The effect of change in the reporting threshold and type of control deficiency on equity analysts' evaluation of the reliability of future financial statements

Auditing

Volumn 31, Issue 2, 2012, Pages 1-17

  Asare, Stephen K ^a   Wright, Arnold M ^b  

^a UNIVERSITY OF FLORIDA   (United States)

^b NORTHEASTERN UNIVERSITY   (United States)

Author keywords

Adverse control reports; Early warning signal; Reporting thresholds; Type of control deficiencies; Users' likelihood assessments

Indexed keywords

EID: 84860992309     PISSN: 02780380     EISSN: 15587991     Source Type: Journal    
DOI: 10.2308/ajpt-10237     Document Type: Article

References (40)

1. Amer, T., K. Hackenbrack, and M. Nelson. 1994. Between-auditor differences in the interpretation of probability phrases. Auditing: A Journal of Practice & Theory 13 (1): 126-136.
2. Amer, T., K. Hackenbrack, and M. Nelson. 1995. Context-dependence of auditors' interpretations of the SFAS NO. 5 probability expressions. Contemporary Accounting Research 12 (1): 25-39.
3. American Institute of Certified Public Accountants (AICPA). 1988. Consideration of Internal Controls in a Financial Statement Audit. Statement on Auditing Standards No. 55. New York, NY: AICPA.
4. American Institute of Certified Public Accountants (AICPA). 1995. Consideration of Internal Controls in a Financial Statement Audit. Statement on Auditing Standards No. 78. New York, NY: AICPA.
5. American Institute of Certified Public Accountants (AICPA). 2001. The Effect of Information Technology on the Auditor's Consideration of Internal Control in a Financial Statement Audit. Statement on Auditing Standards No. 94. New York, NY: AICPA.
6. Asare, S., L. Cunningham, and A. Wright. 2007. The Sarbanes-Oxley Act: Legal implications and research opportunities. Research in Accounting Regulations (19): 81-105.
7. Asare, S., and A. Wright. 2011. The effect of type of internal control report on users' confidence in the accompanying financial statement audit report. Contemporary Accounting Research 49 (2): 309-346.
8. Ashbaugh-Skaife, H., D. Collins, W. Kinney, and R. Lafond. 2009. The effect of internal control deficiencies on firm risk and cost of equity capital. Journal of Accounting Research 47 (1): 1-43.
9. Ashbaugh-Skaife, H., D. Collins, and W. Kinney Jr. 2007. The discovery and reporting of internal control deficiencies prior to SOX-mandated audits. Journal of Accounting and Economics 44 (1/2): 166-192.
10. Beneish, M., M. Billings, and L. Hodder. 2008. Internal control weaknesses and information uncertainty. The Accounting Review 83 (3): 665-703.
11. Committee of Sponsoring Organizations of the Treadway Commission (COSO). 1992. Internal Control Integrated Framework. Jersey City, NJ: AICPA.
12. Credit Suisse First Boston. 2005. Section 404: Now Appearing in 10-Ks Near You. (March 11).
13. Doyle, J., W. Ge, and S. McVay. 2007a. Accruals quality and internal control over financial reporting. The Accounting Review 82 (5): 1141-1170.
14. Doyle, J., W. Ge, and S. McVay. 2007b. Determinants of weaknesses in internal control over financial reporting. Journal of Accounting and Economics 44 (1/2): 193-223.
15. Financial Accounting Standards Board (FASB). 1975. Accounting for Contingencies. Statement of Financial Accounting Standards No. 5. Norwalk, CT: FASB.
16. Ge, W., and S. McVay. 2005. The disclosure of material weaknesses in internal control after Sarbanes-Oxley Act. Accounting Horizons 19: 137-158.
17. Grundfest, J., and S. Bochner. 2006. Fixing 404. Michigan Law Review 105: 1643-1675.
18. Hackenbrack, K., and M. Nelson. 1996. Auditors incentives and their application of financial accounting standards. The Accounting Review 71 (1): 43-59.
19. Hammersley, J., L. Myers, and C. Shakespeare. 2008. Market reactions to the disclosure of internal control weaknesses and to the characteristics of those weaknesses under Section 302 of the Sarbanes Oxley Act of 2002. Review of Accounting Studies 13 (1): 141-165.
20. Heintz, J., and G. White. 1989. Auditor judgment in analytical review-Some further evidence. Auditing: A Journal of Practice & Theory 8 (2): 22-39.
21. Heintz, J., G. White, and J. Bedard. 1999. The effect of data reliability on the influence of unaudited values in audit analytical procedures. International Journal of Auditing 3 (2): 135-146.
22. Jiambalvo, J., and N. Wilner. 1985. Auditor evaluation of contingent claims. Auditing: A Journal of Practice & Theory 5 (Fall): 1-11.
23. Kahneman, D. 2003. Maps of bounded rationality: Psychology for behavioral economics. American Economic Review 93 (5): 1449-1475.
24. Koonce, L., M. McAnally, and M. Mercer. 2005. How do investors judge the risk of financial items? The Accounting Review 80 (1): 221-241.
25. Lambert, R., C. Leuz, and R. Verrecchia. 2007. Accounting information, disclosure, and cost of capital. Journal of Accounting Research 45: 385-420.
26. Leech, T. 2004. Moody's questions ability to audit around deficiencies. Compliance Week (December 7): 1-4.
27. Mautz, R., and H. Sharaf. 1961. The Philosophy of Auditing (Monograph No. 6). Sarasota, FL: American Accounting Association.
28. McDaniel, L., and W. Kinney Jr. 1995. Expectation-formation guidance in the auditor's review of interim financial information. Journal of Accounting Research 33 (1): 59-76.
29. Moody's Investors Service (Moody's). 2004. Special Comment: Section 404 Reports on Internal Control: Impact on Ratings Will Depend on Nature of Material Weaknesses Reported. (October). New York, NY: Moody's Investors Service.
30. Nicolaisen, D. T. 2004. Keynote speech at 11th Annual Midwestern Financial Reporting Symposium, Chicago, IL, October 7. Available at: http://www.sec.gov/news/speech/spch100704dtn.htm
31. Ogneva, M., K. Subramanyam, and K. Raghunandan. 2007. Internal control weakness and cost of equity: Evidence from SOX Section 404 disclosures. The Accounting Review 82 (5): 1255-1297.
32. Public Company Accounting Oversight Board (PCAOB). 2004. An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements. Auditing Standard No. 2. Available at: http://www.pcaobus.org/Standards/Auditing/Pages/Auditing_Standard_2.aspx
33. Public Company Accounting Oversight Board (PCAOB). 2006. Rulemaking Docket 021: Auditing Standard-An Audit of Internal Control over Financial Reporting That Is Integrated with an Audit of Financial Statements. Release No 2006-007. Available at: http://www.pcaobus.org/Rules/Rulemaking/Docket%20021/2006-12-19_Release_No._2006-007.pdf
34. Public Company Accounting Oversight Board (PCAOB). 2007a. An Audit of Internal Control over Financial Reporting That Is Integrated with an Audit of Financial Statements. Auditing Standard No. 5. Available at: http://www.pcaobus.org/Standards/Auditing/Pages/Auditing_Standard_5.aspx
35. Public Company Accounting Oversight Board (PCAOB). 2007b. Rulemaking Docket 021: Auditing Standard-An Audit of Internal Control over Financial Reporting That Is Integrated with an Audit of Financial Statements. Release No. 2007-005. Available at: http://www.pcaobus.org/Rules/Rulemaking/Docket%20021/2007-05-24_Release_No_2007-005.pdf
36. Public Company Accounting Oversight Board (PCAOB). 2009. An Audit of Internal Control over Financial Reporting That Is Integrated with an Audit of Financial Statements: Guidance for Auditors of Smaller Public Companies. Staff Views. Available at: http://www.pcaobus.org/Standards/Auditing/Documents/AS5/Guidance.pdf
37. Rose, J., C. Norman, and A. Rose. 2010. Perceptions of investment risk associated with material control weakness pervasiveness and disclosure detail. The Accounting Review 85 (5): 1787-1807.
38. Sarbanes-Oxley Act. 2002. One Hundred Seventh Congress of the United States of America, Second Session. Washington, D.C.: Government Printing Office.
39. Stone, D., and W. Dilla. 1994. When numbers are better than words: The joint effects of response representation and experience on inherent risk judgments. Auditing: A Journal of Practice & Theory 13 (Supplement): 1-19.
40. Tversky, A., and D. Kahneman. 1974. Judgment under uncertainty: Heuristics and biases. Science 185: 1124-1130.