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The current study examines the effect of fraud training on auditors' ability to identify fraud risk factors. This is important because most auditors have little or no direct experience with fraud; thus, research that investigates the potential effect of indirect experience through training is vitally important to fraud detection and audit quality. A total of 369 experienced auditors completed a complex audit simulation task that involved 15 seeded fraud risk red flags. A total of 143 auditors participated in a 30-minute training session focused specifically on fraud risk, while the remaining 226 auditors learned about general internal control risk during this time block. The results indicate that auditors with fraud training identified significantly more red flags and obtained greater knowledge about fraud risk than auditors who did not receive the training. Considering that the fraud training consumed only 30 minutes out of a 64-hour training session, the findings suggest that even modest exposure to fraud training is quite effective.

This paper has two purposes. The first is to demonstrate that over time, and in a number of professional and academic places, the concept of auditor independence has been contested; that is, there have been different concepts of auditor independence within different time periods, and even when there appears to have been consensus on the meaning of auditor independence, there have been significant debates about auditor independence. The second purpose of the paper is to advocate a complete reconsideration of the concept of auditor independence; one which would move us towards the idea that auditors should be prohibited from acting as advocates in any way on behalf of their clients, and that client management should have no ability whatsoever to determine the audit fee or the scope of audit engagement. These are controversial ideas. They are meant to be so.

Purpose – This study examines the relationship between Big Four audit firm country-level market shares and audit fees across a sample of nine emerging economies: Argentina, Brazil, Chile, Hong Kong, Israel, Korea, Mexico, South Africa, and Taiwan.

Design/methodology/approach – First, auditor market share is calculated as a percentage of client sales based on all publicly traded companies in each of the sample countries during the period 2002–2005. Next, Audit Analytics is used to obtain audit fee data for a set of foreign companies listed on a primary U.S. exchange. A final sample of 483 client-year observations is included in the audit fee regression analysis.

Findings – After controlling for other factors related to audit pricing, Big Four auditors with dominant country-level market shares earn a fee premium of approximately 27% over competitor firms.

Originality/value – These results suggest that individual Big Four firm reputations, as measured by fee premiums, are not homogeneous across countries. Rather, it appears the largest audit firms are associated with quality-differentiated services and thus earn higher fees. Although accounting research tends to classify large international accounting firms into a pool of the “Big Four,” these findings indicate that it is important to consider each firm's market share in specific geographic locations when examining questions related to auditor reputation and pricing.

Previous research on auditors’ processing of nondiagnostic evidence demonstrates the existence of a dilution effect – the tendency to underreact to diagnostic information when accompanied by nondiagnostic information. Prior audit studies find that accountability, a prominent feature in audit settings, does not affect the magnitude of the dilution effect exhibited by auditors. Based on more recent theories about accountability, this line of research is extended by exploring whether (1) the dilution effect previously identified is a robust phenomenon that can be replicated, (2) accountability has an impact on both the frequency and magnitude of dilution effect, and (3) the impact of accountability on both the frequency and magnitude of dilution effect is conditional on the degree of accountability experienced by the participants through various reporting levels. The experimental results from a sample of internal auditors provide evidence supporting the first two propositions; however, the results related to reporting levels are not significant. A discussion of the implications of these findings for audit research and practice follows.

Independence is the cornerstone of the auditing profession. Even so, it is often assumed that acquiescing to the audit client when a disagreement occurs is more beneficial to the auditor-client relationship than asserting one’s independence (e.g., see Wang & Tuttle, 2009). We look more closely at the issue in the context of auditor-client management disagreements as recalled by experienced auditors.

We find that for most disagreements in which the auditor did not make any concession at all, the auditor-client relationship was either unaffected or strengthened. We find that a client’s use of pressure tactics did not appear to influence whether or not the auditor made a concession, but that a client’s use of pressure tactics, was associated with damage to the auditor-client relationship. The importance of the issue causing a disagreement was positively associated with the likelihood of the auditor staying with his/her initial position.

The results of recent research suggest that certain provisions of the Sarbanes–Oxley Act of 2002 (SOX) may have been less successful than intended (e.g., Abbott, Parker, & Peters, 2009). Based on two different descriptions of economic bonding between auditors and their clients, we propose an explanation of why this might be so by showing that the effect of SOX mandates, and regulation in general, aimed at enhancing auditor independence is dependent on whether shareholders or managers monitor the auditor. The results of prior empirical studies are examined in context of the framework we describe, and suggestions for future research on this important topic are outlined.

We analyze the economic consequence of government intervention on the incidence of accounting fraud and audit fees of both Big 4 and local big auditors on Chinese audit market in the period 2006–2013. In 2009, Chinese government issued favorable polices to local big auditors and required certain Chinese companies to give priority to these auditors. We find that market share of Big 4 auditors is quite stable before and after government intervention, but market share of local big auditors increases at the cost of local small auditors after intervention. Although audit fee premiums of both local big and Big 4 auditors have increased after intervention, the positive effect of local big auditors on audit fee premiums has significantly decreased. Further, both Big 4 and local big auditors are not likely to reduce the incidence of accounting fraud in pre- and post-intervention period. Our results suggest that Chinese government support to local auditors does not significantly enhance these auditors’ competitiveness in terms of audit fee and audit quality.

This chapter introduces linguistic delivery style to auditing research, demonstrates how linguistic delivery style relates to client credibility, and shows how linguistic delivery style and client credibility influences auditors’ judgment. Two hundred auditors participated in an analytical procedures task. The results indicate that high client credibility and powerful linguistic delivery style increase the auditor's assessed likelihood that the explanation accounts for the fluctuation and decrease their intent to perform additional testing. Moreover, powerless linguistic delivery style from an otherwise high credibility client leads to auditor judgments and intentions that are indistinguishable from those that arise from a low credibility client. Finally, evidence indicates that linguistic delivery style is a fourth component of credibility.

The digital economy has significantly altered the way business is conducted and financial information is communicated. A rapidly growing number of organizations are conducting business and publishing business and financial reports online and in real-time. Real-time financial reporting is likely to necessitate continuous auditing to provide continuous assurance about the quality and credibility of the information presented. The audit process has, by necessity, evolved from a conventional manual audit to computer-based auditing and is now confronted with creating continuous electronic audits. Rapidly emerging information technology and demands for more timely communication of information to business stakeholders requires auditors to invent new ways to continuously monitor, gather, and analyze audit evidence. Continuous auditing is defined here as “a comprehensive electronic audit process that enables auditors to provide some degree of assurance on continuous information simultaneously with, or shortly after, the disclosure of the information.” This paper is based on a review of related literature, innovative continuous auditing applications, and the experiences of the authors. An approach for building continuous audit capacity is presented and audit data warehouses and data marts are described. Ever improving technology suggests that the real-time exchange of sensitive financial data will place constant pressure on auditors to update audit techniques. Most of the new techniques that will be required will involve creation of new software and audit models. Future research should focus on how continuous auditing could be constantly improved in various auditing domains including assurance, attestation, and audit services.

The Dodd-Frank Financial Reform Act sets new whistleblowing standards for internal accountants and external auditors who fail to resolve differences internally with top management on financial reporting matters. Whistleblowers are eligible to receive a financial reward under Dodd-Frank if they “voluntarily” provide “original” information and meet other criteria. Interpretation 102-4 of the American Institute of Certified Public Accountants Code establishes reporting obligations for external auditors to meet the requirements of Dodd-Frank. The purpose of this paper is to critically evaluate the standards to better understand the whistleblowing process. A review of the literature identifies areas of concern in deciding whether to blow the whistle. The paper contributes to the literature by integrating thoughts, ideas, and issues raised by prior researchers and considerations specific to the whistleblowing process. The analysis results in the proposal of specific unanswered questions about the process that can guide future researchers.