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Judgment and Decision-Making Research in Auditing
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Judgment and Decision-Making Research in Auditing

A special issue of Journal of Risk and Financial Management (ISSN 1911-8074). This special issue belongs to the section "Economics and Finance".

Deadline for manuscript submissions: 31 December 2024 | Viewed by 10072

Special Issue Editors

Dr. Lawrence Chui

E-Mail Website
Guest Editor
Department of Accounting, Opus College of Business, University of St. Thomas, 2115 Summit Avenue, St. Paul, MN 55105, USA
Interests: judgment and decision making in auditing
Dr. Byron Pike

E-Mail Website
Guest Editor
Department of Accounting, College of Business, Minnesota State University, Mankato, MN, USA
Interests: judgment and decision-making in auditing/accounting, biases, and de-biasing techniques

Special Issue Information

Dear Colleagues,

The Journal of Risk and Financial Management (ISSN: 1911-8074) is excited to invite submissions for our upcoming Special Issue dedicated to examining judgment and decision-making research in auditing. As a dedicated open access platform, the Journal of Risk and Financial Management showcases pioneering research in finance, economics, and risk analysis. This Special Issue aligns with our core mission of disseminating comprehensive research findings encompassing both experimental and theoretical aspects within these areas. This Special Issue places a spotlight on the importance of judgment and decision making in the auditing profession. We invite researchers to contribute their work to deepen our understanding and facilitate the evaluation and improvement of judgments, decisions, or choices in a broadly defined auditing context. This encompasses various factors, including audit tasks, auditor characteristics, and interpersonal interactions among auditors and other stakeholders in the financial reporting process. Researchers are encouraged to draw insights from fields such as social psychology, organizational behavior, sociology, economics, and other relevant theories to conduct a comprehensive investigation into judgment and decision making in auditing. This Special Issue will enrich our journal's multifaceted discourse and contribute to our understanding of the intricacies involved in auditing, financial oversight, and accountability. We look forward to receiving your submissions.

Dr. Lawrence Chui
Dr. Byron Pike
Guest Editors

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All submissions that pass pre-check are peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Journal of Risk and Financial Management is an international peer-reviewed open access monthly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 1400 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Keywords

  • auditing
  • judgment and decision making
  • audit quality
  • auditor performance

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Further information on MDPI's Special Issue polices can be found here.

Published Papers (7 papers)

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Research

21 pages, 1157 KiB  
Article
The Effects of Key Audit Matters and Stock Ownership on Audit Committee Members’ Accounting Preferences
by Michelle Höfmann, Christiane Pott and Sandra Chrzan
J. Risk Financial Manag. 2024, 17(11), 525; https://doi.org/10.3390/jrfm17110525 - 20 Nov 2024
Viewed by 393
Abstract
This study investigated the interactive effect of key audit matters (KAMs) and stock ownership on German audit committee (AC) members’ preferences regarding accounting issues in an experimental setting. Specifically, we explored whether the increased accountability of AC members to investors, resulting from KAM [...] Read more.
This study investigated the interactive effect of key audit matters (KAMs) and stock ownership on German audit committee (AC) members’ preferences regarding accounting issues in an experimental setting. Specifically, we explored whether the increased accountability of AC members to investors, resulting from KAM disclosures, is influenced by whether an AC member owns shares in the audited company. Our findings suggest that the disclosure of KAMs supports a conservative management accounting preference. However, KAMs can be used by stock-owning AC members as disclaimers that inform the investing public and might serve as legitimation tools for ACs with a preference for less conservative accounting. Hence, our study provides evidence from a two-tier governance country that audit committee members’ accounting preferences based on disclosed KAMs depend on their financial independence. Full article
(This article belongs to the Special Issue Judgment and Decision-Making Research in Auditing)
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18 pages, 854 KiB  
Article
Factors Influencing Key Audit Matter Reporting in the Stock Exchange of Thailand: Empirical Evidence from 2016–2020 Data
by Praphada Srisuwan, Trairong Swatdikun, Shubham Pathak, Lidya Primta Surbakti and Alisara Saramolee
J. Risk Financial Manag. 2024, 17(11), 512; https://doi.org/10.3390/jrfm17110512 - 15 Nov 2024
Viewed by 414
Abstract
This study aims to respond to the new auditing standard on the information reporting of Key Audit Matters (KAMs) as a separate section in the auditor’s report, which will increase the transparency and quality of the report. It not only explores the current [...] Read more.
This study aims to respond to the new auditing standard on the information reporting of Key Audit Matters (KAMs) as a separate section in the auditor’s report, which will increase the transparency and quality of the report. It not only explores the current practice of KAM reporting among Thai listed companies but also seeks factors that influence KAM reporting in Thailand. This study explores the quantitative methodology through secondary data collected from the Thai Stock Exchange. This archival research explores 343 listed companies in the Thai Stock Exchange from 2016 to 2020. Descriptive statistics, a correlation matrix, and regression analysis are employed. The results suggest that the type of auditor (Big 4 or non-Big-4 audit firms), audit fee, audit independence, and industry have a direct positive impact on Key Audit Matter reporting at a 0.05 significance level. However, the evidence also suggests that the presence of females on the board, year, ROA (return on asset), risk, and size were not validated factors that have direct positive impacts on Key Audit Matter reporting at a 0.05 significance level. Full article
(This article belongs to the Special Issue Judgment and Decision-Making Research in Auditing)
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25 pages, 408 KiB  
Article
Mandatory Disclosure of Negative Events and Auditor Behavior: Evidence from a Natural Experiment
by Xiaoli Guo and Andrew Fluharty
J. Risk Financial Manag. 2024, 17(11), 497; https://doi.org/10.3390/jrfm17110497 - 6 Nov 2024
Viewed by 571
Abstract
Using the staggered adoption of data breach disclosure (DBD) laws, this paper studies the impact of mandatory disclosure of adverse corporate events on audit fees. DBD laws increase the frequency of disclosed cyber incidents, which adversely impacts firms’ financial condition and operations; this [...] Read more.
Using the staggered adoption of data breach disclosure (DBD) laws, this paper studies the impact of mandatory disclosure of adverse corporate events on audit fees. DBD laws increase the frequency of disclosed cyber incidents, which adversely impacts firms’ financial condition and operations; this could result in a higher risk of misstatement and reputation loss for auditors. Consistent with this hypothesis, we find that auditors charge higher fees after the adoption of DBD laws. We also find that the increase in audit fees is more pronounced in firms with higher cyber risk and greater auditor reputational concerns. Furthermore, governance mechanisms and resources that are available to auditors can mitigate the rise in audit fees. Robustness tests suggest that the effect is not driven by realized cyber incidents and other contemporaneous events. Overall, our study provides evidence that the mandated disclosure regulation significantly affects audit pricing. Full article
(This article belongs to the Special Issue Judgment and Decision-Making Research in Auditing)
7 pages, 194 KiB  
Article
External Auditor’s Reliance Decision on the Internal Audit Function: A Qualitative Analysis on the Coordination Process
by Lawrence Chui, Byron J. Pike and Kasey Martin
J. Risk Financial Manag. 2024, 17(7), 265; https://doi.org/10.3390/jrfm17070265 - 27 Jun 2024
Viewed by 1327
Abstract
Authoritative standards encourage external auditors to coordinate their efforts with the client’s internal audit function (IAF) as part of a financial statement audit. Academic research on this relationship finds that it has the potential to improve audit quality and efficiency. The objective of [...] Read more.
Authoritative standards encourage external auditors to coordinate their efforts with the client’s internal audit function (IAF) as part of a financial statement audit. Academic research on this relationship finds that it has the potential to improve audit quality and efficiency. The objective of this research is to better understand how coordination can impact the external auditor’s decision to rely on the IAF. Prior research has shown that the reliance decision is complex and involves several factors that must be considered simultaneously. In this study, we surveyed external auditors to better understand the benefits of coordinating efforts, the antecedents to successful coordination, and the elements that potentially inhibit external auditors from relying on the work of internal auditors. We find that external auditors are coordinating with the IAF to achieve more efficient and effective audits. The degree of this reliance, however, does vary between audits and is largely dependent upon the perceived competence and objectivity of the IAF as well as effective communication. Our findings are informative to external audit practitioners and their decision to rely on IAFs and work towards a successful arrangement where the integrated audit is applied more efficiently and effectively. This additional insight also helps inform and direct future research into external auditors’ coordination decisions. Full article
(This article belongs to the Special Issue Judgment and Decision-Making Research in Auditing)
29 pages, 1016 KiB  
Article
Can the Presence of Big 4 Auditors in IPO Prospectus Reduce Failure Risk?
by Manal Alidarous
J. Risk Financial Manag. 2024, 17(6), 234; https://doi.org/10.3390/jrfm17060234 - 5 Jun 2024
Cited by 2 | Viewed by 1707
Abstract
This paper addresses a void in the research on auditing and initial public offering (IPO) failure by investigating the impact of the Big 4 auditing firms on the likelihood of an IPO failure. This research is the first comprehensive analysis of more than [...] Read more.
This paper addresses a void in the research on auditing and initial public offering (IPO) failure by investigating the impact of the Big 4 auditing firms on the likelihood of an IPO failure. This research is the first comprehensive analysis of more than 33,000 global IPOs that either failed or were successful between 1995 and 2019 across a wide range of nations with vastly different regulatory, cultural, and economic settings. A cross-sectional probit regression model is utilized to investigate the influence of hiring the Big 4 auditing firms on IPO failure, building upon prior studies on IPO failure. We found strong evidence that IPO failure rates were diminished by up to 67% when one of the Big 4 auditing firms was involved in auditing the IPO prospectus. For IPO founders, hiring Big 4 auditors before an IPO is a quality signaling strategy that minimizes the risk of a failed IPO by reducing information asymmetry among IPO participants. Our findings provide useful policy implications. Hiring one of the Big 4 auditing firms before an IPO is a reassuring signaling strategy for founders, since it decreases information asymmetry among IPO investors and so lowers the risk of the IPO failing. Primary market investors now have access to credible evidence indicating that backing IPOs from companies that use the Big 4 auditing firms increases the likelihood of such IPOs being listed on stock exchanges and yields positive returns. This is the first time, as far as the academicians are aware, that conclusive evidence has been found of a strong inverse association between the presence of Big 4 audits and failure risk for IPO firms. Our research could be helpful to primary market regulators since it shows how crucial it is to encourage Big 4 audits in IPO companies. The quality work of the Big 4 auditors does lower the risk of failure in the IPO market, which might help owners of small private equities to list their firms on the IPO market, boosting economic growth. Full article
(This article belongs to the Special Issue Judgment and Decision-Making Research in Auditing)
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15 pages, 405 KiB  
Article
Sparked Intuition Power: An Audit Risk Activity
by Michael Barnes, Kathryn Enget and Mitchell Heberer
J. Risk Financial Manag. 2024, 17(6), 219; https://doi.org/10.3390/jrfm17060219 - 24 May 2024
Viewed by 847
Abstract
This case explores the subjective nature of professional judgment related to audit risk through the lens of a fictitious company, Sparked Intuition Power (SIP). SIP has just been accepted as a new audit client by an international accounting firm. Students play the role [...] Read more.
This case explores the subjective nature of professional judgment related to audit risk through the lens of a fictitious company, Sparked Intuition Power (SIP). SIP has just been accepted as a new audit client by an international accounting firm. Students play the role of associates on the audit engagement team. As part of their work on the audit, the students identify potential risks present at SIP as part of the initial risk assessment process. Once these risks have been identified, the students decide how to assess the potential severity of each risk and determine the resulting effect on the overall auditor workload. Through interaction and discussion with their instructors, the students should be better able to navigate the decision-making process related to risk evaluation in an audit engagement. Full article
(This article belongs to the Special Issue Judgment and Decision-Making Research in Auditing)
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25 pages, 727 KiB  
Article
Analyzing the Factors That Affect Auditor’s Judgment and Decision Making in Lebanese Audit Firms
by Bilal Adel Moustafa Abdallah, Mohamed Gaber Ghanem and Wagdi Hamed Hijazi
J. Risk Financial Manag. 2024, 17(2), 73; https://doi.org/10.3390/jrfm17020073 - 12 Feb 2024
Cited by 3 | Viewed by 3654
Abstract
The exercise of audit judgment is essential because it is impractical to perform an audit on all types of evidence. These types of evidence are considered in forming an opinion on audited financial statements, making audit judgment a determinant of the audit’s outcome. [...] Read more.
The exercise of audit judgment is essential because it is impractical to perform an audit on all types of evidence. These types of evidence are considered in forming an opinion on audited financial statements, making audit judgment a determinant of the audit’s outcome. The objective of this research is to analyze the factors that affect an auditor’s judgment and decision making (JDM) during an audit. This study used an exploratory research design, with the factor analysis approach as its methodology. However, the data were collected using the questionnaire method. The questionnaire was sent to all member auditors of the Lebanese Association of Certified Public Accountants (LACPA). A total of 310 completed questionnaires were collected and analyzed. The data analysis findings indicate that the auditor’s JDM throughout the audit process is affected by three factors: personal, task, and environmental factors. The auditor’s personal factor becomes the dominant factor because it has the largest eigenvalue of 7.949. These findings demonstrate the complex and diverse nature of auditor judgment, highlighting the significance of considering audit JDM factors. Therefore, auditors may improve their abilities to make informed and effective judgments throughout the audit process by acknowledging the importance of personal, task, and environmental factors. Full article
(This article belongs to the Special Issue Judgment and Decision-Making Research in Auditing)
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