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Article
Publication date: 14 November 2017

David Hay and Carolyn Cordery

This paper explores the value of financial statement auditing in the public sector. The study applies theory about auditing from the private sector as well as the public…

Abstract

This paper explores the value of financial statement auditing in the public sector. The study applies theory about auditing from the private sector as well as the public sector to explore ways in which public sector auditing can be expected to be valuable. It shows that there are a number of complementary explanations that can be applied to examine the value of public audit, including agency, signaling, insurance, management control, governance and confirmation explanations. The evidence from research and history is generally consistent with the agency and management control explanations. There is some support for the signaling and insurance explanations, while research evidence suggests that governance has differing impact in the public sector compared to the private. The confirmation hypothesis is also potentially relevant. Reviewing the history of the development of public sector auditing functions shows that at least some developments were consistent with explanations such as agency theory and management control. Auditing in the public sector is an area where more research is valuable. The paper concludes with a discussion of issues for further investigation.

Details

Journal of Accounting Literature, vol. 40 no. 1
Type: Research Article
ISSN: 0737-4607

Keywords

Article
Publication date: 21 December 2018

David Hay

The purpose of this paper is to discuss the increasing potential demand for meta-analysis studies in auditing. The paper includes a review of a new technique and…

Abstract

Purpose

The purpose of this paper is to discuss the increasing potential demand for meta-analysis studies in auditing. The paper includes a review of a new technique and meta-regression analysis, and explains its advantages in comparison to meta-analysis techniques used in prior auditing research. It also discusses opportunities for applying meta-analysis to auditing topics and potential pitfalls.

Design/methodology/approach

The paper provides a review and commentary on meta-analysis techniques used in auditing research, especially for meta-analyses of empirical archival studies that use regression models.

Findings

There is now considerable potential for meta-analysis to have an impact on auditing policy and regulation. Researchers using meta-analysis should make use of the most current techniques (e.g. meta-regression), which are more reliable and allow researchers to explore more issues about the research.

Originality/value

The paper informs auditing researchers about methods to advance their research and increase its usefulness.

Details

Managerial Auditing Journal, vol. 34 no. 1
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 24 April 2019

Alan Toy, David Lau, David Hay and Gehan Gunasekara

This paper aims to uncover the practices of different privacy auditors to reveal the extent of any similarities in such practices. The purpose is to investigate the…

Abstract

Purpose

This paper aims to uncover the practices of different privacy auditors to reveal the extent of any similarities in such practices. The purpose is to investigate the drivers of practices used by privacy auditors and to identify potential for improvements in the practice of privacy auditing so that privacy audits may better serve stakeholders.

Design/methodology/approach

Six semi-structured interviews with seven privacy auditors and regulators and an analyst across Australia, Canada, New Zealand and the USA are used as the basis for our analysis.

Findings

The study shows that some privacy auditors view privacy as an organizational issue, which means that all staff within an organization should understand the privacy issues that are relevant to the organization and to its customers. Because this practice goes beyond a mere compliance approach to privacy auditing, it indicates that there is a way to avoid the approach of merely applying standards from national data privacy laws which is an approach that has been subject to criticism because it is not applicable to the current situation of global applications and cross-border data. The interview themes demonstrate that privacy audits face significant challenges, such as the lack of a privacy auditing profession and the difficulty of raising the awareness of organizations and individuals regarding information privacy rights and duties.

Originality/value

Privacy auditing is mostly unexplored by academic research and little is known about the drivers behind the practice of privacy auditing. This study is the first to document the views of privacy auditors regarding the practices that they use. It also presents novel results regarding the drivers of the practice of privacy auditing and the interests of the beneficiaries of privacy audits. It builds on research that argues for the existence of best practices for privacy (Toy, 2013; Toy and Hay, 2015) and it extends this argument by providing reasons why privacy auditors may benefit from the use of best practices for privacy.

Details

Meditari Accountancy Research, vol. 27 no. 3
Type: Research Article
ISSN: 2049-372X

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Article
Publication date: 6 November 2020

David C. Hay and Carolyn J. Cordery

The purpose of this paper is to review opportunities for future research about auditing in the public sector.

Abstract

Purpose

The purpose of this paper is to review opportunities for future research about auditing in the public sector.

Design/methodology/approach

The paper presents the viewpoints of two researchers, supported by research that is cited in the paper.

Findings

Public sector auditing research has grown considerably. The authors expect further growth. The authors debunk some myths about public sector auditing. The authors suggest areas where there are opportunities for research. In particular, researchers can examine a broader range of jurisdictions, investigate differences among countries and develop suggestions about what works best.

Research limitations/implications

The paper presents the views of the authors.

Practical implications

There are opportunities for further research across different jurisdictions.

Originality/value

The paper makes a contribution by outlining research opportunities.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 33 no. 2
Type: Research Article
ISSN: 1096-3367

Keywords

Article
Publication date: 14 August 2017

David Hay

This paper aims to review potential areas for interdisciplinary research in auditing.

Abstract

Purpose

This paper aims to review potential areas for interdisciplinary research in auditing.

Approach

The paper reflects on the relevance of the findings from auditing research, and discusses an example from medical research. The medical example highlights how unexpected results can lead to surprising research findings. The paper then examines the areas in which further auditing research should be most valuable.

Findings

Auditing research is generally based on practical problems. It can be qualitative, quantitative, use mixed methods or be interdisciplinary. There are examples of each of these, including interdisciplinary research that has contributed to the auditing literature. The paper describes areas in which future research in auditing is likely to be valuable. These include research in developing countries, smaller entities and other settings that have not been widely researched; research in the public sector, including the impact of armchair auditors; research about the place of auditing in corporate governance; and research about the function of auditing in confirming earlier unaudited announcements.

Practical implications

Standard setters are becoming more aware of research and more likely to make evidence-based decisions about auditing standards.

Originality/value

The paper evaluates existing research and provides suggestions for future research.

Article
Publication date: 18 February 2022

Nishaal Prasad, David Hay and Li Chen

The purpose of this study is to examine which factors explain the use of an in-house internal audit function (IAF) in a voluntary setting.

Abstract

Purpose

The purpose of this study is to examine which factors explain the use of an in-house internal audit function (IAF) in a voluntary setting.

Design/methodology/approach

Based on the foundations of agency and resource-based theory, this study examines a unique data set from the New Zealand setting, which combines information obtained from The Institute of Internal Auditors of New Zealand with empirical firm data collected from publicly available sources. Multivariate analysis is performed to test the prediction that in-house IAF use is associated with factors such as strong corporate governance, firm size, risk, complexity and firm ownership structure.

Findings

There is strong evidence that larger organisations are more likely to use an in-house IAF. The authors also find that listed firms and organisations that use a Big Four auditor are less likely to use in-house-based IAF. The authors learn that the IAF investment decision is dominantly influenced by a firm’s ability to fund an in-house IAF as compared to the IAF being used as a resource to improve firm performance to achieve sustained competitive advantage. This implies that IAFs need to ensure cost efficiency and eliminate unnecessary overheads and demonstrate and make visible the benefits the function offers to the host organisation.

Originality/value

The unique New Zealand setting, where the establishment and use of an IAF are voluntary, provides an environment to study factors that promote demand for internal audit services. Research implications are applicable to most parts of the world, including the UK, EU nations and the Asia-Pacific region, where IAF use is voluntary.

Details

Meditari Accountancy Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2049-372X

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Article
Publication date: 30 July 2021

Nishaal Prasad, David Hay and Li Chen

The purpose of this study is to examine the effect of internal audit function (IAF) use on earnings quality and external audit fees using empirical data collected from the…

Abstract

Purpose

The purpose of this study is to examine the effect of internal audit function (IAF) use on earnings quality and external audit fees using empirical data collected from the New Zealand (NZ) setting.

Design/methodology/approach

Applying institutional theory as the underlying framework, this study examines an IAF’s ability to demonstrate legitimacy, which will shed light to the functions long-term survival. Using a unique data set from the NZ setting, which combines information obtained from “The Institute of Internal Auditors of New Zealand” with empirical firm data collected from publicly available sources, multivariate analysis is performed to test the prediction that IAF use is associated with earnings quality, measured using discretionary accruals, and external audit fees.

Findings

There is strong positive association between IAF use and external audit fees, which supports the complementary controls view, where better internal controls increase audit fees by increasing the demand for scope of external audit work. The authors find no significant relationship between IAF use and earnings quality, which is not entirely surprising.

Research limitations/implications

The aim is to empirically test the IAF value proposition and to delve deeper into the black box of IAF value drivers. Given the size of the NZ economy and limitations of data availability, total sample size used in this study is relatively modest. However, the analysis does yield significant results. Apart from academic contribution to knowledge, this study offers a profound list of practical contributions. Practitioners will be interested to learn about the IAF value proposition from an empirical viewpoint. Senior management (SM) will obtain value from the outcomes when contemplating IAF investment and sourcing decisions. Regulators will be inherently interested in whether IAFs should be mandated.

Originality/value

The aim is to empirically test IAF value proposition and to delve deeper into the black box of IAF value drivers. To the best of the authors’ knowledge, this is the first NZ-based academic investigation which examines the relationship between IAF use and earnings quality. Apart from academic contribution to knowledge, this study offers a profound list of practical contributions. Practitioners will be interested to learn about the IAF value proposition from an empirical viewpoint. SM will obtain value from the outcomes when contemplating IAF investment and sourcing decisions. Regulators will be inherently interested in whether IAFs should be mandated.

Details

Pacific Accounting Review, vol. 33 no. 4
Type: Research Article
ISSN: 0114-0582

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Article
Publication date: 18 March 2019

Hong Li, David Hay and David Lau

Changes to the auditor’s report have been proposed and issued internationally to provide more relevant information to users and enhance the perceived value of financial…

2651

Abstract

Purpose

Changes to the auditor’s report have been proposed and issued internationally to provide more relevant information to users and enhance the perceived value of financial statement audits. This paper aims to investigate the impact of audit reporting changes on audit quality and audit fees in the New Zealand context.

Design/methodology/approach

The authors examined audit quality measured by absolute abnormal accruals and audit fees for New Zealand listed companies.

Findings

The evidence suggests the enhanced audit reports were followed by an improvement in audit quality as proxied by a reduction in absolute abnormal accruals upon the adoption of the new audit reporting requirements. There was also a significant increase in audit fees.

Practical implications

Although the new auditor reporting requirements are associated with improvements in audit quality, such benefit does not come without cost.

Originality/value

The study provides evidence about the impact of this recent substantial reform to auditing.

Details

Pacific Accounting Review, vol. 31 no. 1
Type: Research Article
ISSN: 0114-0582

Keywords

Article
Publication date: 1 March 2021

David Hay, Karen Shires and Debbie Van Dyk

This special issue paper aims to describe the early effects of COVID-19 on auditing in New Zealand, and the subsequent reforms that the authors expect will follow.

2679

Abstract

Purpose

This special issue paper aims to describe the early effects of COVID-19 on auditing in New Zealand, and the subsequent reforms that the authors expect will follow.

Design/methodology/approach

The authors use published sources to discuss the impact of COVID-19 on auditing, and potential reforms.

Findings

COVID-19 was at first expected to have a substantial impact on audit outcomes such as audit opinions. The effects that eventuated have been much less substantial so far. Nevertheless, the authors expect reforms to auditing to take place, especially including non-audit services, reports on inspections of auditors and more reporting on going concern issues by directors, followed by increased responsibility for auditors. In future, there may be further changes including reform to the liability of auditors, reporting on internal control, more responsibility for fraud and changes to corporate governance.

Research limitations/implications

Limitations include the ongoing nature of the COVID-19 crisis. Further effects may yet eventuate.

Practical implications

Financial report users and auditors should anticipate changes.

Originality/value

This paper provides early evidence of the impact of COVID-19 on New Zealand auditing and predicts changes to the regulation of auditing.

Details

Pacific Accounting Review, vol. 33 no. 2
Type: Research Article
ISSN: 0114-0582

Keywords

Article
Publication date: 20 December 2021

Matthew Strickett, David C. Hay and David Lau

The purpose of this study is to examine the relationship between going-concern (GC) opinions issued by the Big 4 audit firms and adverse credit ratings from the two…

Abstract

Purpose

The purpose of this study is to examine the relationship between going-concern (GC) opinions issued by the Big 4 audit firms and adverse credit ratings from the two largest credit rating agencies (CRAs) – Standard & Poor’s (S&P) and Moody’s. This question is relevant because there have been suggestions that auditors and CRAs should become more similar to each other, and because the two largest CRAs have different ownership structures that could affect their ratings.

Design/methodology/approach

Univariate and multivariate analyses are performed using a sample of firms that filed for bankruptcy between January 1, 2002 and December 31, 2013 that also had an audit opinion signed during the 12 months prior to bankruptcy, along with a credit rating issued by either or both S&P and Moody’s. Both influence each other. The likelihood of an auditor issuing a GC opinion is related to the credit rating issued by both S&P and Moody’s in the month prior to the audit report signing. The results also show differences between the CRAs. S&P reacted in the month after an auditor issued a GC opinion by downgrading its ratings 68% of the time. However, Moody’s did not react as strongly as S&P, downgrading its ratings only 24% of the time.

Findings

Both audit reports and credit ratings influence each other. The likelihood of an auditor issuing a GC opinion is related to the credit rating issued by both S&P and Moody’s in the month prior to the audit report signing. The results also show differences between the CRAs. S&P reacted in the month after an auditor issued a GC opinion by downgrading its ratings 68% of the time. However, Moody’s did not react as strongly as S&P, downgrading its ratings only 24% of the time.

Originality/value

Auditors are more likely to issue GC opinions when there is a downgrade to the credit rating, and CRAs are more likely to downgrade their ratings when there is a GC opinion. The study highlights that CRAs with different ownership structures provide different credit rating outcomes.

Details

Accounting Research Journal, vol. 35 no. 4
Type: Research Article
ISSN: 1030-9616

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