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Journal articles on the topic 'Misstatement'
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1
Hamilton, Erin L. "Evaluating the Intentionality of Identified Misstatements: How Perspective Can Help Auditors in Distinguishing Errors from Fraud." AUDITING: A Journal of Practice & Theory 35, no. 4 (March 1, 2016): 57–78. http://dx.doi.org/10.2308/ajpt-51452.
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SUMMARY Although auditors are responsible for detecting misstatements arising from either error or fraud, the auditing standards require very different audit responses when a misstatement is believed to be the result of an intentional act (AS No. 14, PCAOB 2010a). Specifically, if auditors suspect intentional misstatement, then they should perform additional audit procedures, reassess overall fraud risk and the integrity of management, and communicate potential concerns to the audit committee. Thus, if auditors fail to recognize and respond to information indicating a misstatement was caused intentionally, then audit quality may be impaired. The objective of this study is to investigate whether auditors who consider the perspective of the manager responsible for a misstatement's occurrence are more sensitive to circumstances indicating the misstatement was intentional. Using an experiment with audit managers and senior managers, I find that auditors who consider the client manager's perspective assess the misstatement as significantly more likely to be intentional when circumstances surrounding it indicate high, as opposed to low, fraud risk. In contrast, auditors who do not consider the client manager's perspective do not assess intentionality any differently, regardless of the level of fraud risk.
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Omer, Thomas C., Marjorie K. Shelley, and Anne M. Thompson. "Investors' Response to Revelations of Prior Uncorrected Misstatements." AUDITING: A Journal of Practice & Theory 31, no. 4 (November 1, 2012): 167–92. http://dx.doi.org/10.2308/ajpt-10303.
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SUMMARY This study examines investors' response to the disclosure of prior-period waived misstatements under Staff Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in the Current Year. Misstatement correction decisions typically are not observable, and financial statement users have little insight into the disposition of identified misstatements, a dimension of audit and financial statement quality. We find that investors respond negatively to the disclosure of SAB No. 108 misstatements, and this response is associated with the current-period auditor initially waiving the misstatement and client importance. Although SAB No. 108 misstatements were waived under prevailing materiality guidance, our findings suggest that investors interpret SAB No. 108 misstatements as indicating lower perceived audit quality. Data Availability: Data are available from the sources indicated in the text.
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Hammersley, Jacqueline S. "Pattern Identification and Industry-Specialist Auditors." Accounting Review 81, no. 2 (March 1, 2006): 309–36. http://dx.doi.org/10.2308/accr.2006.81.2.309.
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Complex financial statement misstatements that are difficult to diagnose are likely to be described by multiple cues that individually appear innocuous, but that together form an ominous pattern. Because individual auditors are likely to obtain only some of the cues forming the pattern, it is important to understand how well auditors interpret incomplete cue patterns. In this paper, I examine experimentally whether industry-specialist auditors develop problem representations about a seeded misstatement to facilitate interpretation of incomplete patterns. Overall, I find that matched specialists (i.e., those working in their industry) are able to interpret and fill in partialcue patterns, whereas mismatched specialists do not recognize the implications of even full patterns. Matched specialists respond to a partial-cue pattern that potentially indicates misstatement by developing more complete problem representations about the seeded misstatement, assessing higher risk of misstatement, and suggesting procedures that will be efficient and effective at discriminating the presence of the seeded misstatement. Despite higher assessments of misstatement risk when receiving a partial-cue pattern, mismatched specialists' problem representations are impoverished and suggested procedures do not indicate a focus on the seeded misstatement.
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Tuttle, Brad, Maribeth Coller, and R. David Plumlee. "The Effect of Misstatements on Decisions of Financial Statement Users: An Experimental Investigation of Auditor Materiality Thresholds." AUDITING: A Journal of Practice & Theory 21, no. 1 (March 1, 2002): 11–27. http://dx.doi.org/10.2308/aud.2002.21.1.11.
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Auditors are faced with the dilemma of inferring materiality based, in part, on whether a given level of financial misstatement will affect the decisions of statement users. Misstatements in accounting information that are below the materiality threshold are not expected to change users' assessments of a company's economic condition. While the auditing profession accepts materiality in concept, its application in practice is more controversial. In certain settings, the nature of a misstatement, such as changing a small profit into a loss, may affect an auditor's materiality judgment. However, in many cases the magnitude of the misstatement is a critical factor in judging materiality. We focus solely on the issue of magnitude and examine whether financial misstatements that are at or below commonly applied materiality thresholds result in market prices that differ from those resulting from correctly stated information. We conduct a series of 12 experimental asset markets each consisting of 12 independent three-minute trading periods with six traders in each market. We then compare prices for companies generated by markets that are provided either correctly stated information, information containing misstatements that would typically be considered immaterial, or information containing material misstatements. Results indicate that undisclosed misstatements within materiality thresholds that are consistent with current audit practice do not affect market prices, while misstatements well above these thresholds do.
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Messier, William F., and Martin Schmidt. "Offsetting Misstatements: The Effect of Misstatement Distribution, Quantitative Materiality, and Client Pressure on Auditors' Judgments." Accounting Review 93, no. 4 (October 1, 2017): 335–57. http://dx.doi.org/10.2308/accr-51954.
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ABSTRACT This paper reports on the first experimental study to examine how materiality and client pressure affect auditors' judgments of two detected misstatements that have offsetting effects on the client's income. One hundred forty-three experienced German auditors completed a case that varied the misstatement distribution (same or different accounts), the presence or absence of client pressure, and quantitative materiality of the misstatements nested in the client pressure condition (net amount less than or greater than performance materiality). The results show: First, the distribution of the misstatements and client pressure interact. The proportion of auditors who require the client to fully adjust both misstatements is highest when the offsetting misstatements are in two different accounts and there is no client pressure. Second, misstatement distribution interacts with quantitative materiality. The proportion of auditors who deny the bonus when facing client pressure is highest when the level of materiality is greater than performance materiality and the misstatement distribution is in different accounts. Third, audit experience appears to play a role in the auditors' judgments. While more experienced auditors are more likely to fully correct the misstatements when there is no client pressure, they are also more likely to waive the misstatements when faced with client pressure. Additional experimentation confirms these findings. These results have important implications for researchers, practitioners, regulators, and standard setters. Data Availability: The data are available from the authors upon request.
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Comunale, Christie L., and Thomas R. Sexton. "A Fuzzy Logic Approach to Assessing Materiality." Journal of Emerging Technologies in Accounting 2, no. 1 (January 1, 2005): 1–15. http://dx.doi.org/10.2308/jeta.2005.2.1.1.
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Auditors may encounter misstatements during the course of an audit, each of which requires a binary materiality assessment. We propose a fuzzy expert system approach that assesses materiality as a continuous characteristic by allowing a misstatement to possess a degree of materiality between 0 and 1. This potentially allows the auditor more flexibility and precision in materiality assessment, and greater insight regarding subsequent testing and investigation. We demonstrate that a fuzzy expert system can help the auditor incorporate qualitative factors into the materiality assessment of each misstatement and identify which misstatements are most worthy of further investigation. The auditor may compare the materiality assessments of all misstatements to plan an audit strategy. By providing a formal model structure, the fuzzy expert system formalizes and documents the materiality assessment process. This may facilitate better communication within the audit team and with the client, and enhances process consistency across auditors, engagements, and years.
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Singer, Zvi, and Jing Zhang. "Auditor Tenure and the Timeliness of Misstatement Discovery." Accounting Review 93, no. 2 (August 1, 2017): 315–38. http://dx.doi.org/10.2308/accr-51871.
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ABSTRACT Using the timeliness of misstatement discovery as a proxy for audit quality, we examine the association between audit firm tenure and audit quality in a setting that alleviates the endogeneity problem endemic to this line of research. We find that longer audit firm tenure leads to less timely discovery and correction of misstatements, which is consistent with a negative effect of long auditor tenure on audit quality. In addition, using the non-voluntary auditor change following the demise of Arthur Andersen in 2002 as a natural experiment, we show that the misstatements of its former clients were discovered faster than those of comparable companies that retained their auditors throughout the misstatement. This finding speaks to the benefit of a fresh look by a new auditor. An extended analysis shows that longer auditor tenure also leads to misstatements of greater magnitudes, and that the Sarbanes-Oxley Act has mitigated, but not eliminated, the negative effect of long auditor tenure. Last, we show that the negative association between auditor tenure and timely discovery of misstatements is mainly present in the first ten years of an audit engagement. Our study has implications for regulators who continue to express concern regarding lengthy auditor-client engagement. JEL Classifications: K22; K23; L51; M41; M42; M48.
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Boland, Colleen M., Scott N. Bronson, and Chris E. Hogan. "Accelerated Filing Deadlines, Internal Controls, and Financial Statement Quality: The Case of Originating Misstatements." Accounting Horizons 29, no. 3 (February 1, 2015): 551–75. http://dx.doi.org/10.2308/acch-51075.
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SYNOPSIS We examine whether regulations requiring accelerated filing deadlines and internal control reporting and testing affect financial statement reliability. Unlike prior research, we examine whether these regulatory changes are associated with an increase in the likelihood that misstatements originate in the period following the respective change. If the implementation of these rules causes a misstatement, then the misstatement would most likely occur in the period immediately following the rule change. We provide evidence that accelerated filers (AFs) experience an increase in the likelihood of an originating misstatement following the acceleration of filing deadlines from 90 to 75 days. Large accelerated filers (LAFs), however, do not experience a similar increase following this acceleration or the subsequent acceleration from 75 to 60 days. After the implementation of the SOX Section 404 internal control requirements, we find that the likelihood of an originating misstatement declined for AFs but not for LAFs. Taken together, the findings suggest that, although AFs experienced an initial decrease in financial statement reliability, this decrease was temporary. Data Availability: Data are publicly available from the sources identified in the text.
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Sari, Gisilowati Dian Purnama, Agung Juliarto, and Raharja Raharja. "EVALUASI KINERJA AKUNTAN PUBLIK: SKEPTISME PROFESIONAL DAN OUTCOME EFFECT (SEBUAH STUDI EKSPERIMENTAL)." JURNAL AKUNTANSI DAN AUDITING 14, no. 2 (August 5, 2018): 144. http://dx.doi.org/10.14710/jaa.14.2.144-171.
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Professional skepticism is a behavior that it is although encouraged by the profession does not always produce the same outcome (e.g., sometimes it leads to the identification of a misstatement and other times it may not). Highly skeptical auditors increase the likelihood that material misstatements are detected, which is important in promoting investor confidence and global financial stability. However, exercising skepticism may also come at a cost (e.g., budget overruns and potential conflicts with management). The failure to identify a material misstatement in the financial statements may result in restatements. Research on outcome effects suggests that auditor’s performance evaluation may be influenced more by the outcome of their skeptical behavior (i.e., whether or not a misstatement is found) than by whether they engaged in the appropriate level of skeptical behavior. This study aims to obtain new empirical evidence whether there is a difference between the auditor’s performance evaluation when a misstatement is found than when no misstatement is found. These studies further examine whether consultation during the process of exercising skepticism can alleviate the outcome effect bias.This is a experimental that research for a causal relationship between the dependent variabel and independent variable. Respondents in this study is the auditor who has experience doing supervision. Repondents were gethered in the seminar organized by IAPI and PPPK. Seminar was held on 2016 may 30th, in Semarang Quest Hotel. Testing of this reserch using indepent sample t-test and two way ANOVA.Finding of first experiment finds that the outcome of an investigation will affect auditors’ performance evaluations. There are significant differences of performance evaluations between staff who do not identify a misstatement versus staff who do identify a misstatement. This reserach also examine whether responses are significantly higher when a misstatement is found than when no misstatement is found. Futhermor result of this study reveal that consultation with the superior during the process of exercising skepticism effectively mitigate the outcome effects in auditor evaluations. The result of this study show that the evaluators did not effected the outcome effect in auditor’s performance evaluation.
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Sari, Gisilowati Dian Purnama, Agung Juliarto, and Raharja Raharja. "EVALUASI KINERJA AKUNTAN PUBLIK: SKEPTISME PROFESIONAL DAN OUTCOME EFFECT (SEBUAH STUDI EKSPERIMENTAL)." JURNAL AKUNTANSI DAN AUDITING 14, no. 2 (August 5, 2018): 144. http://dx.doi.org/10.14710/jaa.v14i2.19775.
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Professional skepticism is a behavior that it is although encouraged by the profession does not always produce the same outcome (e.g., sometimes it leads to the identification of a misstatement and other times it may not). Highly skeptical auditors increase the likelihood that material misstatements are detected, which is important in promoting investor confidence and global financial stability. However, exercising skepticism may also come at a cost (e.g., budget overruns and potential conflicts with management). The failure to identify a material misstatement in the financial statements may result in restatements. Research on outcome effects suggests that auditor’s performance evaluation may be influenced more by the outcome of their skeptical behavior (i.e., whether or not a misstatement is found) than by whether they engaged in the appropriate level of skeptical behavior. This study aims to obtain new empirical evidence whether there is a difference between the auditor’s performance evaluation when a misstatement is found than when no misstatement is found. These studies further examine whether consultation during the process of exercising skepticism can alleviate the outcome effect bias.This is a experimental that research for a causal relationship between the dependent variabel and independent variable. Respondents in this study is the auditor who has experience doing supervision. Repondents were gethered in the seminar organized by IAPI and PPPK. Seminar was held on 2016 may 30th, in Semarang Quest Hotel. Testing of this reserch using indepent sample t-test and two way ANOVA.Finding of first experiment finds that the outcome of an investigation will affect auditors’ performance evaluations. There are significant differences of performance evaluations between staff who do not identify a misstatement versus staff who do identify a misstatement. This reserach also examine whether responses are significantly higher when a misstatement is found than when no misstatement is found. Futhermor result of this study reveal that consultation with the superior during the process of exercising skepticism effectively mitigate the outcome effects in auditor evaluations. The result of this study show that the evaluators did not effected the outcome effect in auditor’s performance evaluation.
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Rose, Jacob M. "Attention to Evidence of Aggressive Financial Reporting and Intentional Misstatement Judgments: Effects of Experience and Trust." Behavioral Research in Accounting 19, no. 1 (January 1, 2007): 215–29. http://dx.doi.org/10.2308/bria.2007.19.1.215.
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This study extends prior research by examining the effects of dispositional trust, induced skepticism, and fraud-specific audit experience on attention to aggressive financial reporting practices and judgments of potential misstatement. In an experimental analysis using 125 practicing auditors, this study finds that auditors who are less trusting of others attend more to evidence of aggressive reporting than do more trusting auditors, and higher levels of induced skepticism increase attention to aggressive reporting. Further, auditors who pay more attention to evidence of aggressive reporting are more likely to believe that intentional misstatement occurred. General audit experience was not a predictor of auditors' attention to aggressive reporting or auditors' judgments about intentional misstatements. Auditors with more fraud-specific experience, however, were more likely than auditors with less fraud-specific experience to believe that intentional misstatement had occurred when evidence of aggressive reporting exists.
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Eilifsen, Aasmund, and William F. Messier. "Materiality Guidance of the Major Public Accounting Firms." AUDITING: A Journal of Practice & Theory 34, no. 2 (August 1, 2014): 3–26. http://dx.doi.org/10.2308/ajpt-50882.
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SUMMARY This paper examines the materiality guidance for eight of the largest U.S. public accounting firms. Knowledge of how materiality guidance is integrated into a firm's methodology is important for accounting and auditing researchers as well as for practitioners, regulators, and educators. Our results show a high level of consistency across the firms in terms of the quantitative benchmarks (e.g., income before taxes, total assets or revenues, and total equity) used to determine overall materiality, the related percentages applied to those benchmarks, the percentages applied to overall materiality for determining tolerable misstatement, and what constitutes a clearly trivial misstatement. We also find that the firms' guidance for evaluating detected misstatements, including qualitative factors and firm guidance for group audits, is consistent across firms. However, there are differences in how the firms consider the possibility of undetected misstatements when evaluating detected misstatements. The results of this study provide important insights into implementation of standards and valuable information for future research and education. Data Availability: The data used are proprietary to the firms and are not available for distribution.
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Chen, Feng, Xingqiang Du, Shaojuan Lai, and Mary Ma. "Does the use of honorific appellations in audit reports connote higher financial misstatement risk? Evidence from China." Asian Review of Accounting 26, no. 2 (May 8, 2018): 154–81. http://dx.doi.org/10.1108/ara-08-2017-0128.
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Purpose From the sociolinguistic perspective, the purpose of this paper is to examine whether the honorific and actual-name appellations that Chinese auditors use to address clients in audit reports connote differential financial misstatement risk. Specifically, the authors hypothesize that auditors’ use of honorifics signals their inferior social status relative to their clients, thereby leading to compromised auditor independence, lower audit quality, and higher financial misstatement risk. Design/methodology/approach The authors use a sample of manually coded appellation data from audit reports of Chinese public firms between 2003 and 2012 to conduct the research. Findings The authors find significantly greater financial misstatements, both in terms of likelihoods and magnitudes, for companies addressed by honorifics than for those addressed by actual names. Moreover, compared to auditors’ consistent honorific usage, discretionary honorific usage has a stronger positive association with misstatements. The authors further show that the positive association between honorific usage and client misstatement risk weakens when the audit firm is a Top 10 accounting firms in China, is an industry specialist, is formed as a partnership, or resides in a more concentrated audit market. Originality/value This study contributes to the sociolinguistics literature in accounting and provides evidence supporting the reform proposed by the International Auditing and Assurance Standards Board to enhance the usefulness of audit reporting.
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Natarajan, Ramachandran, and Kenneth Zheng. "Clawback Provision of SOX, Financial Misstatements, and CEO Compensation Contracts." Journal of Accounting, Auditing & Finance 34, no. 1 (January 23, 2017): 74–98. http://dx.doi.org/10.1177/0148558x16686740.
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Section 304 of the Sarbanes-Oxley Act (hereafter, SOX), commonly known as the clawback provision, entitles the Securities and Exchange Commission (SEC) to sue the CEO and CFO in an attempt to recover their incentive compensation based on misstated financial reports. Although a stream of literature investigates the effects of voluntary firm-initiated clawback provisions, this study explores the effects of the mandatory SOX clawback provision on the likelihood of financial misstatements and CEO compensation. We find a significant decrease in the association between CEO in-the-money option value and the likelihood of a financial misstatement surrounding SOX, suggesting the SOX clawback provision has been effective in reducing financial misstatements arising from CEO in-the-money stock options. To examine the effects of the SOX clawback provision on CEO compensation, we identify a set of misstatement firms with a high restatement likelihood where the CEOs are most likely concerned with the impact of the SOX clawback provision on their compensation. We find that compared with control firms, these misstatement firms with a high restatement likelihood where the CEO is the chair of the board exhibit an increase in CEO salaries between the pre- and post-SOX periods, suggesting that in the post-SOX period, powerful CEOs are able to receive higher salaries which are not subject to the SOX clawback provision.
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Кочинев, Yuriy Kochinev, Виноградова, and O. Vinogradova. "Identification of the facts and the evidence obtained Unscrupulous entity." Auditor 1, no. 1 (February 25, 2015): 32–39. http://dx.doi.org/10.12737/12788.
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The article describes the steps of the auditor in relation to the identification of unfair entity and obtain appropriate evidence of premeditation. Proposed in the article recommendations
include an assessment of the risks of material misstatement due to fraud, identity revealed distortion as possible, deliberate, premeditated taking of evidence identified misstatements
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Brasel, Kelsey, Marcus M. Doxey, Jonathan H. Grenier, and Andrew Reffett. "Risk Disclosure Preceding Negative Outcomes: The Effects of Reporting Critical Audit Matters on Judgments of Auditor Liability." Current Issues in Auditing 10, no. 2 (July 1, 2016): P1—P10. http://dx.doi.org/10.2308/ciia-51546.
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SUMMARY The PCAOB and the IAASB recently proposed several significant changes to the audit reporting model, including requiring auditors to disclose critical audit matters (CAMs) in their audit reports. While investors appear to support such additional disclosures, some audit practitioners, academics, and attorneys contend that requiring auditors to disclose CAMs will make it easier for plaintiffs' attorneys to successfully sue auditors when audits fail to detect material misstatements. A recent study, “Risk Disclosure Preceding Negative Outcomes: The Effects of Reporting Critical Audit Matters on Judgments of Auditor Liability” (Brasel, Doxey, Grenier, and Reffett 2016), reports results of an experiment that inform this issue. Contrary to the above concerns, results of the study indicate that disclosing CAMs, either related or unrelated to an undetected material misstatement, likely will not increase, and could decrease (depending on the type of misstatement), the probability of jurors holding auditors liable when audits fail to detect material misstatements. Further, results indicate that explicitly stating in the audit report that there were no CAMs, an option allowed within the PCAOB's proposal, would increase negligence verdicts against audit firms. The following article summarizes the study's motivation, method, results, and implications for both audit reporting and risk disclosure in general.
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Nelson, Mark W., Steven D. Smith, and Zoe-Vonna Palmrose. "The Effect of Quantitative Materiality Approach on Auditors' Adjustment Decisions." Accounting Review 80, no. 3 (July 1, 2005): 897–920. http://dx.doi.org/10.2308/accr.2005.80.3.897.
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Two alternative approaches are used in audit practice to provide quantitative materiality assessments about proposed audit adjustments. The cumulative approach compares to net income the total amount of misstatement existing at the end of the current period, while the current-period approach compares to net income the amount of misstatement added in the current period. Depending on the relation between total misstatement and current-period misstatement, either the cumulative approach or the current-period approach can calculate higher quantitative materiality. This paper reports an experiment that varies materiality approach between auditors by providing auditors with either the current-period or cumulative formats used by their firm to summarize proposed audit adjustments. Results indicate that, across a variety of experimental contexts (varying misstatement size, subjectivity, precision, and income effect, and varying whether auditors document effects on their client's quality of earnings), auditors are more likely to require their client to book the misstatement under the approach that makes the misstatement appear more material. These results suggest that standard setters mandate that auditors require adjustment whenever a misstatement is material under either approach.
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Nugroho, Endik Deni, Vlorensius Vlorensius, Laila Rasidah H., and Nur Anisa. "The Content Analysis, Material Presentation, and Readability of Curriculum 2013 Science Textbook for 1st Semester of Junior High School 7th Grade." Jurnal Pendidikan Biologi Indonesia 3, no. 2 (June 20, 2017): 114. http://dx.doi.org/10.22219/jpbi.v3i2.3904.
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Based on the early observation by researchers of the two Science textbooks 7th Grade about biological material, 1st and 2nd semester of curriculum 2013, there were errors in the material presentation and legibility. This study aimed to compare and find the contents suitability of the book based on standard of competence and basic competences, readability, materials presentation and supporting material in the science textbook VII grade, 1st and 2nd semester and measured student legibility. This study used a qualitative descriptive approach by using document analysis. The data resources were obtained by using purposive, the data collection was triangulation, data analysis was inductive/qualitative and the results emphasized the meaning. This research results showed that the Integrated Sciences and Sciences textbook 1st and 2nd semester meet the standards of the core competencies and basic competence on the syllabus curriculum 2013 and also meet the books standart. The results of the analysis conducted in misstatement concept and principles and material llustration in the Integrated Science textbook 1st semester were found 5 misstatement concept, for the presentation of the principles and material illustration was found no error. In the book Integrated Sciences there was no delivery errors concept, principle, and material illustration. Science textbook 1st semester found 8 concepts misstatements and 8 illustration material misstatements. In general, Integrated Sciences and Sciences textbooks 1st and 2nd semester are illegibility so not appropriate for students.
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Ayiomamitis, A. "Effects of age misstatement." American Journal of Public Health 77, no. 10 (October 1987): 1355–56. http://dx.doi.org/10.2105/ajph.77.10.1355-c.
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Arzhenovskii, S. V., T. G. Sinyavskaya, and A. V. Bakhteev. "The model evaluating the propensity of the auditee's management to risk." International Accounting 23, no. 11 (November 13, 2020): 1253–68. http://dx.doi.org/10.24891/ia.23.11.1253.
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Subject. We identify what determines the risk propensity of those charged with financial reporting through surveying, so as the results could be subsequently applied in assessing the risk of material misstatement of financial reporting due to fraud. Objectives. We herein outline the methodological framework for conducting risk assessment procedures with respect to material misstatements due to fraud as part of financial reporting audits. Thus, we set an econometric model to empirically evaluate the probable risk propensity of a person charged with financial reporting. Methods. We applied the logistic regression model identified through empirical data of the survey we conducted among 515 employees of audited entities. Results. For purposes of research, we specified and identified the econometric model of a binary choice. The higher risk propensity was observed among people above 45, those having mediocre or low income, one profession, working for large production enterprises. Conclusions. What makes the technique advantageous is its low labor-intensity and higher efficiency of risk assessment procedures as part of audits. Based on the model, forecasts will help evaluate the propensity of the audited entity's management to the business risk. The findings can be used for analytical procedures in assessing the risk of material misstatements in financial statements due to fraud as part of audits, referring to its as the expected result. If the acceptability of a divergence between the expected and factual values is subsequently evaluated, this will help assess the risk of material misstatement in the audited entity's financial statements and determine whether additional auditing procedures are needed.
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Patterson, Evelyn R., and Reed Smith. "Materiality Uncertainty and Earnings Misstatement." Accounting Review 78, no. 3 (July 1, 2003): 819–46. http://dx.doi.org/10.2308/accr.2003.78.3.819.
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The concept of materiality provides a basis for auditors to ignore small misstatements, but the definition of “small” in this context is ambiguous. The issue of “materiality-standard-setting” has been raised recently by Arthur Levitt, former chairman of the Securities and Exchange Commission. We examine how materiality uncertainty affects the auditor's evaluation of audit evidence and a manager's choice of earnings overstatement in a strategic auditing model where earnings misstatements also include unintentional system error. We find that when the expected cost of accepting financial statements that are materially misstated, which we refer to as an audit failure, is relatively large, an increase in materiality uncertainty results in a more conservative auditor evaluation of the audit evidence and a decrease in the amount of intentional overstatement. Alternatively, if the auditor's expected cost of extending audit procedures is relatively high, then an increase in materiality uncertainty results in a less conservative auditor evaluation of the audit evidence and an increase in the manager's earnings overstatement. The auditor also becomes increasingly conservative as the report increases when the information system is sufficiently noisy. Finally, when the expected cost of audit failure is large, the equilibrium audit risk can increase or decrease in materiality uncertainty despite the corresponding increase in auditor conservatism and decrease in intentional overstatement. Audit risk is the average probability of audit failure across all possible evidence outcomes.
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Payne, Jennifer. "Negligent misstatement–a healthier decision for company directors." Cambridge Law Journal 57, no. 3 (November 1998): 429–71. http://dx.doi.org/10.1017/s0008197398323016.
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THE decision of the House of Lords in Williams v. Natural Life Health Foods Ltd. [1998] 1 W.L.R. 830, reversing the Court of Appeal's decision ([1997] 1 B.C.L.C. 131), examines the issue of an agent's liability for negligent misstatement. Of course, agents will be personally responsible for their own negligence, even if that tort is committed while on the principal's business, but what is their responsibility for the negligence of their principal? Logically the answer is “none”, and certainly in a company context statements made by directors on behalf of their companies have traditionally led to liability for the principal alone: “a company director is only to be held personally liable for the company's negligent misstatements if the plaintiffs can establish some special circumstances setting the case apart from the ordinary . . .” ([1997] 1 B.C.L.C. 131, 152 per Hirst L.J.). The Court of Appeal's decision in Williams, however, threatened to expand this category of “special circumstances” to such an extent as to make personal liability the norm for directors, at least in the context of small companies.
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Bhattacharjee, Sudip, Mario J. Maletta, and Kimberly K. Moreno. "The Role of Account Subjectivity and Risk of Material Misstatement on Auditors' Internal Audit Reliance Judgments." Accounting Horizons 30, no. 2 (December 1, 2015): 225–38. http://dx.doi.org/10.2308/acch-51363.
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SYNOPSIS Using a field-based questionnaire, we examine how auditors simultaneously use client-level misstatement risk (inherent risk and control risk) with account subjectivity when utilizing internal audit. We contend that auditor use of internal audit will reflect a balance of the costs and benefits of using internal audit. Prior audit research has primarily focused on lower and higher risk conditions, with relatively few studies examining the implications of moderate risk on internal audit use. Data on actual audits from an instrument administered to external auditors reveal significant differences in reliance decisions across lower, moderate, and higher misstatement risk levels. Results reveal that increases in account subjectivity have no effect on auditors' internal audit reliance when risk of material misstatement is at lower levels. However, auditors increase their internal audit reliance when account subjectivity increases across moderate misstatement risk. Finally, our results suggest that auditors decrease their internal audit reliance when account subjectivity increases across higher misstatement risk. By examining these risk variables in combination, we provide insight into the complexities associated with external auditors' internal audit usage. This research could be of interest to practitioners and academics by providing insight into how multiple risk factors may be combined when utilizing internal audit.
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Dritsas, Stamatios, and George Petrakos. "Risk of Material Misstatement in Fluctuated Economic Environments: The Case of Greece." International Business Research 11, no. 6 (May 28, 2018): 243. http://dx.doi.org/10.5539/ibr.v11n6p243.
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The aim of this paper is a) to investigate the relationship between the business risk and the risk of material misstatement at an overall financial level and b) to determine the dependencies between the risk of material misstatement and selected risk factors affecting pervasively the financial statements and many assertions. The study was based on data collected from a statistical survey among experienced statutory auditors employed by the five largest international audit firms in Greece. The research suggests a statistically significant relationship between the business risk and the risk of material misstatement at the overall financial statements level. Furthermore, although the majority of the survey participants believes that the recent financial crisis in Greece affected their assessments on going concern risk and the risk linked to accounting estimations substantially, the dependencies between those two risks and the risk of material misstatement at an overall financial statements level are not validated by the survey data.
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Myllymäki, Emma-Riikka. "The Persistence in the Association between Section 404 Material Weaknesses and Financial Reporting Quality." AUDITING: A Journal of Practice & Theory 33, no. 1 (July 1, 2013): 93–116. http://dx.doi.org/10.2308/ajpt-50570.
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SUMMARY This study examines whether Sarbanes-Oxley (SOX) Section 404 material weakness (MW404) disclosures are predictive of future financial reporting quality. I find evidence that for companies with a history of MW404s, the likelihood of misstatements in financial information continues to be significantly higher for two years after the last MW404 report compared to companies without a history of reported MW404s. The magnitude of the effect decreases non-linearly with decreasing speed. The findings further imply that the reason for the misstatement incidences is the unacknowledged pervasiveness of control problems. In particular, it appears that in many cases, the future misstatements are unrelated to the MW types disclosed in the last MW404 report, suggesting that some MW types are unacknowledged and, hence, control problems are even more pervasive than what was identified. Overall, the findings of this study highlight the importance of discovering and disclosing material weaknesses in internal control over financial reporting.
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Mahenthiran, Sakthi, Berta Silva Palavecinos, and Hanns De La Fuente-Mella. "The Effect of Board Links, Audit Partner Tenure, and Related Party Transactions on Misstatements: Evidence from Chile." International Journal of Financial Studies 8, no. 4 (December 16, 2020): 78. http://dx.doi.org/10.3390/ijfs8040078.
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Companies restate when material misstatements are identified in previously issued financial statements. Misstatement research in Latin America is sparse, even though they are an important context to study this phenomenon. Chile’s corporate governance regulations are considered exemplars for Latin American countries but its auditing profession is not well developed. Thus, Chile provides an interesting context to study the complementary roles of audit and board governance affecting misstatements. Using a sample of 104 Chilean listed firms over seven years, our study finds that the board links and audit partner tenure negatively affect misstatements. Specifically, given the prevalence of related party transactions (RPTs) in conglomerates, the finding suggests that cross directors monitor high-value RPTs, but that this is not a substitute for auditor expertise. The findings raise questions about the advisability of mandating audit partner rotation to strengthen auditor independence because the results indicate that a short audit partner tenure leads to the auditor not developing client-specific knowledge. The study makes contributions to the corporate governance literature by highlighting that board monitoring is not a good substitute for auditor monitoring of financial reporting integrity, and suggesting the need for having licensing requirements to become an auditor.
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Li, Valerie. "Do False Financial Statements Distort Peer Firms' Decisions?" Accounting Review 91, no. 1 (March 1, 2015): 251–78. http://dx.doi.org/10.2308/accr-51096.
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ABSTRACT Beatty, Liao, and Wu (2013) document that financial misreporting by prominent firms distorts peer firms' capital investment decisions. Using a large sample of firms subject to SEC and DOJ enforcement actions for accounting misstatements, I establish three important generalizations. First, the adverse effect of financial misstatements documented by Beatty et al. (2013) is not limited to high-profile scandals and can be generalized to a larger population. Second, the distortions are not confined to capital investments; they also extend to choices peer firms make with respect to R&D, advertising, and pricing policies—decisions with immediate bottom-line impact. Third, I document that the magnitude of the distortion varies predictably with peer firms' characteristics, the misstating firms' external information environment, and the industry-specific information environment within which the misstatement occurs. Specifically, I find smaller distortions for larger peers and peers managed by more able managers, and larger distortions for more widely followed misstating firms and in the industries in which more firms misstate. Collectively, my results suggest that the distortive effect of financial misstatements is larger and more pervasive than documented in prior research.
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Bhat, P. N. Mari. "Estimating Transition Probabilities of Age Misstatement." Demography 27, no. 1 (February 1990): 149. http://dx.doi.org/10.2307/2061559.
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Mitchell, Paul. "Negligent Misstatement in Canada:Young v Bella." King's Law Journal 17, no. 2 (January 2006): 341–50. http://dx.doi.org/10.1080/09615768.2006.11427655.
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Keune, Marsha B., and Karla M. Johnstone. "Staff Accounting Bulletin No. 108 Disclosures: Descriptive Evidence from the Revelation of Accounting Misstatements." Accounting Horizons 23, no. 1 (March 1, 2009): 19–53. http://dx.doi.org/10.2308/acch.2009.23.1.19.
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SYNOPSIS: The purpose of this paper is to provide a descriptive analysis of companies’ previously uncorrected financial statement misstatements using disclosures recently mandated by Staff Accounting Bulletin No. 108 (SAB No. 108). We analyze 355 companies that disclose and correct 792 misstatements in their financial statements filed from November 15, 2006, to February 15, 2008. We present descriptive evidence on the size and industry distribution of companies who disclose SAB No. 108 adjustments, showing that larger companies and those in the banking/insurance/real estate industries are most commonly represented in our sample. We also describe the types of audit firms that are associated with these companies. The results show that the concentration of sample companies in the banking/insurance/real estate industries are most often audited by the smallest audit firms in the market, and there is considerable variation in the application of quantitative materiality thresholds for SAB No. 108 disclosures across audit firms. Finally, our descriptive analyses reveal insights about the nature, direction, and magnitude of specific misstatements corrected by SAB No. 108. For example, we show that the most common SAB No. 108 misstatement corrections involve current liabilities, deferred taxes, revenue recognition, and leases. In addition, many companies in our sample used SAB No. 108 to correct misstatements identified in the current year to avoid restating prior period financial statements.
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Albrecht, Anne, Elaine G. Mauldin, and Nathan J. Newton. "Do Auditors Recognize the Potential Dark Side of Executives' Accounting Competence?" Accounting Review 93, no. 6 (January 1, 2018): 1–28. http://dx.doi.org/10.2308/accr-52028.
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ABSTRACT Practice and research recognize the importance of extensive knowledge of accounting and financial reporting experience for generating reliable financial statements. However, we consider the possibility that such knowledge and experience increase the likelihood of material misstatement when executives have incentives to misreport. We use executives' prior experience as an audit manager or partner as a measure of extensive accounting and financial reporting competence. We find that the interaction of this measure and compensation-based incentives increases the likelihood of misstatements. Further, auditors discount the audit fee premium associated with compensation-based incentives when executives have accounting competence. Together, our results suggest that a dark side of accounting competence emerges in the presence of certain incentives, but auditors view accounting competence favorably despite the heightened risk. In further analyses, we demonstrate that executives' aggressive attitude toward reporting exacerbates the effect of accounting competence and compensation-based incentives on misstatements, but not on audit fees. JEL Classifications: M41; M42. Data Availability: Data are available from public sources identified in the text.
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Zhao, Yuping, Jean C. Bedard, and Rani Hoitash. "SOX 404, Auditor Effort, and the Prevention of Financial Report Misstatements." AUDITING: A Journal of Practice & Theory 36, no. 4 (February 1, 2017): 151–77. http://dx.doi.org/10.2308/ajpt-51687.
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SUMMARY Prior research shows that the Sarbanes-Oxley Act (SOX) Section 404(b) integrated audit is associated with a lower incidence of misstatements. We predict that under 404(b), the auditor's ability to detect misstatements increases relative to other internal control regimes when greater resources are exerted during the engagement. Supporting this prediction, we find that the benefits of 404(b) versus other regimes (including SOX 404(a)) in reducing misstatements increase with incremental audit effort (proxied by abnormal audit fees). We find no benefit of 404(b) in misstatement reduction when abnormal audit effort is low. This implies that the value of 404(b) testing is not uniform, but rather is greater when sufficient resources are available to thoroughly understand client controls. In contrast, we find no benefit of abnormal audit effort under other regulatory regimes. We further examine the conditions under which knowledge gained from auditor internal control testing is more valuable. We find that the benefits of increased audit effort under 404(b) do not vary across internal control regimes under AS2 versus AS5, and are more pronounced for engagements with shorter auditor tenure, non-Big 4 auditors, and industry-specialist auditors. JEL Classifications: M49. Data Availability: Data used in this study are available from public sources.
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Razzak Alshehadeh, Abdul, and Abdallah Atieh. "External auditor’s analytical procedures and their impact on discovering material misstatements." Ekonomski pregled 71, no. 3 (2020): 271–300. http://dx.doi.org/10.32910/ep.71.3.4.
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This study aims to identify the impact of the external auditor’s analytical procedures on the financial statements and reports for the detection of material misstatements of the Jordanian commercial banks. The impact of independent variables (profitability, liquidity, capital solvency and the employment of funds ratios) on the dependent variable (the detection of material misstatements) was measured. The dependent variable is represented by the earnings management, which is measured by the discretionary accruals. The quantitative standard method was used to analyse the financial statements and analytical procedures; moreover, the Jones Model was used to measure earnings management. Additionally, the multivariate linear regression model was used to test the hypothesis of the study, and to indicate the relationships between the variables. The study population consisted of five Jordanian commercial banks. The data was collected from 2011 to 2017. This study concluded that there is no statistically significant impact of the analytical procedures relating to the ratios of liquidity, profitability, solvency, and employment of funds that the external auditor could undertake to discover material misstatement of the financial statements of Jordanian commercial banks. Finally, the study recommended that auditors should be highly competent and deeply knowledgeable in using the analytical procedures to judge the fairness of financial data and be free of material misstatements.
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Aubert, François, Jeff J. Wang, and Gary Grudnitski. "Convergence consensus analyst earnings estimates and option pricing in modeling material accounting misstatements." Review of Accounting and Finance 18, no. 1 (February 11, 2019): 134–56. http://dx.doi.org/10.1108/raf-05-2017-0101.
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Purpose The purpose of this paper is to introduce analyst estimates and option pricing-based variables in modeling material accounting misstatements. Design/methodology/approach The paper uses a logistic regression model to analyze a comprehensive sample of AAER and non-AAER firms listed in the USA. Findings By applying a cross-sectional, sequence of time-series logistic regression models, the authors find better identifiers of ex ante risk of fraud than prediction models based on an inspection of abnormal accruals. These identifiers include the managed earnings (ME) component of a firm and the change in a firm’s option contracts’ implied volatility (IV) prior to an earnings announcement. Practical implications The empirical findings contribute to an understanding of earnings manipulation (fraud) and should be of value to auditors and regulatory bodies interested in identifying financial statement fraud, particularly the Securities and Exchange Commission, which has been improving its accounting quality model (AQM or Robocop) fraud detection tool for many years. The results contribute substantially to enhancing the current accounting literature by introducing two non-accrual-based measures that significantly enhance the predictive power of an accrual-based accounting misstatement prediction model. Originality/value This paper radically departs from relying on the assumption that the clearest and easiest pathway to detect fraud reporting ex ante is through an examination of accruals. Instead, the authors use a richer source of information about the possibility of a firm’s misstatement of its financial accounting numbers, namely, analyst estimates of ex post earnings and the IV from exchange-traded option contracts.
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Homola, David, and Marie Paseková. "Factors influencing true and fair view when preparing financial statements under IFRS: evidence from the Czech Republic." Equilibrium 15, no. 3 (September 7, 2020): 595–611. http://dx.doi.org/10.24136/eq.2020.026.
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Research background: Accounting records provide a wide range of data necessary for decisions of the management as well as for users of a company’s financial statements. IFRS represents one of the widely accepted accounting principles, often mentioned in relation to the preparation of high-quality financial statements.
Purpose of the article: The aim of this paper is to identify the factors contributing to the occurrence of misstatements when preparing financial statements under IFRS. The subsequent goal is to identify the possible influences of such misstatements on the users of the financial statements.
Methods: The research itself focuses on perceived problems in IFRS application in the Czech Republic. The total tested population is 193 Czech companies preparing their financial statements under IFRS. Descriptive statistics, the chi-square test of independence along with proportional tests, are used for the statistical data analysis.
Findings & Value added: The results indicate that, while misstatements in accounting do not occur regularly, a statistical dependence can be shown be-tween the frequency of misstatements occurrence and the average size of mis-statements. The frequency of the subsequently identified misstatements is also proven to be statistically dependent on the average size of misstatements. The IFRS themselves are not proven to influence misstatement occurrences in financial statements, which is in contrast with previous studies. Managerial pressures, similarly to other studies, are proven by the research to be affecting the quality of accounting information. This paper broadens the literature on the factors influencing the quality of financial statements prepared under IFRS and simultaneously reaches conclusions disproving the frequently noted bene-fits of IFRS implementation.
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Kizirian, Timothy G., Brian W. Mayhew, and L. Dwight Sneathen. "The Impact of Management Integrity on Audit Planning and Evidence." AUDITING: A Journal of Practice & Theory 24, no. 2 (November 1, 2005): 49–67. http://dx.doi.org/10.2308/aud.2005.24.2.49.
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This study uses working paper data from 60 clients of a U.S. Big 4 auditing firm to directly examine the influence of auditor-assessed management integrity on auditor's assessments of risk of material misstatement, audit planning, and audit outcomes. We hypothesize that management integrity is related to preliminary risk assessments, and to the persuasiveness, timing, and extent of planned audit procedures. We also hypothesize that the management integrity assessment influences the auditor's evaluation of source credibility of management provided evidence beyond its influence via risk assessments (Beaulieu 2001). Finally, we expect the auditor's management integrity assessment to be associated with the discovery of client misstatements. When we add management integrity to empirical models motivated by Mock and Wright (1993, 1999), we find support for our hypotheses. However, all but two hypothesized associations disappear when we add an indicator variable for prior-year errors. We continue to find that management integrity impacts the persuasiveness of evidence sought beyond what is suggested by the auditor's risk assessment. Interestingly, even after controlling for prior-year errors, we find an inverse association between the auditor's assessment of management integrity and the likelihood of detecting misstatements, suggesting the management integrity assessment aids the auditor in ultimately discovering errors. The results support the importance of assessing management integrity in planning the audit and discovering misstatements.
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Riduwan, Akhmad. "HOW AUDITORS CAN DETECT FINANCIAL STATEMENT MISSTATEMENT." EKUITAS (Jurnal Ekonomi dan Keuangan) 1, no. 2 (November 15, 2016): 53. http://dx.doi.org/10.24034/j25485024.y1997.v1.i2.1848.
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Salah saji material yang tidak terdeteksi oleh auditor atas laporan keuangan auditan merupakan suatu bentuk kegagalan auditor dalam melaksanakan pekerjaannya. Penyebab yang sangat dominan atas kegagalan auditor ini adalah ketidak-tanggapan mereka (tim auditor) terhadap berbagai gejala, penomena atau “warning signal” yang timbul di sekitar “wilayah pekerjaan” mereka. Kurangnya pengalaman para staf auditor yunior serta sedikitnya pemahaman mereka tentang obyek yang diaudit, menyebabkan pekerjaan audit dilaksanakan tanpa sikap skeptis profesional yang memadai.Operasi perusahaan (klien) yang menggunakan teknologi tinggi, serta kompleksnya instrumen dan transaksi keuangan, juga dapat menjadi penyebab kegagalan audit tersebut. Artikel ini bertujuan untuk menekankan kembali perlunya sikap skeptis yang harus dimiliki oleh auditor dalam melaksanakan tugasnya secara profesional, sehingga perhatian auditor terarah pada “warning sign” yang secara potensial dapat menyebabkan kesalahan material dalam penyajian laporan keuangan.
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ARZHENOVSKII, Sergei V., Tat'yana G. SINYAVSKAYA, and Andrei V. BAKHTEEV. "Determining a typology of behavioral traits indicating the inclination to material misstatement risk among those charged with financial reporting." International Accounting 22, no. 4 (April 15, 2021): 422–37. http://dx.doi.org/10.24891/ia.24.4.422.
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Subject. We typified persons charged with financial reporting, who are more than inclined to misstatement risk due to fraud. Objectives. We herein develop a methodological framework for determining types of people charged with financial reporting. The typification is based on behavioral traits of the inclination to material misstatement risk. Methods. We applied multivariate statistical methods of factor and cluster analyses on the basis of empirical data we gathered in the survey of 515 employees charged with financial reporting. Results. As we found, if a person charged with financial reporting has some behavioral traits admitting the possibility of taking risk and an expectation of remaining unpunished and a pathological monetary type in case of legislative illiteracy, these signs mean the inclination to material misstatement risk due to fraud. Such people account for nine percent of the sample. One third of the sample is made up of people who are not inclined to risk at all. The neutral group in terms of the above risk comprises slightly more than one third. The remaining people (about 23 percent) can be qualified as suspicious in terms of their inclination to the above risk, which should be a reason for additional auditing procedures. Conclusions. Being not very difficult, the proposed methodological framework helps improve the efficacy of risk assessment procedures during audits. From perspectives of the inclination to business risk, determining types of employees charged with financial reports allows to decide on the necessity of additional auditing procedures when setting up the audit strategy and planning to cushion the material misstatement risks due to fraud.
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(Tad) Miller, Charles R., and Arline Savage. "Vouch and Trace: A Revenue Recognition Audit Simulation." Issues in Accounting Education 24, no. 1 (February 1, 2009): 93–103. http://dx.doi.org/10.2308/iace.2009.24.1.93.
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ABSTRACT: The purpose of this project is to help students apply auditing procedures that pertain to revenue recognition. In particular, students gain a better understanding of (1) the importance of management's occurrence, accuracy, and cutoff assertions regarding revenue; (2) the relationship between an auditing procedure and an audit objective; (3) how to perform an audit procedure; and (4) how to create audit work papers. The project includes four types of revenue misstatements. Students must design a procedure to detect misstatement, and then determine how to best use supporting documents to provide evidence that recorded sales actually occurred and are recorded at the correct value in the correct reporting period. All supporting documents for this project are stored on the Internet for easy access. This project requires very little class time and the time required of students is very reasonable. Students can also conveniently complete the project anywhere they have access to the Internet.
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Cassar, Gavin, and Joseph Gerakos. "Determinants of Hedge Fund Internal Controls and Fees." Accounting Review 85, no. 6 (November 1, 2010): 1887–919. http://dx.doi.org/10.2308/accr.2010.85.6.1887.
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ABSTRACT: We investigate the determinants of hedge fund internal controls and their association with the fees that funds charge investors. Hedge funds are subject to minimal regulation. Hence, hedge fund managers voluntarily implement internal controls, and managers and investors freely contract on fees. We find that internal controls are stronger in funds with higher potential agency costs. Further, internal controls are stronger in funds domiciled in jurisdictions that provide investors with limited legal redress for fraud and financial misstatements. Short selling funds, however, are more likely to protect information about their investment positions by implementing weaker internal controls. With respect to fees, we find that the percentage of positive profits that the manager receives increases in the strength of the fund’s internal controls. Finally, removing the manager from setting and reporting the fund’s official net asset value, along with reputational incentives and monitoring by leverage providers, are all associated with lower likelihoods of future regulatory investigations of fraud and/or financial misstatement.
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Darise, Rezky Febriendy. "DETECTION OF FRAUDULENT FINANCIAL STATEMENTS USING THE BENEISH RATIO INDEX FOR MANUFACTURING COMPANIES LISTED ON THE INDONESIAN STOCK EXCHANGE IN 2016 AND 2017 PERIOD." ACCOUNTABILITY 8, no. 2 (July 31, 2019): 66. http://dx.doi.org/10.32400/ja.24757.8.2.2019.66-74.
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Fraud is an action taken intentionally and it is done for personal or other people's purposes, where the action has caused harm to certain parties or certain institutions. Misstatements contained in fraudulent financial statements are intentional misstatements to deceive users of financial statements. The source of this misstatement includes manipulation or falsification of accounting records, intentional misstatements or omissions from financial statements, and / or incorrect application of accounting principles. In Indonesia, accounting fraud also occurs at the company level, both private and government companies. On December 6, 2012, the announcement of Indonesia's score in the Corruption Perception Index (CPI) was 32 and ranked 118th out of 176 countries which measured the level of corruption (Transparency International, 2012). In 2001, a fraud scandal occurred by PT Kimia Farma Tbk. PT Kimia Farma is a state-owned company whose shares have been traded on the exchange to become public company. Based on indications by the Ministry of BUMN and Bapepam's examination, it was found that there were misstatements in the financial statements which resulted in overstatement of net income for the year ended 31 December 2001 of Rp. 32.7 billion, which represented 2.3% of sales and 24.7% from net income. The author's purpose of this study is to discuss about detecting fraud in financial statements by using 5 (five) of the 8 (eight) Beneish ratio indices, because Beneish's research states that the Days Sales in Receivables Index (DSRI) ratio index, the Gross Margin Index ( GMI), Asset Quality Index (AQI), Sales Growth Index (SGI), and Total Accrual to Total Asst Index (TATA) have significant results to detect financial report manipulation.
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Bacon, David. "Debating the Raids: A Misstatement and a Disagreement." NACLA Report on the Americas 42, no. 1 (January 2009): 2. http://dx.doi.org/10.1080/10714839.2009.11722241.
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Culliton, Barbara J. "US report finds NIH's Gallo guilty of misstatement." Nature 361, no. 6407 (January 1993): 3–4. http://dx.doi.org/10.1038/361003b0.
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Barron, Orie, Jamie Pratt, and James D. Stice. "Misstatement Direction, Litigation Risk, and Planned Audit Investment." Journal of Accounting Research 39, no. 3 (December 2001): 449–62. http://dx.doi.org/10.1111/1475-679x.00022.
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Cao, Kien, Thao Tran, and Thuy Nguyen. "Corporate governance and financial misstatement: evidence from Vietnam." International Journal of Business and Globalisation 27, no. 3 (2021): 385. http://dx.doi.org/10.1504/ijbg.2021.10035645.
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Cao, Kien, Thao Tran, and Thuy Nguyen. "Corporate governance and financial misstatement: evidence from Vietnam." International Journal of Business and Globalisation 27, no. 3 (2021): 385. http://dx.doi.org/10.1504/ijbg.2021.113274.
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O'Donnell, Ed, and Jon D. Perkins. "Assessing Risk with Analytical Procedures: Do Systems-Thinking Tools Help Auditors Focus on Diagnostic Patterns?" AUDITING: A Journal of Practice & Theory 30, no. 4 (November 1, 2011): 273–83. http://dx.doi.org/10.2308/ajpt-10148.
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SUMMARY This study investigated whether auditors who used a diagram designed around systems-thinking principles to acquire information for analytical procedures would focus more on patterns of changes in accounts and assess misstatement risk differently than auditors who used an informationally equivalent diagram organized by business-process categories. During a laboratory experiment, experienced auditors performed analytical procedures using one of two alternative diagrams. Participants documented their concerns about misstatement risk and rated the diagnostic relevance of information about patterns of changes in accounts. Auditors who used the systems-thinking tool focused more on diagnostic patterns of fluctuations in accounts and came to different conclusions about risk. Data Availability: Data will be made available by the authors upon request.
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Budescu, David V., Mark E. Peecher, and Ira Solomon. "The Joint Influence of the Extent and Nature of Audit Evidence, Materiality Thresholds, and Misstatement Type on Achieved Audit Risk." AUDITING: A Journal of Practice & Theory 31, no. 2 (February 1, 2012): 19–41. http://dx.doi.org/10.2308/ajpt-10239.
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SUMMARY We use simulation to investigate the joint effects of materiality, evidence extent, evidence nature, and misstatement type on achieved audit risk, i.e., the risk of undetected material financial statement misstatement due to error or fraud. Our primary results are fourfold. First, contrary to conventional audit wisdom, we show that elevating the extent of testing decreases achieved audit risk only under certain conditions and may well increase it. Second, reducing materiality (attempting to perform a more precise audit) can either enhance or jeopardize audit effectiveness. Third, learning about the quality of the internal controls over financial reporting not only can help the auditor to perform an integrated audit, but also helps the auditor to reach better judgments about the extent to which and how evidence from the auditee organization's management and/or information systems may be distorted as a result of misstatement, reducing the risk that the auditor would be misled by such evidence. Fourth, when financial statements are biased intentionally due to fraud, it is especially important for the external auditor to supplement more traditional audit tests with tests that produce evidence that is less likely to be biased by management. Auditors who do not understand these four results run a heightened risk of compromising audit effectiveness.
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Azzali, Stefano, and Tatiana Mazza. "Determinants of Audit Sanctions Severity." International Journal of Business Administration 11, no. 2 (March 24, 2020): 28. http://dx.doi.org/10.5430/ijba.v11n2p28.
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This study investigates the effects of material weaknesses from auditing standards and of material misstatement from accounting standards on the audit sanctions severity. Using a unique database in the period 1983 – 2015, we find mixed results. Among the auditing standards, Internal Control Weaknesses lead to more severe audit sanctions than Quality Control, Other Auditors, Reporting and Audit Opinion Material Weaknesses Audit Sanctions, and to less severe audit sanctions than Professional Skepticism and Substantial Procedures. Among accounting standards, Fair Value misstatements are associated with more severe audit sanctions than Long-term investment, bank debts, and liquidity errors, and with lower severity of audit sanctions than Account receivables. Taken together, these findings suggest two main determinants of audit sanctions severity that auditors and accountants need to be aware: the area of internal control deficiencies and the area of fair value measurement. From these results, we learn that accounting and auditing standards errors have different likelihood of audit sanctions, and that auditors that aim to avoid sanctions need to invest mainly in the internal control assurance and in the fair value items of the financial reporting.
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Kochetova-Kozloski, Natalia, Thomas M. Kozloski, and William F. Messier. "Auditor Business Process Analysis and Linkages among Auditor Risk Judgments." AUDITING: A Journal of Practice & Theory 32, no. 3 (January 1, 2013): 123–39. http://dx.doi.org/10.2308/ajpt-50413.
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SUMMARY: This research note examines whether auditors “link” their entity-level risk assessments to their core business process risk assessments. For auditors who performed a business process analysis of the core business process, there is a positive association between the identification of significant process-level business risks and the identification of significant business risks at the entity level. We also find that performing a business process analysis leads to higher assessments of the risk of material misstatement at the process level. With respect to the linkages between risk-related judgments, we find that auditors link their assessments of misstatement risk at the process level to similar assessments at the entity level, while taking into account significant process-level risks. Data Availability: The data are available from the first author upon request.