different kinds of legislation?’
Conclusion:
- The optimal amount of enforcement is dependent on optimal allocation of resources. For example:
- The cost of catching and convicting offenders
- The nature of punishments (for example, whether it are fines or prison terms)
- The responses of offenders to changes in enforcement
- The loss of offences are minimized when offenders are risk-takers/risk-prefers
Paper 6: Dorminey et al. 2012 – Evolution of fraud theory
This paper revisits the fraud triangle, highlighting recent findings to develop a model of fraud for use
in accounting.
The overall goal of the anti-fraud profession’s response is to lessen the probability of fraud acts, by
implementing controls (prevent) and procedures (code of conduct, employee monitoring) (deter).
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