bluuebunny/crossref_metadata_2025 huggingface dataset:
Production of thermostable protease enzyme in wastewater sludge using thermophilic bacterial strains isolated from sludge
Authors: Chenel J. P. , Tyagi R. D. , Surampalli R. Y.
Published: April 2008

The volume of sludge produced annually is very high and poses serious disposal problems. The traditional methods of sludge disposal produce secondary pollutants. Therefore, the alternate or suitable solution is reuse of sludge in an ecofriendly approach. Biotechnology is an interesting tool to add value to the processes involved in wastewater and wastewater sludge disposal/reuse. In this context, a study was carried out on thermophilic bacterial strains that produce thermostable proteases. The bacterial strains were first isolated from municipal wastewater sludge. In contrast to the conventional strains used in industries, like Bacillus sp., the new strains were Gram-Negative type. In semi-synthetic medium, a maximal protease activity of 5.25 IU/ml (International Unit per ml) was obtained at a pH of 8.2 and at a temperature of 60 °C, which is higher than the stability temperature of 37 °C for a similar protease obtained from the conventional producer Bacillus licheniformis. Moreover, growth and protease activity of the strains were tested in wastewater sludge. It is expected that the complexity of sludge could stimulate/enhance the protease production and their characteristics. In conclusion, reuse of wastewater sludge will help to reduce their quantity as well as the value-added products produced will replace chemical products used in industries.
Monitoring and control of the biogas process based on propionate concentration using online VFA measurement
Authors: Boe Kanokwan , Steyer Jean-Philippe , Angelidaki Irini
Published: April 2008

Simple logic control algorithms were tested for automatic control of a lab-scale CSTR manure digester. Using an online VFA monitoring system, propionate concentration in the reactor was used as parameter for control of the biogas process. The propionate concentration was kept below a threshold of 10 mM by manipulating the feed flow. Other online parameters such as pH, biogas production, total VFA, and other individual VFA were also measured to examine process performance. The experimental results showed that a simple logic control can successfully prevent the reactor from overload, but with fluctuations of the propionate level due to the nature of control approach. The fluctuation of propionate concentration could be reduced, by adding a lower feed flow limit into the control algorithm to prevent undershooting of propionate response. It was found that use of the biogas production as a main control parameter, rather than propionate can give a more stable process, since propionate was very persistent and only responded very slowly to the decrease of the feed flow which lead to high fluctuation of biogas production. Propionate, however, was still an excellent parameter to indicate process stress under gradual overload and thus recommended as an alarm in the control algorithm.
Investigation of the diversity of homoacetogenic bacteria in mesophilic and thermophilic anaerobic sludges using the formyltetrahydrofolate synthetase gene
Authors: Ryan P. , Forbes C. , Colleran E.
Published: April 2008

Homoacetogenic bacteria are strict anaerobes capable of autotrophic growth on H2/CO2 or CO, and of heterotrophic growth on a wide range of sugars, alcohols, methoxylated aromatic compounds and one carbon compounds, yielding acetate as their sole metabolic end-product. Batch activity tests on anaerobic granular sludge, using H2/CO2 as a substrate and 2-bromoethanesulfonate (BES) as a specific methanogenic inhibitor revealed that H2/CO2 conversion and concomitant acetate production commenced only after a lag period of 60–100 h. This finding suggests that the homoacetogenic population of digester sludge could be maintained by heterotrophic growth on sugars or other organic compounds, rather than by autotrophic growth on H2/CO2. In the present study, two upflow anaerobic sludge bed (UASB) reactors were operated at 37°C and 55°C for two distinct trial periods, each characterised by the application of influents designed to enrich for homoacetogenic bacteria. Specific primers designed for the amplification of the functional gene encoding formyltetrahydrofolate synthetase (FTHFS), a key enzyme in the acetyl-CoA pathway of acetogenesis, were used as a specific probe for acetogenic bacteria. The diversity of acetogens in the granular sludge cultivated in each reactor was revealed by application of FTHFS targeted PCR. Results show that biomass acetogenic composition was dependent upon the operational temperature of the reactor and the substrate supplied as influent.
Exerting ultrasound to control the membrane fouling in filtration of anaerobic activated sludge—mechanism and membrane damage
Authors: Wen Xianghua , Sui Pengzhe , Huang Xia
Published: April 2008

In this study, ultrasound was applied to control membrane fouling development online in an anaerobic membrane bioreactor (AMBR). Experimental results showed that membrane fouling could be controlled effectively by ultrasound although membrane damage may occur under some operational conditions. Based upon the observation on the damaged membrane surface via SEM, two mechanisms causing membrane damage by exerting ultrasound are inferred as micro particle collide on the membrane surface and chemical interaction between membrane materials and hydroxyl radicals produced by acoustic cavitations. Not only membrane damage but also membrane fouling control and membrane fouling cleaning were resulted from these mechanisms. Properly selecting ultrasonic intensity and working time, and keeping a certain thickness of cake layer on membrane surface could be effective ways to protect membrane against damage.
A critical evaluation of combined engineered and aquifer treatment systems in water recycling
Authors: Dillon P. , Page D. , Vanderzalm J. , Pavelic P. , Toze S. , Bekele E. , Sidhu J. , Prommer H. , Higginson S. , Regel R. , Rinck-Pfeiffer S. , Purdie M. , Pitman C. , Wintgens T.
Published: April 2008

Australian experience at five research sites where stormwater and reclaimed water have been stored in aquifers prior to reuse, have yielded valuable information about water treatment processes in anaerobic and aerobic aquifers. One of these sites is the stormwater to potable water ASTR project at the City of Salisbury, a demonstration project within the broader EC project ‘RECLAIM WATER’. A framework for characterising the effectiveness of such treatment for selected organic chemicals, natural organic matter, and pathogens is being developed for inclusion in new Australian Guidelines for Management of Aquifer Recharge. The combination of pre-treatments (including passive systems such as reed beds) and aquifer treatment effectiveness in relation to source waters and intended uses of recovered water will be described. Advantages and disadvantages of various types of pre-treatments in relation to effectiveness and sustainability of managed aquifer recharge will be discussed taking account of aquifer characteristics. These observations will be consolidated into a draft set of principles to assist in selection of engineered treatments compatible with passive treatment in aquifers.
Spatial and temporal changes in sulphate-reducing groundwater bacterial community structure in response to Managed Aquifer Recharge
Authors: Reed D. A. , Toze S. , Chang B.
Published: April 2008

The population dynamics of bacterial able to be cultured under sulphate reducing condition was studied in conjunction with changes in aquifer geochemistry using multivariate statistics for two contrasting Managed Aquifer Recharge (MAR) techniques at two different geographical locations (Perth, Western Australia and Adelaide, South Australia). Principal component analysis (PCA) was used to investigate spatial and temporal changes in the overall chemical signature of the aquifers using an array of chemical analytes which demonstrated a migrating geochemical plume. Denaturing Gradient Gel Electrophoresis (DGGE) using DNA from sulphate-reducing bacteria cultures was used to detect spatial and temporal changes in population dynamics. Bacterial and geochemical evidence suggested that groundwater at greatest distance from the nutrient source was least affected by treated effluent recharge. The results suggested that bacterial populations that were able to be cultured in sulphate reducing media responded to the migrating chemical gradient and to the changes in aquifer geochemistry. Most noticeably, sulphate-reducing bacterial populations associated with the infiltration galleries were stable in community structure over time. Additionally, the biodiversity of these culturable bacteria was restored when aquifer geochemistry returned to ambient conditions during the recovery phase at the Adelaide Aquifer Storage and Recovery site.
Primacy Effects and the Role of Risk in Auditor Belief-Revision Processes
Authors: Anderson Brenda H. , Maletta Mario J.
Published: April 2008

Numerous studies in the audit judgment literature provide evidence indicating that auditors can be susceptible to recency effects. This study extends the research by examining auditor susceptibility to primacy, an order effect, which, like recency, can lead to suboptimal audit-planning decisions (see Ashton and Ashton 1988) and yet, unlike recency, has received very little attention in the accounting literature. Specifically, the research investigates whether primacy effects in auditor belief revisions are a conditional function of the level of inherent risk present in the audit environment (high/low) and the nature of the information contained in the latter portion of the information sequence (e.g., whether the information is positive or negative with respect to the client's internal controls).

The results, consistent with expectations, indicate that auditors are susceptible to primacy effects when making likelihood of error and audit-hour planning judgments in settings that are relatively low in inherent risk, and such effects are due to less integration of late positive information in low- as compared to high-risk conditions. No evidence of primacy was found for either judgment when the inherent risk associated with the audit setting was high and, auditors did not differentially revise their beliefs across inherent risk conditions for late negative information. The findings indicate that primacy is essentially the result of insufficient integration of late positive information in low inherent risk settings, suggesting that primacy may lead to overauditing and thus, an inefficient use of audit resources.
Audit Prices, Product Differentiation and Economic Equilibrium
Authors: Gul Ferdinand A.
Published: April 2008

This study tests the hypothesis that Big 6 audit prices are higher than non-Big 6 audit prices for both large and small segments of the auditee market. The hypothesis is based on the assumption that these price differentials should be observed given product differentiation and competition in a stable audit market. The absence of price differentials between Big 6 and non-Big 6 auditors for large auditees due to diseconomies of scale to the non-Big 6 (previously non-Big 8) auditors found in some prior studies is inconsistent with long-run allocational efficiency which suggests that inefficient audit firms should be driven out of the market. Results of OLS regression analyses of Hong Kong market data provide evidence to support the above hypothesis that product differentiation and competition prevails in both segments of the market.
Improving Analytical Procedures: A Case of Using Disaggregate Multilocation Data
Authors: Allen Robert D. , Beasley Mark S. , Branson Bruce C.
Published: April 2008

According to SAS No. 56, Analytical Procedures, the use of disaggregate, individual location data can improve the effectiveness of analytical procedures used in multilocation audits. Using a case-study approach, we investigate whether improvements in the accuracy and precision of account balance expectations can be obtained by using disaggregate, individual location data in a large, multilocation company. Specifically, we examine two issues: (1) whether the summation of individual location expectations generates more accurate and precise expectations of company-wide account balances than expectations based on company-wide data only and (2) whether the accuracy and precision of analytical procedures is enhanced by including peer location observations of the account balance in individual location expectation models.

We find that for the multilocation company examined in this case study the summation of individual location account balance expectations is not more accurate or precise than an expectation derived from aggregate models unless the individual location models include peer location observations of the account balance. When the individual location models include the same account observations from other peer locations within the company, the company-wide account balance expectations developed from disaggregate models are more accurate and precise (less variable) than expectations developed using aggregate, company-wide data only. The results from this case study indicate that when auditors are generating expectations of company-wide balances, disaggregate models incorporating peer location account observations provide account balance expectations that are both more accurate and more precise than company-wide, aggregate models. Given the limitations of a case-study approach, future research should be directed at establishing the generalizability of these findings.
The Role of Big 6 Auditors in the Credible Reporting of Accruals
Authors: Francis Jere R. , Maydew Edward L. , Sparks H. Charles
Published: April 2008

This study investigates if the use of a Big 6 auditor is increasing in the firm's endogenous propensity to generate accruals. High-accrual firms have greater scope for aggressive and/or opportunistic earnings management and therefore have an incentive to hire a Big 6 auditor to provide assurance that reported earnings are credible. For a large sample of NASDAQ firms over the period 1975–1994 we find that the likelihood of using a Big 6 auditor is increasing in firms' endogenous propensity for accruals. Even though Big-6-audited firms have higher levels of total accruals, we also find they have lower amounts of estimated discretionary accruals. This finding is consistent with Big 6 auditors constraining aggressive and potentially opportunistic reporting of accruals.
The Audit Risk Model: An Empirical Test for Conditional Dependencies among Assessed Component Risks
Authors: Dusenbury Richard B. , Reimers Jane L. , Wheeler Stephen W.
Published: April 2008

Professional standards and prior theoretical research indicate that assessed audit risk components should be conditionally dependent. In an experiment, experienced auditors made the risk assessments that are, in practice, inputs for using the audit risk model for planning the extent of detailed testing. Conditional dependencies were tested using a sequential linear modeling process that added the previously assessed risk components to the model (e.g., inherent risk assessments added to predict subsequent control risk assessments) as the last independent variable. Results showed that the previously assessed risk substantially increased the explanatory power of the models in accounting for variation in the subsequently assessed components. The results support the notion that audit risk components are assessed conditionally. Thus, they provide a defense for practitioners' claims that they are appropriately using the model and give guidance to future research on the audit risk model.
The Audit Retention Decision in the Face of Deregulation: Evidence from Large Private Canadian Corporations
Authors: Senkow David W. , Rennie Morina D. , Rennie Richard D. , Wong Jonathan W.
Published: April 2008

We examine the demand for audited financial statements in the context of deregulation. In 1994 a change in Canadian legislation eliminated a mandatory requirement for certain private companies to file audited financial statements.

The objective of this research was to determine the importance of factors that might influence whether the audit is discontinued. Information was obtained from the Cancorp Plus database and through a survey of companies affected by the change in legislation.

It was found that a large majority of the companies retained their audit. The strongest predictors of whether the audit would be retained were the prior existence of a lending agreement requiring audited financial statements and the level of audit fees. The likelihood of retention was positively related to the magnitude of fees, perhaps reflecting the perceived benefits of the audit. The existence of a lending agreement was found to be influenced by the ownership level of the entity's officers and directors. This study underlines the importance of audited financial statements to lenders.
The Effect of Accounting Uncertainty and Auditor Reputation on Auditor Objectivity
Authors: Mayhew Brian W. , Schatzberg Jeffrey W. , Sevcik Galen R.
Published: April 2008

This paper reports results of experimental markets that examine whether accounting uncertainty impacts auditor objectivity in a setting where the auditor also has an incentive to build a reputation for objectivity. While prior research has examined the impact of uncertainty on auditor objectivity, our research is the first to explicitly incorporate auditor reputation into the research design.

The results provide strong evidence that accounting uncertainty impacts auditor objectivity despite the damage to auditor reputation. Our markets suggest that in the absence of accounting uncertainty auditors remain objective due to concerns about their reputation with managers and investors. However, in the presence of accounting uncertainty auditors impair their objectivity by misreporting in favor of managers. Our results suggest that regulators should focus on enhancing auditor incentives to maintain objectivity when faced with accounting uncertainty, but do not need to be concerned about auditor objectivity violations when accounting pronouncements provide unambiguous guidance.
The Effect of Misstatements on Decisions of Financial Statement Users: An Experimental Investigation of Auditor Materiality Thresholds
Authors: Tuttle Brad , Coller Maribeth , Plumlee R. David
Published: April 2008

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.
Strategic Analysis of Securities Litigation against Independent Auditors
Authors: Cushing Barry E. , Gilbertson David L.
Published: April 2008

It has been claimed that the accounting profession faces a serious litigation crisis, largely attributable to frivolous class-action lawsuits that allege securities fraud. In response to recent calls for research on accounting litigation, this paper develops and analyses a game-theoretic model of securities class-action litigation and settlement under present institutional arrangements in the United States. Two research questions are examined. First, what factors explain the outcomes of securities lawsuits against independent auditors in the U.S.? Second, what (if any) strategies exist that accounting firms might employ to deter unwarranted securities litigation, coerced settlements, and other objectionable outcomes? Our results indicate that (1) settlements are the predominant outcome of the securities litigation game because both sides generally receive higher expected payoffs from settlements than from trials; (2) the prevalence of protracted pre-trial litigation in securities lawsuits is primarily attributable to the method employed to compensate plaintiffs' attorneys; (3) the prevalence of settlement amounts that are generally a small proportion of claimed damages could result from strategic decisions by plaintiffs' attorneys, and hence does not necessarily indicate that securities lawsuits often have low merit as claimed by Arthur Andersen et al. (1992); and (4) effective strategies to deter securities litigation may be available to accounting firms, but effective implementation of these strategies may entail substantial short-run costs.
The Effects of Task Complexity on Auditors' Performance: The Impact of Accountability and Knowledge
Authors: Tan Hun-Tong , Ng Terence Bu-Peow , Mak Bobby Wai-Yeong
Published: April 2008

This study delineates conditions under which performance is adversely affected by task complexity and reports-related empirical evidence. Specifically, it examines the moderating roles of both accountability and knowledge on the relation between task complexity and auditors' performance. Based on a reanalysis of the data from Tan and Kao (1999), the results indicate that accountability and knowledge jointly moderate the relation between task complexity and performance. Results show that performance declines with increasing complexity only under combinations of low knowledge and high accountability, or low accountability and high knowledge. Performance is unaffected by increasing task complexity when auditors have high knowledge and high accountability, or have low knowledge and low accountability. These findings contribute to a better understanding of the conditions under which performance may (or may not) be adversely affected by task complexity.
An Investigation of Alternative Report Formats for Communicating Moderate Levels of Assurance
Authors: Hasan Mahreen , Roebuck Peter J. , Simnett Roger
Published: April 2008

A recent development in the assurance services profession is the emergence of engagements on a broad range of subject matter that are designed to provide a moderate level of assurance. A significant issue for the profession is how to convey to users the limited extent of the assurance provided by such engagements. This study identifies four main categories of moderate assurance reporting forms (opinion on procedures, negative assurance, positive assurance, positive assurance with a limitations paragraph) being used in practice worldwide for providing assurance on environmental and sustainability reports. It examines whether these four reporting forms convey a lower level of assurance than that provided by a traditional high assurance report, and whether these reporting formats lead to significantly different levels of assurance perceived by a group of 792 shareholders. The findings indicate that users perceive that these moderate assurance reporting formats generally provide a lower level of assurance than that provided by a high assurance report. However, one significant difference was found between the four types of moderate assurance reports, with the opinion on procedures format providing higher assurance than the positive assurance with a limitations paragraph format. Implications for policy makers in their deliberations on assurance report wording in relation to moderate assurance engagements are considered.
Audit Firm Industry Specialization as a Differentiation Strategy: Evidence from Fees Charged to Firms Going Public
Authors: Mayhew Brian W. , Wilkins Michael S.
Published: April 2008

This paper examines IPO audit fees to assess the use of industry specialization as a differentiation strategy by audit firms. We extend existing theory on the impact of industry specialization on audit fees by incorporating Porter's (1985) theory of competition and differentiation. We suggest that market share enables audit firms to gain competitive advantages in terms of cost and service. However, the impact of such advantages on fees depends on whether the audit firm has successfully differentiated itself from competitors within client industries. Our results indicate that as audit firm industry market share increases without a differentiation in market share, the audit fee charged for a given IPO decreases. In the context of Porter (1985), this result suggests that the client is able to bargain for a portion of the auditor's cost savings because the audit firm has not successfully differentiated itself from competitors. In contrast, we show that audit firms that possess significantly higher market shares than their industry competitors earn fee premiums, suggesting that audit firms that have successfully differentiated themselves retain a stronger bargaining position with their clients.
Auditor Industry Specialization and Earnings Quality
Authors: Balsam Steven , Krishnan Jagan , Yang Joon S.
Published: April 2008

This study examines the association between measures of earnings quality and auditor industry specialization. Prior work has examined the association between auditor brand name and earnings quality, using auditor brand name to proxy for audit quality. Recent work has hypothesized that auditor industry specialization also contributes to audit quality. Extending this literature, we compare the absolute level of discretionary accruals (DAC) and earnings response coefficients (ERC) of firms audited by industry specialists with those of firms not audited by industry specialists. We restrict our study to clients of Big 6 (and later Big 5) auditors to control for brand name. Because industry specialization is unobservable, we use multiple proxies for it. After controlling for variables established in prior work to be related to DAC and the ERC, we find clients of industry specialist auditors have lower DAC and higher ERC than clients of nonspecialist auditors. This finding is consistent with clients of industry specialists having higher earnings quality than clients of nonspecialists.
CFO Intentions of Fraudulent Financial Reporting
Authors: Gillett Peter R. , Uddin Nancy
Published: April 2008

This study investigates factors indicating CFO intentions of fraudulent financial reporting. Structural equation modeling is used to analyze survey data obtained from 139 CFOs. We find that an extended reasoned action model fits the data well and explains CFO intentions to report fraudulently. More specifically, we find that CFOs of large companies are more likely to report fraudulently in the financial statements and that compensation structure is not a good indicator of CFO intentions to report fraudulently. Informal and formal audit methods for assessing management attitudes toward fraudulent reporting, such as questionnaires and automated decision aids, are recommended since they offer the best opportunity to improve significantly auditors' ability to predict fraudulent financial reporting. Implications for future research and practice development are considered.
Does the Provision of Nonaudit Services Affect Investor Perceptions of Auditor Independence?
Authors: Krishnan Jayanthi , Sami Heibatollah , Zhang Yinqi
Published: April 2008

A number of recent studies examine whether the joint provision of audit and nonaudit services (NAS) impairs auditor independence, and yield mixed results. We examine whether investors perceive auditor independence as being impaired when auditors supply nonaudit services, by investigating the association between fee-based measures of nonaudit service purchases and the earnings response coefficient (ERC).

We find that the nonaudit fee ratio and the level of nonaudit fees were negatively associated with ERCs in 2001. When we use unexpected fees (a measure of over- or underpayment of nonaudit fees), we find a negative association between NAS purchases and ERC, but this occurs mainly in the second and third quarters following the release of the proxy. Further investigation reveals that the quarterly differences may be driven by the increasing flow of information (i.e., the first-time disclosures of fees and media analyses of these disclosures) that became available to investors during our sample period. We speculate that, during the course of the year 2001, the increase in information allowed investors to engage in better comparative analyses of the fee disclosures. We interpret our results as indicating that investors did perceive NAS as impairing auditor independence.
The Impact of Management Integrity on Audit Planning and Evidence
Authors: Kizirian Timothy G. , Mayhew Brian W. , Sneathen L. Dwight
Published: April 2008

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.
Do Investors' Perceptions Vary with Types of Nonaudit Fees? Evidence from Auditor Ratification Voting
Authors: Mishra Suchismita , Raghunandan K. , Rama Dasaratha V.
Published: April 2008

In FRR No. 68, the SEC (2003b) updated the rules related to the disclosure of fees paid to the independent auditor by requiring more detailed information about nonaudit fees. The SEC (2002, 2003b) asserted that the partition of nonaudit fees into the categories of audit-related, tax, and other fees would be useful for investors in assessing the auditor's independence and in voting on ratifying the auditor. The SEC suggested that investors would view audit-related and tax services more favorably than “other” nonaudit services. In this paper we test the SEC's assertions by examining shareholder ratification votes, during 2003, at 248 of the S&P 1500 firms. Our results support the SEC's assertion that investors would view audit-related fees differently than the other two types of nonaudit fees. However, contrary to the SEC's assertion, both the tax fee ratio and the other fee ratio have a positive association with the proportion of votes against auditor ratification. The results related to tax fees provide empirical support to the PCAOB's recent initiative to examine the association between tax services and auditor independence. Our results can be useful for client managements and audit committees considering purchases of nonaudit services from auditors. Our findings also suggest that it may be useful to replicate some prior studies (that use a single measure of nonaudit fees) using the newer, more finely partitioned, fee data.
“Order Effects” Revisited: The Importance of Chronology
Authors: Favere-Marchesi Michael
Published: April 2008

This study examined whether auditors, when they are processing mixed evidence, take into consideration the chronological order of the evidence (giving rise to what this study refers to as a trend effect), or if their evaluations are influenced primarily by the order of presentation (giving rise to what the audit literature refers to as a recency effect). The study's primary objective was to determine whether awareness of the temporal order of evidence would prevent auditors from placing more weight on evidence that they most recently processed (i.e., whether the trend effect dominates the recency effect).

Auditors were given an experimental task of going-concern assessment. Auditors evaluating undated mixed evidence exhibited recency effects similar in magnitude to those shown by auditors who were asked to evaluate dated mixed evidence, in which the presentation order was consistent with temporal order. However, auditors evaluating evidence in which temporal order and presentation order were varied orthogonally took into consideration the chronological order of the evidence. This, in turn, led to a significant reduction in the effect of recency. Additional analysis indicates that auditors who evaluated dated mixed evidence chose audit opinions consistent with the trend reflected by the chronology of the evidence.
Linking Participative Budgeting Congruence to Organization Performance (Retracted)
Authors: Clinton B. Douglas , Hunton James E.
Published: April 2008

This study proposes and tests a research framework that links the perceived need for participation (PNP) and the degree of participation allowed (DPA) to organizational consequences. We examine the extent of agreement between PNP and DPA, which is defined as the degree of participation congruence (DPC), and link DPC to organizational performance. Survey data were collected from 386 accountants across three industries. Consistent with prior research, the correlation between organizational performance indicators and DPA was weak in this study, as was the correlation between PNP and organizational outcomes. However, the correlation between the DPC and organizational performance indicators was uniformly positive and significant. Research findings suggest that participation congruence may be a critical success factor in designing an effective participative budgeting strategy.
Role Stress, the Type A Behavior Pattern, and External Auditor Job Satisfaction and Performance
Authors: Fisher Richard T.
Published: April 2008

This study examines the relationship between elements of role stress and two important external auditor job outcome variables: job satisfaction and performance. The study extends prior research by examining the moderating influence of the Type A behavior pattern on these relationships. The need to re-examine the linkages between the elements of role stress and both job satisfaction and job performance using theoretically based moderators, such as the Type A behavior pattern, has been highlighted in the role-stress literature. Analysis of survey data confirmed that both role conflict and role ambiguity are significantly negatively associated with auditor job performance and job satisfaction. However, the expected moderating role of the Type A behavior pattern on the relationships between the components of role stress and job satisfaction and auditor job performance was not found. Interestingly, however, a direct positive relationship between the Type A behavior pattern and both job outcome variables was apparent. The latter result suggests that, among audit professionals, Type A individuals tend to outperform and be more satisfied with their employment than Type Bs.
Investors' Use of Analysts' Recommendations
Authors: Krishnan Ranjani , Booker Donna M.
Published: April 2008

This study examines the factors influencing the decisions of investors who use analysts' recommendations to arrive at a short-term decision to hold or to sell a stock. Specifically we examine if the presence of analysts' recommendations reduces the tendency for investors to commit the disposition error, i.e., sell winning stocks too soon and hold losing stocks too long. We also examine whether the strength of supporting arguments to the analysts' recommendations affects investor decisions. Our results indicate that the presence of an analyst summary recommendation report reduces the disposition error for gains but not for losses. A strong form of the analyst summary recommendation report, i.e., one with additional information supporting the analysts' position further, reduces the disposition error for gains and also reduces the disposition error for losses.
A Research Note on the Influence of Outcome Knowledge on Audit Partners' Judgments
Authors: Emby Craig , Gelardi Alexander M. G. , Lowe D. Jordan
Published: April 2008

Audit partners may be called upon to evaluate, ex post, the work of another auditor. One example of such an evaluation is a Peer Review. An experiment was conducted that examined the influence of outcome knowledge on the going concern and peer evaluation judgments of 122 audit partners from Canada and the United States. Outcome information was manipulated at three levels—no outcome, negative outcome, and positive outcome information. The results confirm previous research and show that audit partners are subject to the influence of outcome information. Negative outcome information influenced (1) audit partners' assessments of the likelihood of the client's continued existence (hindsight effects), (2) the evaluation of the incumbent auditor's judgment (outcome effects), and (3) judgments of the importance of evidence items. Auditors who received outcome information tended to rate outcome-consistent items of evidence as more important. This suggests that the biasing effect of outcome knowledge operates by acting as a filter that magnifies the relative salience of outcome-consistent information.
Auditor Acceptance of Dysfunctional Audit Behavior: An Explanatory Model Using Auditors' Personal Characteristics
Authors: Donnelly David P. , Quirin Jeffrey J. , O'Bryan David
Published: April 2008

Dysfunctional behavior (DB) and staff turnover are associated with decreased audit quality (Public Oversight Board 2000). Dysfunctional behaviors such as premature sign-off, gathering of insufficient evidence, altering or replacing audit procedures, and underreporting of time have negative effects on the auditing profession. While recent studies suggest that dysfunctional behavior is a widespread problem (Smith 1995; Otley and Pierce 1995), extant research fails to adequately explain the causes. In this study, the organizational behavior and industrial psychology literatures provide the basis for developing and testing a model that identifies locus of control, performance, and turnover intentions as determinants of auditor acceptance of DB.

Using a cross-organizational design and a structural equation modeling technique, survey results from 106 auditors generally support the explanatory model. Results indicate that auditors who are more accepting of DB tend to possess an external locus of control, report lower levels of self-rated performance, and exhibit higher turnover intentions. These results suggest that individual auditor characteristics play a role in identifying those who are more accepting of DB.
A Note about the Effect of Auditor Cognitive Style on Task Performance
Authors: Fuller Lori R. , Kaplan Steven E.
Published: April 2008

Previous research documents variation among auditors in terms of their cognitive style. Auditors have been classified as possessing an intuitive, analytic, or hybrid cognitive style. However, the potential implications of cognitive style upon auditor task performance have received little attention. Building upon the work of Chan (1996), this paper examines the role of “cognitive misfit” on auditor task performance. Cognitive misfit is a lack of fit between a person's cognitive style and task characteristics. Participating auditors were required to perform two judgment tasks and complete a cognitive style questionnaire. Tests for an interactive task performance effect between task type and auditor cognitive characteristics were performed. As expected, auditor cognitive style significantly interacts with the task type. Analytic auditors performed better on the analytic task than the intuitive task. Likewise, intuitive auditors performed better on the intuitive task than on the analytic task. Limitations and implications of the research are discussed.
Audit-Planning Judgments and Client-Employee Compensation Contracts
Authors: Dikolli Shane S. , McCracken Susan A. , Walawski Justin B.
Published: April 2008

This paper investigates, in a laboratory setting, the impact of different types of client-employee compensation contracts on auditors' audit-planning judgments. Self-interested client-executive actions (motivated by executive incentive pay) have been claimed to be at the core of a recent large public company failure and the associated demise of the company's global auditors (Byrne et al. 2002). However, we know relatively little about how client-employee compensation contracts affect the planning choices of auditors. Our main result is that audit-planning judgments are greater (i.e., audit risk is assessed higher and the level of evidence required to perform the audit is assessed higher) if the bonuses are based on financial performance measures rather than nonfinancial performance measures. We also find that audit-planning judgments are greater (i.e., audit risk is assessed higher, internal controls are assessed weaker, and more substantive evidence is required) if client-employee compensation comprises a fixed salary plus bonuses, based on either financial or nonfinancial performance measures, rather than comprises a fixed salary only; however, we find only partial support for the finding with respect to nonfinancial measures. An important implication of these findings is that audit firms may need to pay careful attention to how auditors are trained in strategic systems auditing approaches that rely more on understanding a client's nonfinancial performance measures and less on transaction-based testing.
20-F Reconciliations and Investors' Perceptions of Risk, Financial Performance, and Quality of Accounting Principles
Authors: Maroney James J. , hO´gartaigh Ciara´n O´.
Published: April 2008

This paper investigates whether the increases and decreases to earnings and stockholders' equity presented in 20-F reconciliations influence perceptions of the risk of investing, the quality of the accounting principles, and the financial performance of the reporting firm. The research results indicate that subjects perceive the risk of a hypothetical firm filing a 20-F reconciliation with reconciliation decreases to be higher, and the quality of accounting principles lower, than a hypothetical firm either complying with U.S. GAAP or filing a 20-F reconciliation with reconciliation increases. Additional analysis suggests that these significant effects are due to a negative effect from the reconciliation decrease consistent with the effects predicted by attribute framing theory. The findings have implications for the SEC as they consider whether foreign registrants on U.S. exchanges should be allowed to comply with International Accounting Standards (IAS) without reconciliation to U.S. GAAP. These findings also have implications for foreign registrants on U.S. exchanges. The results indicate that firms that have higher non-U.S. GAAP earnings (and a consequent reconciliation decrease) should comply with U.S. GAAP as the reporting of a reconciliation decrease creates a negative perception of the firm.
Does “Political Bias” in the DIT or DIT-2 Threaten Validity in Studies of CPAs?
Authors: Bailey Charles D. , Phillips Thomas J. , Scofield Stephen B.
Published: April 2008

The Defining Issues Test (DIT) has been popular among accounting researchers, and will surely find continued applications. The DIT-2 is still new to accounting research. Fisher and Sweeney (1998, 2002) and Sweeney and Fisher (1998, 1999) build upon other critical research to claim that the DIT P score is a preference measure strongly related to political beliefs. Experimental subjects, when asked to respond from an “extremely liberal” perspective or to “identify the statements designed to represent the highest levels of moral judgment,” tend to respond differently than under official DIT instructions. However, Rest et al. (1999) reject this approach to validity testing, claiming that appropriate tests should address the variance explained over and above other constructs. Based on random samples of CPAs in public accounting practice (741 taking the DIT in 1995 and 261 taking the DIT-2 in 2001, each of whom also responded to political preference scales) we measure the amount of variance shared by the “ethical” and “political” measures. In our samples, political position explains less than ten percent of the variance in DIT and DIT-2 P scores as well as the new N2 scores; these effect sizes are small, so that the scores may not be seriously threatened by confounding.
Eliciting Experts' Context Knowledge with Theory-Based Experiential Questionnaires
Authors: Gibbins Michael , Qu Sandy Q.
Published: April 2008

This paper describes a useful addition to behavioral researchers' set of research methods, supplementing and extending what can be learned from interviews, surveys, and experiments. The experiential questionnaire (EQ) is designed to study the context within which experts behave, guided by theory about that context and by extensive pre-testing with representatives of the target population of respondents.

An EQ is built around expert respondents' experience of their context, the world in which they function, as represented by cases they have experienced and can describe in detail. The value of the data is supplemented by having the respondents choose the cases and do much of the categorization and coding of their own responses. The EQ's questions are worded in matter-of-fact terms familiar to the respondents, to encourage respondents to report their experienced contexts dispassionately.

This paper describes the EQ method, with examples from the mostly auditing published studies and suggestions about extensions into other areas of accounting research. The value of studying experts' context is addressed, as are matching of respondents and theory, designing and testing an EQ, and some threats to validity of the data resulting from an EQ. References to related research literatures are included.
The Influence of Client Importance on Juror Evaluations of Auditor Liability
Authors: Brandon Duane M. , Mueller Jennifer M.
Published: April 2008

This study examines whether client importance affects jurors' evaluations of auditors. Specifically, we examine whether client importance is significantly related to juror evaluations of responsibility and blame as well as auditor liability and damage awards. The results indicate that when an auditor is involved in litigation associated with an audit client that is financially more important to the auditor, participants evaluated the auditor as less objective, more blameworthy, and more deserving of punishment. Client importance is also found to significantly affect jurors' liability assessments. Further analysis indicates the effects of client importance on liability assessments can be attributed to independence perceptions. Despite these differences, results indicate only a marginally significant influence of client importance on punitive damage awards and no influence on compensatory damage awards.