Audit Risk
Mehdi Eskandari; Seyed Yousef Ahadi Serkani; Seyede Atefe Hosseine
Abstract
The purpose of this research is presenting a pathological framework of teamwork in auditing by matrix ranking process.
The aim of this study is to present a pathological framework of teamwork in auditing using a matrix ranking process. This study employs a mixed-methods and exploratory approach due ...
Read More
The purpose of this research is presenting a pathological framework of teamwork in auditing by matrix ranking process.
The aim of this study is to present a pathological framework of teamwork in auditing using a matrix ranking process. This study employs a mixed-methods and exploratory approach due to the lack of identification of vulnerable areas of teamism in the auditing profession. The grounded theory method was applied to determine the dimensions of the model through fuzzy Delphi analysis. There is a content similarity between the components representing the central field of damage of teamism in the auditing profession and the identified categories. Using the interpretive ranking process, an attempt was made to prioritize the identified axes. The results of this study, based on 12 interviews in the qualitative phase and the model presentation, indicate the existence of 3 categories, 8 components, and 42 conceptual themes. In the second phase of the research, it was also determined that individual perception disorder is the most significant issue that the audit teams face in the process of sharing information and focusing on collaborative methods. This issue can seriously challenge the performance of audit teams.
Introduction
In organizational structures, one of the most important processes for fostering participation and information sharing is developing team orientation to achieve effectiveness. In other words, participation and the creation of synergy are considered key outcomes of team orientation, through which any organization can improve competitive results. However, it is important to note that some professions benefit more from team orientation because the specific characteristics of certain jobs, particularly those involving the sharing of knowledge and experience, can yield greater advantages. Auditing is one of such profession that relies on team orientation due to the specialized knowledge and experience required. Auditing teams are structured according to certain norms designed to improve knowledge sharing and learning.
Literature Review
At the onset of interpersonal communication, the concept of a group was viewed as a collaborative function. This was believed to yield more long-term results compared to individual decision-making, as joint efforts between individuals were thought to provide better solutions to the organization’s challenges. However, with the development of behavioral research in the functional fields of the group, it became evident that, like previous theories, the group offered only proportional efficiency for the organization and did not significantly differ from individual decision-making in terms of effectiveness. In fact, issues within the group, such as power dynamics, fear, and frustration among members, particularly among minority stakeholders, often cause more disruptions in solving organizational problems and could impose significant costs on the organization.
Methodology
The research approach of the present study, in terms of data collection logic, is hybrid in nature. This is because it examines a phenomenon for which no comprehensive framework exists in the theoretical literature of the auditing profession, nor is there a consensus. Therefore, the study begins by analyzing the qualitative data and relying on the data theory method of the foundation, aiming to identify the dimensions of the damages of the audit teams through a multidimensional model. For this purpose, Glaser's (1992) emergent approach is employed to formulate the audit teams' vulnerability framework, utilizing expert interviews conducted in three stages of coding.
Result
Based on the arguments presented in the methodology regarding the lack of a theoretical framework for team orientation vulnerability in the auditing profession, the foundation data theory analysis process, following Glazer's approach, was used as the basis for the qualitative section. In this analysis, a total of 315 open codes were generated from interviews with 12 identified accounting experts. Through a three-stage coding process, 8 components and 4 main categories were identified. To ensure the reliability of the identified dimensions, Fuzzy Delphi analysis was employed. The findings from this analysis confirm all the core areas of the damage of team orientation within the audit profession. Subsequently, to address the research question of determining the most significant central field of damage of team orientation within the auditing profession, the interpretive ranking process was utilized.
Discussion
In analyzing the obtained results, it can be stated that auditors, as members of the audit team, can effectively contribute to improving audit quality when each auditor can individually play a meaningful role in collaboration, due to their level of perceptual knowledge, which stems from behavioral and psychological characteristics, and their ability to share information.
Conclusion
The results indicate that auditors, as members of the audit team, can effectively contribute to improving audit quality when each auditor can individually play an active role in collaboration, due to their level of perceptual knowledge, which stems from behavioral and psychological characteristics.
Audit Risk
Mandana Taheri; Ghasem Blue; Ramin Parvarpour
Abstract
Information asymmetry and economic uncertainty are features of the capital market in today's complex business environment, which increase audit risk and litigation risk, and can be effective in explaining audit fees. The purpose of this research is to investigate the role of legal claims risk, information ...
Read More
Information asymmetry and economic uncertainty are features of the capital market in today's complex business environment, which increase audit risk and litigation risk, and can be effective in explaining audit fees. The purpose of this research is to investigate the role of legal claims risk, information asymmetry and economic uncertainty in explaining audit fees. The time domain of the research is the period from 2013 to 2021 and the research sample includes 120 companies listed on the Tehran Stock Exchange. Research findings, based on analysis using multivariable regression models on combined data, show that among the macroeconomic variables investigated (including economic growth rate, inflation rate, exchange rate, and interest rate), both economic growth rate and inflation rate have a direct and significant relationship with the audit fee. Additionally, there is a direct and significant relationship between the risk of lawsuits and information asymmetry with the audit fee. The results indicate that the risk of lawsuits, economic uncertainty and information asymmetry play an effective role in explaining auditors' fees. IntroductionAudit fees indicate the amount of auditors' effort to reduce the audit risk to the reasonable level. It is a measure to control financial risk and some legal claims that are threatening audit firms. According to litigation risk, auditors try to control this risk by increasing their efforts and audit fees. Chen (2019) and Frino et al. (2022) state that information asymmetry and economic uncertainty increase audit risk and litigation risk, and can influence audit fees. In other words, audit services are necessitated by the conflict between shareholders and managers. Information asymmetry and economic uncertainty increase agency costs, thereby heightening the necessity for auditing to control and manage these costs. Consequently, auditors increase audit fees to manage audit risks and ensure the thoroughness of their audit work. Therefore, this research aims to explain the effect of litigation risk, information asymmetry, and economic uncertainty on audit fees. MethodologyOur data were collected using financial statements, notes, and audit reports in CODAL[1] database and Rahavard-e-Novin[2] software. The final sample for a period of 2013-2021 consists of 1080 firm-year observations. In addition, the GARCH models were employed to measure the independent variables. To test the first and second hypotheses of this research, model 1 is used:Afeet= litig riskt+ Asymmetryt+ Sizet+ INVRECt +Levt + ROAt+ losst+ CHANGEt +Adu sizet + Specialistt+ LIQUIDt + SALEt +Year Effects+ Industry Effects (1)To test the third hypothesis of research, model 2 is used:Afeet= Economic Growtht-1+ Inflation Ratet-1+ Exchange Ratet-1+ Interest Ratet-1+ Sizet+ INVRECt +Levt + ROAt+ losst+ CHANGEt +Adu sizet + Specialistt+ LIQUIDt + SALEt +Year Effects+ Industry Effects (2)Where, SIZE represents the natural logarithm of total assets; INVREC denotes the amount of inventory and receivables divided by total assets; Lev indicates total liabilities divided by total assets; ROA signifies net profit divided by total assets; LOSS is assigned 1 if a firm has experienced a loss in any of the last three years, and 0 otherwise; CHANGE is assigned 1 if a firm has changed its auditor, and 0 otherwise; LIQUID represents current assets divided by total assets; SALE represents the ratio of sales to assets; Adu size is a dummy variable that equals 1 if the audit firm was either the Iran Audit Organization (IAO) or Mofid Rahbar (an audit firm belonging to IACPA), and 0 otherwise. SPECIALISR is assigned 1 if the auditor is an industry specialist, and 0 otherwise. Audit Fee (AFEE): is the natural logarithm of the audit fee.Information Asymmetry (Asymmetry): According to the model of Venkatesh and Chiang (1986).Economic Uncertainty (RM): Economic uncertainty is the inability of agents to accurately predict the outcomes of decisions. In this research, it has been measured by four indicators, including the fluctuation of economic growth, inflation rate, exchange rate, and interest rate. In addition, a GARCH model was used to index these criteria. For this purpose, a volatile measure of changes in the Gross National Product (GNP) index was considered to be an indicator of the risk of macroeconomic factors that the firm faces in its financial and production decisions. The results of the estimation of the GARCH model led to conditional variances, which ultimately lead to the standard deviation or the concept of uncertainty upon taking the square root.Litigation Risk (Litig risk): We measure this variable based on Lowry and Shu (2002), Krishnan and Zhang (2005), and Sun and Liu (2011). ConclusionThe results of testing the first and second hypotheses indicate that the risk of lawsuits and information asymmetry have a positive and significant relationship with audit fees. In the third hypothesis, the effect of lack of economy on remuneration was investigated. In this research, four indicators including economic growth, inflation rate, exchange rate, and interest rate have been used to measure the economic uncertainty of macroeconomic variables. In this regard, the results of the hypothesis testing show that economic uncertainty based on inflation and economic growth criteria has a positive and significant relationship with audit fees. Additionally, economic uncertainty based on interest rate criterion has a negative and significant relationship with audit fees. However, the exchange rate indicator does not have a significant effect on audit fees. Therefore, it can be seen that audit risk as an indicator of determining audit fees is influenced by some economic variables such as inflation and economic growth.In order to strengthen the results and address potential endogeneity in the research models, we redefined the dependent variable as imaginary (bivariate) and re-estimated the initial models of all three hypotheses. The results of these re-estimations confirmed the findings of the least squares regression in the first model for the first and second hypotheses. In the third hypothesis regarding economic uncertainty, economic growth and inflation rate criteria, as well as exchange rate, lead to an increase in the audit fee, while interest rate causes a decrease in the audit fee. Additionally, new control variables were added to the initial models based on the information provided in previous sections. The results of these additions confirm the findings of the initial estimation of the hypotheses.
