Aantekeningen / Notes
-
Auditing Research
(EBM155A05)
Lecturers: Semester 2A year 2022/2023
- Prof. dr. D.A. (Dick) de Waard RA MA
- A.C.M. (Adrianca) Mens RA Msc
- Dr. Y. (Yasemin) Karibrahimoglu
Index
Lecture 1 – Historical perspective and development of the profession ................................................. 3
Introduction......................................................................................................................................... 3
Historical perspective .......................................................................................................................... 3
What went wrong? – Bazerman, Loewestein & Moore ...................................................................... 4
Position and Role of the big 4 – Mueller et al -Humphrey et al .......................................................... 5
What should be done? – Mueller et al – Humphrey et al ................................................................... 5
Lecture 2 – Judgement and decision making – the ethical point of view and in practice ...................... 8
Thinking Fast and Slow – Daniel Kahneman ........................................................................................ 9
Blind Spot – Max H. Bazerman – Ann E. Tenbrunsel ........................................................................... 9
Lecture 3 – Audit Quality – theories...................................................................................................... 12
Audit Quality (AQ) – Theories – What do we know? ........................................................................ 12
Audit Quality Determinants – What did we learn from academic research? ................................... 16
Lecture 4- Audit Quality – The process ................................................................................................. 19
Part I – What do we know from academic research? ....................................................................... 22
Part II – Audit quality process: combine the theory with practice.................................................... 25
Recall: Audit process ..................................................................................................................... 25
Audit Quality process: complications ............................................................................................ 26
Lecture 5 – Audit Quality – Contemporary issues ................................................................................. 28
Part I – what doe we know from academic research? ...................................................................... 28
Audit Quality Process – Grunn and Michas (2018)........................................................................ 28
Audit Quality process – Minutti-Meza (2021) ............................................................................... 29
Audit Quality Process – Rosati et al. (2020) .................................................................................. 30
Audit Quality process – Thompson (2018) .................................................................................... 31
Part II – Audit quality contemporary issues: Open Discussion.......................................................... 32
Lecture 6 – The value of assurance on non-financial information ........................................................ 34
Introduction....................................................................................................................................... 34
1
, What’s the Buzz? ............................................................................................................................... 35
Some Developments ......................................................................................................................... 36
Results From Research ...................................................................................................................... 36
J.R Cohen & R. Simnett .................................................................................................................. 37
N. Dalla Via & P. Perego ................................................................................................................ 37
B. O’Dwyer, D. Owen & J. Unerman .............................................................................................. 37
Impact on the Audit........................................................................................................................... 38
Podcast .................................................................................................................................................. 39
Lecture 7 – Summary & Questions ........................................................................................................ 39
2
,Lecture 1 – Historical perspective and development of the profession
Lecturer: prof. dr. D.A. de Waard RA MA
In this lecture prof. dr. D.A. (Dick) de Waard will introduce the course to you. After that he will make
a journey starting in 1875 in which he shows you the main development in the accountancy
profession, mainly focusing on the topics of audit quality and expectations. This journey ends in the
financial crisis of 2008.
Literature:
- Bazerman, M. H., Loewenstein, G., & Moore, D. A. (2002). Why good accountants do bad
audits. Harvard business review, 80(11), 96-103.
- Mueller, F., Carter, C., & Whittle, A. (2015). Can audit (still) be trusted. Organization Studies,
36(9), 1171-1203.
- Humphrey, C., Sonnerfeldt, A., Komori, N., & Curtis, E. (2021). Audit and the pursuit of
dynamic repair. European Accounting Revies, 30(3), 445-471.
Introduction
Central theme
Central theme of course: Audit Quality
- Ability
- Knowledge
- Motivation: depends on car, money, or sociability for auditors
- Environment: where do you come from?, What companies do we want to audit?
Level of assurance
- Nature object: What have I to audit
- Hardness criteria: Criteria is the law in auditing for financial statement, for sustainability?
- Quality evidence: enough documents? To build your opinion. Ask client for evidence.
- Amount of work: the amount of hours (risky, when it go wrong, not enough time, skip points)
Historical perspective
News paper: Financial crisis banks & Schandals
- Every where are going somethings wrong.
- Every audit firm is involving by an financial scandal.
The role and scope of the audit
“For our own part we consider that the class most to blame for the present stat of financial
depression is the investing class. To a great extent they directly encourage fraud by the greed with
which they snap up shares in any impracticable concern which may pretend to offer them a higher
rate of interest than can ever be legitimately expected, or which appears to offer facilities for a
profitable gamble on the Stock Exchange.” (17 march 1894)
3
, Auditor independence
“I think we should hear less of scandalous audits if auditors were placed in a more independent
position by being veritably appointed by the shareholders themselves at a specially convened
meeting, quite apart from the directors, and took their instructions from a duly appointed
committee, whom it would be their place to meet and report to fully, verbally as well as in writing,
and receive their remuneration from such committee.” (17 march 1894
- There should be a audit committee, the board is deciding which accountant we hire.
- The shareholders should appoint the auditor, if no shareholders, the supervisory board, if not
the board of management should appoint a auditor.
- The management board is part of the audit. It is dependent who is paying your bill, the
management board, or the supervisory board.
Recurring Issues
- Fraud and responsibility of the auditor (difficult because you need 2 thing; IC & assurance)
- Is the auditor a valuator? No we are not the valuator, we know the rules
- Expectation Gap society is thinking we check every euro. But we use materialty
o There are two Gap’s, what we should do and what people thing we do?
- Ethical Issues
- Ambiguous legislation – principle based versus rules based
- Interpretation of reporting rule
- Unconscious bias (Bazerman)
o Try to be independent, integer, …
o No we are fine whit what we do. 10 years later maybe it is wrong.
o What ever you do you have always bias.
Part of the solutions
- Regulations
- Standards and uniform criteria
- Professional association (Dutch: NBA)
- Quality reviews (internal and external) Checking with the (peer)-reviews of each other
- Founding of oversight bodies
- International cooperation
- Codes of conduct
What went wrong? – Bazerman, Loewestein & Moore
Bazerman: is writing a lot of auditor, in positive way.
Unconscious bias – Bazerman
He beliefs in auditors: Not corruption or criminality, no unethical auditors.
Bazerman saw: unconscious bias: explanations:
- Accounting is subjective nature accounting (most is valueted, matter of agreement that we
valued things) Not all statements
rules (IFRS, GAAP) are the same
- Tight relationships; some clients
you prefer/like above others
- Desires: Sometimes you want a
outcome, sometime is not the
outcome you want.
We are humans.
4
-
Auditing Research
(EBM155A05)
Lecturers: Semester 2A year 2022/2023
- Prof. dr. D.A. (Dick) de Waard RA MA
- A.C.M. (Adrianca) Mens RA Msc
- Dr. Y. (Yasemin) Karibrahimoglu
Index
Lecture 1 – Historical perspective and development of the profession ................................................. 3
Introduction......................................................................................................................................... 3
Historical perspective .......................................................................................................................... 3
What went wrong? – Bazerman, Loewestein & Moore ...................................................................... 4
Position and Role of the big 4 – Mueller et al -Humphrey et al .......................................................... 5
What should be done? – Mueller et al – Humphrey et al ................................................................... 5
Lecture 2 – Judgement and decision making – the ethical point of view and in practice ...................... 8
Thinking Fast and Slow – Daniel Kahneman ........................................................................................ 9
Blind Spot – Max H. Bazerman – Ann E. Tenbrunsel ........................................................................... 9
Lecture 3 – Audit Quality – theories...................................................................................................... 12
Audit Quality (AQ) – Theories – What do we know? ........................................................................ 12
Audit Quality Determinants – What did we learn from academic research? ................................... 16
Lecture 4- Audit Quality – The process ................................................................................................. 19
Part I – What do we know from academic research? ....................................................................... 22
Part II – Audit quality process: combine the theory with practice.................................................... 25
Recall: Audit process ..................................................................................................................... 25
Audit Quality process: complications ............................................................................................ 26
Lecture 5 – Audit Quality – Contemporary issues ................................................................................. 28
Part I – what doe we know from academic research? ...................................................................... 28
Audit Quality Process – Grunn and Michas (2018)........................................................................ 28
Audit Quality process – Minutti-Meza (2021) ............................................................................... 29
Audit Quality Process – Rosati et al. (2020) .................................................................................. 30
Audit Quality process – Thompson (2018) .................................................................................... 31
Part II – Audit quality contemporary issues: Open Discussion.......................................................... 32
Lecture 6 – The value of assurance on non-financial information ........................................................ 34
Introduction....................................................................................................................................... 34
1
, What’s the Buzz? ............................................................................................................................... 35
Some Developments ......................................................................................................................... 36
Results From Research ...................................................................................................................... 36
J.R Cohen & R. Simnett .................................................................................................................. 37
N. Dalla Via & P. Perego ................................................................................................................ 37
B. O’Dwyer, D. Owen & J. Unerman .............................................................................................. 37
Impact on the Audit........................................................................................................................... 38
Podcast .................................................................................................................................................. 39
Lecture 7 – Summary & Questions ........................................................................................................ 39
2
,Lecture 1 – Historical perspective and development of the profession
Lecturer: prof. dr. D.A. de Waard RA MA
In this lecture prof. dr. D.A. (Dick) de Waard will introduce the course to you. After that he will make
a journey starting in 1875 in which he shows you the main development in the accountancy
profession, mainly focusing on the topics of audit quality and expectations. This journey ends in the
financial crisis of 2008.
Literature:
- Bazerman, M. H., Loewenstein, G., & Moore, D. A. (2002). Why good accountants do bad
audits. Harvard business review, 80(11), 96-103.
- Mueller, F., Carter, C., & Whittle, A. (2015). Can audit (still) be trusted. Organization Studies,
36(9), 1171-1203.
- Humphrey, C., Sonnerfeldt, A., Komori, N., & Curtis, E. (2021). Audit and the pursuit of
dynamic repair. European Accounting Revies, 30(3), 445-471.
Introduction
Central theme
Central theme of course: Audit Quality
- Ability
- Knowledge
- Motivation: depends on car, money, or sociability for auditors
- Environment: where do you come from?, What companies do we want to audit?
Level of assurance
- Nature object: What have I to audit
- Hardness criteria: Criteria is the law in auditing for financial statement, for sustainability?
- Quality evidence: enough documents? To build your opinion. Ask client for evidence.
- Amount of work: the amount of hours (risky, when it go wrong, not enough time, skip points)
Historical perspective
News paper: Financial crisis banks & Schandals
- Every where are going somethings wrong.
- Every audit firm is involving by an financial scandal.
The role and scope of the audit
“For our own part we consider that the class most to blame for the present stat of financial
depression is the investing class. To a great extent they directly encourage fraud by the greed with
which they snap up shares in any impracticable concern which may pretend to offer them a higher
rate of interest than can ever be legitimately expected, or which appears to offer facilities for a
profitable gamble on the Stock Exchange.” (17 march 1894)
3
, Auditor independence
“I think we should hear less of scandalous audits if auditors were placed in a more independent
position by being veritably appointed by the shareholders themselves at a specially convened
meeting, quite apart from the directors, and took their instructions from a duly appointed
committee, whom it would be their place to meet and report to fully, verbally as well as in writing,
and receive their remuneration from such committee.” (17 march 1894
- There should be a audit committee, the board is deciding which accountant we hire.
- The shareholders should appoint the auditor, if no shareholders, the supervisory board, if not
the board of management should appoint a auditor.
- The management board is part of the audit. It is dependent who is paying your bill, the
management board, or the supervisory board.
Recurring Issues
- Fraud and responsibility of the auditor (difficult because you need 2 thing; IC & assurance)
- Is the auditor a valuator? No we are not the valuator, we know the rules
- Expectation Gap society is thinking we check every euro. But we use materialty
o There are two Gap’s, what we should do and what people thing we do?
- Ethical Issues
- Ambiguous legislation – principle based versus rules based
- Interpretation of reporting rule
- Unconscious bias (Bazerman)
o Try to be independent, integer, …
o No we are fine whit what we do. 10 years later maybe it is wrong.
o What ever you do you have always bias.
Part of the solutions
- Regulations
- Standards and uniform criteria
- Professional association (Dutch: NBA)
- Quality reviews (internal and external) Checking with the (peer)-reviews of each other
- Founding of oversight bodies
- International cooperation
- Codes of conduct
What went wrong? – Bazerman, Loewestein & Moore
Bazerman: is writing a lot of auditor, in positive way.
Unconscious bias – Bazerman
He beliefs in auditors: Not corruption or criminality, no unethical auditors.
Bazerman saw: unconscious bias: explanations:
- Accounting is subjective nature accounting (most is valueted, matter of agreement that we
valued things) Not all statements
rules (IFRS, GAAP) are the same
- Tight relationships; some clients
you prefer/like above others
- Desires: Sometimes you want a
outcome, sometime is not the
outcome you want.
We are humans.
4
