Audit policy

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Can transparency hurt? An experiment on whether disclosure of audit policy details reduces tax compliance

Can transparency hurt? An experiment on whether disclosure of audit policy details reduces tax compliance

Tax authorities around the world often are reluctant to disclose audit policy de- tails. In particular, the US Internal Revenue Service (IRS) has the practice of releasing broad statistics like the audit rate of each income class but resists pressures demand- ing details on how different circumstances might result in a higher audit probability to taxpayers. This paper experimentally examines whether disclosing such details can reduce tax compliance. We compare a Flat-rate treatment, where taxpayers are told about the average audit probability, with a Bounded treatment, where taxpayers are fully informed of the contingent audit probability structure. Our findings do not sup- port the potential concern against disclosing details. In an additional Bounded-hi-q treatment where multiple equilibria exist, the compliance level is even higher under full disclosure of the probability structure.
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State Dependence and Conditional Audit Policy

State Dependence and Conditional Audit Policy

By controlling the state-dependent degree of return, we demonstrate that a conditional audit policy can make the audit implementation more efficient only when the auditee’s benefit of under-declaring return is larger than the expected penalty under complete audit and the audit cost is relatively moderate. In that case, by using condi- tional audit mechanism, the principal can concentrate costly audit resources on the auditees with higher prob- ability to under-declare their actual returns. Additionally, we find that the state-dependent degree of return indeed plays a prominent role in whether to use conditional audit policy or not. This paper points out it may not be desir- able for the principal to implement any conditional audit especially in a situation that the returns in two periods are totally independent.
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Creating incentives for industry self-policing: an evaluation of the EPA’s audit policy

Creating incentives for industry self-policing: an evaluation of the EPA’s audit policy

The existing literature that considers the audit policy is limited. 2 One of the only papers that explicitly analyzes the audit policy of the EPA is Pfaff & Sanchirico (1998). In their model, firms need to undertake environmental audits in order to discover the magnitude of the harm caused by their operations. The focus of their paper is determining the structure of fines that can provide correct incentives for both auditing and correction of harms. Three remedies are suggested, all of which differ from the EPA audit policy. Pfaff and Sanchirico challenge the claim that agency enforcement costs will be reduced by self-auditing, noting that a credible threat of inspection must be maintained and inspection must still occur for those firms that do not audit themselves. Throughout most of their paper however, enforcement costs and hence, the probability of detection, remain fixed. One of the goals of this paper is to examine the claim of reduced enforcement costs more closely.
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ACCOUNTING AND AUDIT POLICY COMMITTEE MEETING FINAL MINUTES February 27, 2014

ACCOUNTING AND AUDIT POLICY COMMITTEE MEETING FINAL MINUTES February 27, 2014

Payne advised the Committee that FASAB plans to make it a practice after a new standard is developed to send out a survey to the community asking if there are any specific implementati[r]

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ACCOUNTING AND AUDIT POLICY COMMITTEE MEETING FINAL MINUTES May 21, 2009

ACCOUNTING AND AUDIT POLICY COMMITTEE MEETING FINAL MINUTES May 21, 2009

Ms. Valentine introduced John Lynskey, NSF, as the leader for the record retention subgroup of the AAPC G-PP&E task force. Mr. Lynskey thanked Ms. Gilmore and Ms. Valentine for their assistance in getting through the early stages of the subgroup. Mr. Lynskey also thanked all the members of the subgroup, including Mr. Dymond. Mr. Lynskey began by giving the Committee a brief overview of the work of the subgroup. He noted that the subgroup first researched the current guidance on record retention (i.e., IRS, NARA, International community, AICPA, etc.) and those summaries can be found in an appendix to the paper. Their research showed that there are inconsistencies in record retention policies throughout the community. The goal of the subgroup was to develop guidance to assist management with consistent record retention policies for G-PP&E assets. It was not the intent of the subgroup to provide audit guidance, but to provide value-added guidance that will help management as they are required to support balances presented on their financial statements. The subgroup used the five management assertions outlined in Statement of Auditing Standards (SAS) No. 31. Those assertions are (1) the existence or occurrence of assets or liabilities of the entity at a given date or recording of transactions over a given period of time; (2) the completeness of transactions and accounts; (3) the rights to assets and obligations incident to liabilities are properly represented; (4) the valuation and allocation of asset, liability, equity, revenue, and expense components are appropriately included; and (5) the financial statements present and disclose particular components properly.
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Office of Internal Audit Seton Hall University Internal Audit Policy and Procedure Manual

Office of Internal Audit Seton Hall University Internal Audit Policy and Procedure Manual

The development of the Audit Plan includes an evaluation of the Enterprise Risk Assessment. This is a process through which major risks are identified and evaluated according to the goals of the University and the goals of an individual area. An Enterprise Risk Assessment is prepared by each area Vice President and updated annually. The Risk Assessment includes a broad range of risks and associated controls. In addition, the Executive Director of Internal Audit is responsible for identifying and evaluating exposures to business risk and the controls designed by management to reduce those risks. When doing so, the following factors are considered:
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IT Security & Audit Policy Page 1 of 91

IT Security & Audit Policy Page 1 of 91

Information Security issues to be considered when implementing your policy include the following:.!. A failure to manage the technical requirements of the database can result in failur[r]

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[MS-GPAC]: Group Policy: Audit Configuration Extension

[MS-GPAC]: Group Policy: Audit Configuration Extension

When invoked, the audit configuration protocol client-side plug-in expects a list of applicable GPOs in the "New or changed GPOs" parameter. It MUST then go through this list and, for each GPO, locate and retrieve the contained advanced audit policy. For each of those GPOs, one file with the format (as specified in section 2.2) MUST be copied from the Group Policy: Core Protocol server. If any file cannot be read, the plug-in MUST log information about the failure and continue to copy files for other GPOs.

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From Civic Group to Advocacy Coalition: Using a Food Policy Audit as a Tool for Change

From Civic Group to Advocacy Coalition: Using a Food Policy Audit as a Tool for Change

Despite the opportunities that a policy audit process poses, it is not without its limitations. This case looked at the audit as a process of coalition transformation, not as the static output of the current audit process. Any one-time assessment is dated the moment it is complete. As food policy is a changing landscape, how does the work of the audit “live”? It was pointed out during the policy working group’s January 2015 monthly meeting that some of the audit policy priorities are out of date, yet no one on the working group currently has the time to update those priorities and reassess the policy landscape. As the coalition grows, new members will need to be introduced to the audit process of translating beliefs into policy requests. This process will need to be taken on as a regular course of action. Perhaps the greatest limitation of the food policy audit is that it merely identifies what policies do and do not exist in the current policy environment that align with the coalition’s mission. The coalition still needs to address whether a particular policy approach is the right one. An audit can act as a guide to local agenda- setting but should not be mistaken for developing and assessing alternatives or as replacing the needed evaluation of policies once they are implemented to determine whether they are achieving policy objectives.
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Audit Market Dynamics: Effects on Audit Quality

Audit Market Dynamics: Effects on Audit Quality

Another limitation of previous research that becomes evident when analysing it is that most, especially older, studies use a headcount measure of clients to measure market concentration. This means that researchers use the number of clients of an audit firm to measure its market share. Instead, it would be more accurate to use the audit-fee income to measure an auditor’s market share. This is the case because markets should be analysed in terms of factors that fit the business model of the industry (Farris, Bendle, Pfeifer & Reibstein, 2010). For the audit industry, the business model aims to deliver an audit product: the audit opinion. This delivery could be measured in terms of units or income. However, no two audit opinions require the same amount of time or effort from an auditor, which makes audit-fee income the most accurate measure of the market structure. The reason this has not been used often thus far is probably that this data has been less readily available and the data-gathering costs have been larger for this type of data, especially in the past; it has only been mandatory to report audit fees in the U.S. since 2000, and regulations are similar in many other countries.
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Audit Firm Characteristics and Audit Quality in Nigeria

Audit Firm Characteristics and Audit Quality in Nigeria

Financial Reporting Council (2006b) considers five factors that influence audit quality to includes: audit firm culture, skills and personal qualities of audit partners and staff, the effectiveness of the audit process, and the reliability and usefulness of audit reporting, amongst factor that are exogenous to the auditors. Earlier studies used observable outcomes as proxies for audit quality this includes; audit opinions, auditors’ selection and change, decisions, financial statements outcomes and analysts forecast. Francis (2004) reviewed 25 years of empirical researches and found that difference exists in the audit quality which can be concluded by examining different auditors. Moizer (1998) examines the issue of audit quality from a behavourial perspective, typically identifying attributes that are perceived by financial statement preparers, auditors and users that are related to audit quality. He found out that the big audit firms provide quality service.
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Privacy Policy Specification and Audit in a Fixed-Point Logic - How to enforce HIPAA, GLBA and all that

Privacy Policy Specification and Audit in a Fixed-Point Logic - How to enforce HIPAA, GLBA and all that

Our final set of contributions pertain to policy enforcement (Section 5). Policy enforcement is achieved through two logic-based methods for enforcing privacy policies. Our first method answers the question: Does a given organizational process respect a given privacy policy? This method is based on a sound proof system for PrivacyLFP and is described in Section 5.1. The proof system is obtained by adapting previous proof systems for an intuitionistic logic with fixed-points, µLJ [8, 17], to our classical logic PrivacyLFP; the soundness proof for the proof system with respect to the trace semantics is a new technical result. Our second enforcement method audits logs of organizational activity for violations of principals’ assigned responsibilities. It is based on a novel tableau-based model checking procedure for PrivacyLFP that we develop and prove sound in Section 5.2. We illustrate these enforcement techniques using a representative example of an organizational process.
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AUDIT FIRM ATTRIBUTES AND AUDIT QUALITY IN NIGERIA

AUDIT FIRM ATTRIBUTES AND AUDIT QUALITY IN NIGERIA

Independence, according to Sweeney (1994) simply denotes the quality to be free from influence, bias or persuasion, the absence that will impair greatly the audit services value as well as the report of audit. Audit independent is one of the explanatory variables to be examined in audit firm attribute. Audit independence has to do with the absence of interests which leads to the creation of the risk of unacceptability of material bias with due respect to financial statements reliability. It might as well be seen as the auditor’s unbiased intellectual attitude for decisions to be made throughout the process of auditing and reporting. The instantaneous role of audit independence is to ensure the audit is served. It brings about more effectiveness in the audit and make sure that the objectivity of the auditor is properly planned and executed. Dubuisi, Okeke and Chinyere (2017) posit that the independence of audit can be seen as auditor’s unbiased intellectual attitude in decisions making all through the audit as well as the process of financial reporting. Previous studies have revealed that auditor independence have effects on audit quality (Enofe, Mgbame, Efayena & Edegware, 2014). Ndubusi, et al. (2017) examined audit quality determinants: Evidence from quoted health care companies in Nigeria and found a relationship that is positively and statistically significant with that of the independence of audit as well as the quality of audit. Likewise, positive relationship that is significant also existed between the independence of auditor and that of the quality of audit (Alim, Trisni & Lilik, 2007). It therefore follows that as auditor independence rises, the quality of audit rises likewise.
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The impact of audit committee expertise on audit quality : evidence from UK audit fees.

The impact of audit committee expertise on audit quality : evidence from UK audit fees.

DeFond and Zhang (2014) outline a number of advantages in utilizing audit fees in measuring audit quality including the fact that audit fees are continuous and are thereby capable of capturing subtle variations in audit quality as well as the fact that the audit fee literature has sufficiently evolved to employ sophisticated fee models with very high R-squares. The latter point helps to alleviate concerns about correlated omitted variables which may be a more significant issue in other audit quality proxies (DeFond & Zhang, 2014). However, as acknowledged by DeFond and Zhang (2014), the use of audit fees to represent audit quality also has drawbacks. In particular, while higher audit fees may indeed indicate greater audit effort they may also represent an additional risk premium imposed by the auditor to counter an increased probability of financial liabilities arising from the audit (Simunic & Stein, 1996; Seetharaman, Gul & Lynn, 2002; Bell, Doogar & Solomon, 2008). Furthermore, variations in audit fees may also reflect changes in the auditor’s efficiency. Finally, of course audit fees capture both supply and demand factors. Consequently, as highlighted by DeFond and Zhang (2014), researchers must take particular care in interpreting the results from audit fee studies as “an increase in audit fees cannot be unambiguously interpreted as an increase in audit quality” (p. 290).
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The effect of audit market structure on audit quality and audit pricing in the private-client market

The effect of audit market structure on audit quality and audit pricing in the private-client market

Other studies examine how audit firms’ pricing power changed from before to after a period of increasing consol- idation among audit firms. For example, Willekens and Achmadi (2003) show that the pricing power of audit firms in the Belgian private-client market decreased following a period of audit market consolidation, suggesting an increase in price competition. In contrast, examining similar changes in consolidation but focusing on samples of publicly held UK clients, Iyer and Iyer (1996) and McMeeking, Peasnell, and Pope (2007) find mixed or insignificant changes in audit fees. The omission of economic factors that jointly determine market structure and audit pricing from the analysis may at least partly explain the inconclusiveness of prior evidence. For example, Eshleman and Lawson (2017) show that in the US market, controlling for previously omitted regional audit pricing factors changes the estimated effect of mar- ket concentration on audit fees from negative to positive. Further, studies comparing audit firms’ pricing power over time are unavoidably affected by potentially confounding changes in other determinants of pricing power, such as reg- ulatory or economic developments (see, e.g., Maher, Tiessen, Colson, & Broman, 1992). Audit complexity is an omitted economic factor that has received little explicit attention in past research. However, it is not inconceivable that prior studies examining the relationship between audit fees and market concentration, especially those focusing on public clients, suffer from estimation bias caused by the omission of accurate controls for audit complexity. 10
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Chapter 6--Audit Evidence, Audit Objectives, Audit Programs and Working Papers

Chapter 6--Audit Evidence, Audit Objectives, Audit Programs and Working Papers

Completed working papers must clearly indicate the audit work performed. This is accomplished in three ways: by a written statement in the form of a memorandum, by initialing the audit procedures in the audit program, and by notations directly on the working paper schedules.

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Relationship between Audit Firm Size, Non-Audit Services and Audit Quality

Relationship between Audit Firm Size, Non-Audit Services and Audit Quality

The post Enron financial reporting witnessed a vigorous debate on how to improve the quality and enhance the continuous relevance of the external auditor so as to maintain the public confidence in the integrity of the report of the auditor. Audit quality according to De Anglo (1981) is the market assessed joint probability that a given auditor will discover and report a breach of the client’s accounting system. The clamor for the review and upgrade of audit regulations worldwide has been ongoing but the climax was the Enron scandal which prompted a new wave of regulation (mandatory audit rotation) and the emergence of the Sarbanes-Oxley Act. This has to a reasonable extent helped to reposition financial reporting and governance procedures of quoted companies in the developed economies of the world. The global financial crisis brought to the fore the critical importance of high-quality financial reporting and enhanced audit processes and procedure. Audit quality is both complex and controversial. Hence, it has not enjoyed universal definition or description. Audit quality and financial reporting quality are congenial twins as one cannot be separated from the other. Extant literature has not reached a consensus on the significance of both factors as there exist mixed results. Our study extends this line of research by investigating the relationship between audit firm size, audit fees and audit quality with Nigerian banking sector as a reference point. The choice of this sector is premised on the current financial crisis.
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Influence of Self-Regulatory Policy of Auditing Profession on Audit Expectation Gap: A Qualitative Methodological Approach

Influence of Self-Regulatory Policy of Auditing Profession on Audit Expectation Gap: A Qualitative Methodological Approach

In order to provide a theoretical explanation on the regulatory influence for the existence of an audit expectation gap in Nigeria this study adopted a role theory as propounded by Porter (1990) and modified version of Davidson (1975) Based on role theory an auditor can be viewed as occupying a status or position as a profession in the social system (Lee et al, 2010). Due to the position of a profession, auditors are required to comply with the prescriptions ascribed to them by society. This position or status has been described in auditing literature as a role (Porter and Gowthorpe, 2004). According to Davidson (1975) failure to conform to the ascribed role or to meet role expectations in some cases create the risk of social action to enforce conformity and to penalize deviant behaviour. For duties to be reasonably expected of auditors, they must be compatible with auditors' role in society and cost-beneficial for auditors to perform (Lee et al, 2010). It has been proposed that auditors' role in society is constituted by the attitudes, values and behaviour expected of those who occupy the social position of auditors, by those who have an identifiable relationship with the role position, that is, by role senders. It is further postulated that the social position of auditors is that of members of a recognised profession acting as instruments of social control within the corporate accountability process. Davidson (1975) claimed that the role of the auditor is subject to the interactions of the normative expectations of the various interest groups in society which by and large may be described as different role senders having some direct or indirect relationship to the role position. According to Porter and Gowthorpe (2004) finding, the linchpin in narrowing the gap is perceived to be the duties which are reasonably expected of auditors. It is these duties about which society needs to be educated to eliminate the reasonableness gap, and it is these duties which need to be embodied in auditing standards and performed by practitioners in order to close the performance gap. It is submitted that, if this three-fold approach is adopted, rapid progress will be made towards narrowing the gap and, as a consequence, criticism of auditors will be reduced and the credibility of the profession will be restored. In line with Porter (1990); Oseni and Ehimi (2010) the theory to explain the role of auditors and the auditing regulators has been developed based on three basic elements, namely, the concept of role, the attributes of auditors as professionals, development and discharge of regulatory oversight of audit practice. Davidson provides a helpful diagram to demonstrate the complicated relationship of auditors and regulators in society, and this has been adapted to explain the Nigerian context as depicted in Figure 1.1 below.
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Mandatory Audit Firm Rotation and Audit Quality

Mandatory Audit Firm Rotation and Audit Quality

Regulators, academics, and the audit profession face both pros and cons regarding the adoption of MAFR. Proponents of MAFR argue that the requirement enhances auditor independence through fresh eyes and reduces a probability of developing personal relationships with audit clients. Meanwhile, opponents of MAFR argue that the mandatory rotation of auditors after a certain period produces an inefficient audit because of the high start-up costs of an initial audit and because understanding a client’s business and industry takes time, which is a key factor for a risk-based audit. Accordingly, prior relevant studies (e.g., Blouin et al., 2007; Kaplan and Mauldin, 2008; Chi et al., 2011) on the association between MAFR and financial reporting quality provide mixed results. For example, Blouin et al. (2007) report that financial reporting quality after an auditor change does not improve for former Arthur Andersen clients under forced auditor changes. However, in an experimental MAFR setting, Dopuch et al. (2001) show that auditors are more independent. Additionally, Nagy (2005) provides the supporting evidence for the adoption of MAFR that discretionary accruals are lower for smaller former Arthur Andersen clients after they switched auditors. Further, several studies exist on the association between auditor tenure and financial reporting quality under VAFC that provide indirect evidence on the effectiveness of MAFR. Most of the prior literature (e.g., Geiger and Raghunandan, 2002; Johnson et al., 2002; Myers et al., 2003; Ghosh and Moon, 2005; Li, 2010; Chi et al., 2011) provides mixed empirical results on the association between MAFR and financial reporting quality, such as discretionary accruals, audit failure, accounting conservatism, and earnings response coefficients. Although adopting MAFR comes with theoretically obvious costs and benefits, there is still little research on the effectiveness of the requirement. In this paper, we fill the gap by investigating the association between MAFR and auditor reporting decisions or earnings quality using data from Korean capital markets.
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IMPACT OF AUDIT PLANNING ON AUDIT QUALITY: CASE STUDY OF LOCAL AUDIT FIRMS IN UZBEKISTAN

IMPACT OF AUDIT PLANNING ON AUDIT QUALITY: CASE STUDY OF LOCAL AUDIT FIRMS IN UZBEKISTAN

Licensed under Creative Common Page 381 The key advantage of audit planning is seen in the quality of auditing results. Audit planning prevents errors which may occur in auditing process and frauds that may be face during the in the final auditing phase. Conclusively, it reduces error and fraud risk in auditing and enhances audit quality. However, audit planning possesses a significant power to mitigate high risks originated from diverse sources e.g. misstatement, inappropriate audit team building, lack of auditor’s competence and existence of need for external expert. In this paper, impact of audit planning on total quality of audit is examined in the sample of 16 auditors in Uzbekistan. Author specified an econometric model based on the questionnaire data and analysed the applicability and effect of audit planning by local audit firms of Uzbekistan.
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