Managerial Auditing JournalTable of Contents for Managerial Auditing Journal. List of articles from the current issue, including Just Accepted (EarlyCite)https://www.emerald.com/insight/publication/issn/0268-6902/vol/39/iss/3?utm_source=rss&utm_medium=feed&utm_campaign=rss_journalLatestManagerial Auditing JournalEmerald Publishing LimitedManagerial Auditing JournalManagerial Auditing Journalhttps://www.emerald.com/insight/proxy/containerImg?link=/resource/publication/journal/b882ae719c9086db55f9ea7f6cbe7968/urn:emeraldgroup.com:asset:id:binary:maj.cover.jpghttps://www.emerald.com/insight/publication/issn/0268-6902/vol/39/iss/3?utm_source=rss&utm_medium=feed&utm_campaign=rss_journalLatestMeasuring novice auditor orientation and its impact on judgmenthttps://www.emerald.com/insight/content/doi/10.1108/MAJ-04-2023-3895/full/html?utm_source=rss&utm_medium=feed&utm_campaign=rss_journalLatestThe purpose of this study is to construct and test a new measure of auditor orientation using two audit quality-related tasks. The sample consists of 66 Dutch and US graduate auditing students. Participants complete two tasks: one involving a lease classification and another, supplemental experiment involving a contingent liability judgment. The purpose is to construct a new measure for rules-based/ principles-based orientation. Rigorous, psychometric testing confirms that parts of tolerance for ambiguity (TOA) and need for cognition (NFC), together, form a new construct the authors identify as auditor orientation. The authors next conduct a main and supplemental experiment with novice auditor participants from both the USA and the Netherlands. The authors begin with rigorous, psychometric testing using participants from the USA and the Netherlands. The resulting 10-item scale combines parts of TOA and NFC to reflect auditor orientation. The common themes across scale items are high (low) adaptability to complexity and a substance-over-form (form-over-substance) preference for principles-oriented (PO) (rules-oriented [RO]) auditors. Conducting two experiments, results from two distinct tasks confirm our research question; novice auditors classified as RO (PO) are more (less) likely to recommend a more aggressive/client-favorable disclosure judgment. Auditor orientation (i.e. rules or principles) has a significant impact on the application of rules-based or principles-based standards. How the standards are applied, therefore, influences auditor decision-making and thus audit quality. However, there is a paucity of auditor orientation research to date, including a validated measure. The study contributes a new measure for future research in the related accounting standards and audit quality literatures, while also identifying a potentially important construct in auditor training.Measuring novice auditor orientation and its impact on judgment
Ferdy van Beest, Robert Pinsker
Managerial Auditing Journal, Vol. 39, No. 3, pp.217-237

The purpose of this study is to construct and test a new measure of auditor orientation using two audit quality-related tasks.

The sample consists of 66 Dutch and US graduate auditing students. Participants complete two tasks: one involving a lease classification and another, supplemental experiment involving a contingent liability judgment. The purpose is to construct a new measure for rules-based/ principles-based orientation. Rigorous, psychometric testing confirms that parts of tolerance for ambiguity (TOA) and need for cognition (NFC), together, form a new construct the authors identify as auditor orientation. The authors next conduct a main and supplemental experiment with novice auditor participants from both the USA and the Netherlands.

The authors begin with rigorous, psychometric testing using participants from the USA and the Netherlands. The resulting 10-item scale combines parts of TOA and NFC to reflect auditor orientation. The common themes across scale items are high (low) adaptability to complexity and a substance-over-form (form-over-substance) preference for principles-oriented (PO) (rules-oriented [RO]) auditors. Conducting two experiments, results from two distinct tasks confirm our research question; novice auditors classified as RO (PO) are more (less) likely to recommend a more aggressive/client-favorable disclosure judgment.

Auditor orientation (i.e. rules or principles) has a significant impact on the application of rules-based or principles-based standards. How the standards are applied, therefore, influences auditor decision-making and thus audit quality. However, there is a paucity of auditor orientation research to date, including a validated measure. The study contributes a new measure for future research in the related accounting standards and audit quality literatures, while also identifying a potentially important construct in auditor training.

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Measuring novice auditor orientation and its impact on judgment10.1108/MAJ-04-2023-3895Managerial Auditing Journal2024-01-25© 2024 Emerald Publishing LimitedFerdy van BeestRobert PinskerManagerial Auditing Journal3932024-01-2510.1108/MAJ-04-2023-3895https://www.emerald.com/insight/content/doi/10.1108/MAJ-04-2023-3895/full/html?utm_source=rss&utm_medium=feed&utm_campaign=rss_journalLatest© 2024 Emerald Publishing Limited
Are out-of-period adjustments a type of stealth restatement? An examination of nonaudit services and out-of-period adjustmentshttps://www.emerald.com/insight/content/doi/10.1108/MAJ-02-2023-3821/full/html?utm_source=rss&utm_medium=feed&utm_campaign=rss_journalLatestThe purpose of this study is to investigate the association between nonaudit services (NAS) and out-of-period adjustments (OOPAs). Over the years, the number of OOPAs has risen while the number of restatements has decreased. This could indicate an improvement in financial reporting quality. It could also indicate the use of a type of stealth restatement for opportunistic purposes. These less prominent restatements are more likely to go undetected and could perpetuate opportunistic disclosure and mitigate the likelihood of unfavorable market reactions. The authors use a two-stage multivariate regression analysis to examine the relationship between NAS and the reporting of an OOPA. The authors use prior research on NAS to guide the model development. The authors perform several robustness checks including different types of NAS and different characteristics of OOPAs. The results indicate that NAS has a significantly negative association with the existence of OOPAs. The core findings suggest that NAS does not impair auditor independence. Rather, greater amounts of NAS may contribute to knowledge spillover, which leads to higher financial reporting and audit quality. The results are robust to several additional tests. The results raise interesting implications for regulators, executives, auditors, investors and future research. The authors provide insight into the relationship between NAS and auditor independence. To the best of the authors’ knowledge, prior research has not considered the effect of NAS on OOPAs. The authors contribute to the literature by providing evidence that OOPAs, a form of stealth restatements, is an important consideration in audit quality research.Are out-of-period adjustments a type of stealth restatement? An examination of nonaudit services and out-of-period adjustments
Cori Crews, John Abernathy, Jimmy Carmenate, Divesh Sharma, Vineeta Sharma
Managerial Auditing Journal, Vol. 39, No. 3, pp.238-262

The purpose of this study is to investigate the association between nonaudit services (NAS) and out-of-period adjustments (OOPAs). Over the years, the number of OOPAs has risen while the number of restatements has decreased. This could indicate an improvement in financial reporting quality. It could also indicate the use of a type of stealth restatement for opportunistic purposes. These less prominent restatements are more likely to go undetected and could perpetuate opportunistic disclosure and mitigate the likelihood of unfavorable market reactions.

The authors use a two-stage multivariate regression analysis to examine the relationship between NAS and the reporting of an OOPA. The authors use prior research on NAS to guide the model development. The authors perform several robustness checks including different types of NAS and different characteristics of OOPAs.

The results indicate that NAS has a significantly negative association with the existence of OOPAs. The core findings suggest that NAS does not impair auditor independence. Rather, greater amounts of NAS may contribute to knowledge spillover, which leads to higher financial reporting and audit quality. The results are robust to several additional tests.

The results raise interesting implications for regulators, executives, auditors, investors and future research. The authors provide insight into the relationship between NAS and auditor independence.

To the best of the authors’ knowledge, prior research has not considered the effect of NAS on OOPAs. The authors contribute to the literature by providing evidence that OOPAs, a form of stealth restatements, is an important consideration in audit quality research.

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Are out-of-period adjustments a type of stealth restatement? An examination of nonaudit services and out-of-period adjustments10.1108/MAJ-02-2023-3821Managerial Auditing Journal2024-02-13© 2024 Emerald Publishing LimitedCori CrewsJohn AbernathyJimmy CarmenateDivesh SharmaVineeta SharmaManagerial Auditing Journal3932024-02-1310.1108/MAJ-02-2023-3821https://www.emerald.com/insight/content/doi/10.1108/MAJ-02-2023-3821/full/html?utm_source=rss&utm_medium=feed&utm_campaign=rss_journalLatest© 2024 Emerald Publishing Limited
Pension funding gaps: do mandated external governance mechanisms matter?https://www.emerald.com/insight/content/doi/10.1108/MAJ-05-2023-3912/full/html?utm_source=rss&utm_medium=feed&utm_campaign=rss_journalLatestThis study aims to examine whether and how the experience of specialized external governance mechanisms mandated by the Employee Retirement Income Security Act of 1974 – the actuary and auditor – affect pension plan funding. This study uses data from annual pension plan regulatory reports (Form 5500), Form 10-K filings, Form DEF 14A filings (company proxy statements) and publicly available data sources. The hand-collected data include information related to the pension plan’s actuary and auditor and various pension plan data disclosed in the company’s financial statement footnotes. The author finds that more experienced actuaries and auditors are associated with better funded pension plans, especially when the company has higher financial risk or lower board independence. Additional analyses indicate that companies with more experienced actuaries and pension plan auditors are more likely to make higher annual pension plan contributions and hold fewer Level 3 fair value assets. The dearth of pension plan governance research generally focuses on whether and how internal governance mechanisms affect pension plan funding. To the best of the author’s knowledge, this is the first empirical study of the relationship between external pension plan governance mechanisms and pension plan funding.Pension funding gaps: do mandated external governance mechanisms matter?
Trevor England
Managerial Auditing Journal, Vol. 39, No. 3, pp.263-293

This study aims to examine whether and how the experience of specialized external governance mechanisms mandated by the Employee Retirement Income Security Act of 1974 – the actuary and auditor – affect pension plan funding.

This study uses data from annual pension plan regulatory reports (Form 5500), Form 10-K filings, Form DEF 14A filings (company proxy statements) and publicly available data sources. The hand-collected data include information related to the pension plan’s actuary and auditor and various pension plan data disclosed in the company’s financial statement footnotes.

The author finds that more experienced actuaries and auditors are associated with better funded pension plans, especially when the company has higher financial risk or lower board independence. Additional analyses indicate that companies with more experienced actuaries and pension plan auditors are more likely to make higher annual pension plan contributions and hold fewer Level 3 fair value assets.

The dearth of pension plan governance research generally focuses on whether and how internal governance mechanisms affect pension plan funding. To the best of the author’s knowledge, this is the first empirical study of the relationship between external pension plan governance mechanisms and pension plan funding.

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Pension funding gaps: do mandated external governance mechanisms matter?10.1108/MAJ-05-2023-3912Managerial Auditing Journal2024-02-12© 2024 Emerald Publishing LimitedTrevor EnglandManagerial Auditing Journal3932024-02-1210.1108/MAJ-05-2023-3912https://www.emerald.com/insight/content/doi/10.1108/MAJ-05-2023-3912/full/html?utm_source=rss&utm_medium=feed&utm_campaign=rss_journalLatest© 2024 Emerald Publishing Limited
Do customers’ financial restatements affect how auditors respond to their suppliers? Evidence from Chinahttps://www.emerald.com/insight/content/doi/10.1108/MAJ-04-2023-3906/full/html?utm_source=rss&utm_medium=feed&utm_campaign=rss_journalLatestThe purpose of this study is to explore the economic impact of financial restatements by major customers on the audit opinion of their suppliers, showing that non-financial information disclosure potentially helps auditors make better assessments. Using a sample of China’s listed firms from 2007 to 2021, the authors aim to find the relationship between customers’ financial restatements and their suppliers’ audit opinions. Heckman selection model, placebo tests and other robustness checks are used as well. The findings reveal that customers’ financial restatements have a significant effect on the likelihood of suppliers receiving modified audit opinions. This relationship is pronounced when suppliers face a higher level of financial constraints, exhibit poorer accounting conservatism or receive more negative media coverage. Additionally, this effect occurs through increased business risk and information risk, which heightens auditors’ perceived audit risk. Moreover, the study highlights the influence of switching costs, auditor expertise and restatement severity on this relationship. Risks originating from customers can spread along the supply chain, emphasizing the necessity for auditors to give heightened attention to both the audited firms and their customer information. Moreover, regulators should carefully consider the important impact of customer information disclosures to maximize the protection of the interests of external information users. This study not only confirms the crucial role of customer information disclosures in annual reports for stakeholders and auditors but also contributes to the existing literature on customer–supplier relationships.Do customers’ financial restatements affect how auditors respond to their suppliers? Evidence from China
Sujie Hu, Yuting Qian, Sumin Hu
Managerial Auditing Journal, Vol. 39, No. 3, pp.294-319

The purpose of this study is to explore the economic impact of financial restatements by major customers on the audit opinion of their suppliers, showing that non-financial information disclosure potentially helps auditors make better assessments.

Using a sample of China’s listed firms from 2007 to 2021, the authors aim to find the relationship between customers’ financial restatements and their suppliers’ audit opinions. Heckman selection model, placebo tests and other robustness checks are used as well.

The findings reveal that customers’ financial restatements have a significant effect on the likelihood of suppliers receiving modified audit opinions. This relationship is pronounced when suppliers face a higher level of financial constraints, exhibit poorer accounting conservatism or receive more negative media coverage. Additionally, this effect occurs through increased business risk and information risk, which heightens auditors’ perceived audit risk. Moreover, the study highlights the influence of switching costs, auditor expertise and restatement severity on this relationship.

Risks originating from customers can spread along the supply chain, emphasizing the necessity for auditors to give heightened attention to both the audited firms and their customer information. Moreover, regulators should carefully consider the important impact of customer information disclosures to maximize the protection of the interests of external information users.

This study not only confirms the crucial role of customer information disclosures in annual reports for stakeholders and auditors but also contributes to the existing literature on customer–supplier relationships.

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Do customers’ financial restatements affect how auditors respond to their suppliers? Evidence from China10.1108/MAJ-04-2023-3906Managerial Auditing Journal2024-02-16© 2024 Emerald Publishing LimitedSujie HuYuting QianSumin HuManagerial Auditing Journal3932024-02-1610.1108/MAJ-04-2023-3906https://www.emerald.com/insight/content/doi/10.1108/MAJ-04-2023-3906/full/html?utm_source=rss&utm_medium=feed&utm_campaign=rss_journalLatest© 2024 Emerald Publishing Limited
A value to voice? An examination of auditor upward feedbackhttps://www.emerald.com/insight/content/doi/10.1108/MAJ-01-2023-3802/full/html?utm_source=rss&utm_medium=feed&utm_campaign=rss_journalLatestIn this paper, the authors examine auditor upward feedback, which provides a unique opportunity for staff auditors to exercise their voice within an audit firm. Upward feedback can improve employee perceptions of fairness and justice while mitigating feelings of burnout and turnover intentions, thus enhancing audit quality. However, it is unclear which circumstances improve the likelihood that auditors will use their voice and give feedback to superiors. The purpose of this study is to investigate contextual factors that impact the likelihood that auditors will provide upward feedback. Using a 2 × 2 + 2 experiment with staff auditors, the authors test the likelihood of giving feedback when presented with different feedback systems (electronic anonymous, face-to-face or no opportunity) and experiences with managers (favorable or unfavorable). The authors find that, while feedback type alone does not change the likelihood of auditors providing upward feedback, auditors are more likely to provide feedback after a favorable manager experience than an unfavorable one. The likelihood of providing feedback after an unfavorable experience is higher, however, when the feedback type is electronic and anonymous as opposed to face-to-face. Additional analyses illustrate strong relationships between manager experience, feedback type and procedural justice, which significantly influence the turnover intentions of staff auditors. To the best of the authors’ knowledge, the authors are the first to examine the value of subordinates’ upward feedback on firm outcomes, including burnout and turnover intention.A value to voice? An examination of auditor upward feedback
Christine Gimbar, Gabriel Saucedo, Nicole Wright
Managerial Auditing Journal, Vol. ahead-of-print, No. ahead-of-print, pp.-

In this paper, the authors examine auditor upward feedback, which provides a unique opportunity for staff auditors to exercise their voice within an audit firm. Upward feedback can improve employee perceptions of fairness and justice while mitigating feelings of burnout and turnover intentions, thus enhancing audit quality. However, it is unclear which circumstances improve the likelihood that auditors will use their voice and give feedback to superiors. The purpose of this study is to investigate contextual factors that impact the likelihood that auditors will provide upward feedback.

Using a 2 × 2 + 2 experiment with staff auditors, the authors test the likelihood of giving feedback when presented with different feedback systems (electronic anonymous, face-to-face or no opportunity) and experiences with managers (favorable or unfavorable).

The authors find that, while feedback type alone does not change the likelihood of auditors providing upward feedback, auditors are more likely to provide feedback after a favorable manager experience than an unfavorable one. The likelihood of providing feedback after an unfavorable experience is higher, however, when the feedback type is electronic and anonymous as opposed to face-to-face. Additional analyses illustrate strong relationships between manager experience, feedback type and procedural justice, which significantly influence the turnover intentions of staff auditors.

To the best of the authors’ knowledge, the authors are the first to examine the value of subordinates’ upward feedback on firm outcomes, including burnout and turnover intention.

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A value to voice? An examination of auditor upward feedback10.1108/MAJ-01-2023-3802Managerial Auditing Journal2024-03-28© 2024 Emerald Publishing LimitedChristine GimbarGabriel SaucedoNicole WrightManagerial Auditing Journalahead-of-printahead-of-print2024-03-2810.1108/MAJ-01-2023-3802https://www.emerald.com/insight/content/doi/10.1108/MAJ-01-2023-3802/full/html?utm_source=rss&utm_medium=feed&utm_campaign=rss_journalLatest© 2024 Emerald Publishing Limited
The effect of gender diversity on the disclosure of key audit matters: examination of dual-signature environmenthttps://www.emerald.com/insight/content/doi/10.1108/MAJ-09-2022-3695/full/html?utm_source=rss&utm_medium=feed&utm_campaign=rss_journalLatestThis paper aims to investigate the impact of gender diversity in the composition of engagement auditors on the disclosure of key audit matters (KAMs) in a dual-signature environment. The authors used the unique institutional setup of Taiwan, where the law requires that audit reports be signed by two audit partners. The authors examined the effect of gender diversity composition among engagement auditors on KAM disclosure, considering behavioral differences between female and male auditors. The empirical results indicate that gender diversity composition in the dual-signature environment is associated with the number of disclosed KAM items (KAMIT) and the length of the explanations for each KAMIT. Furthermore, the authors found that gender diversity composition, particularly when led by female audit partners, has a more pronounced impact on the explanation of each KAMIT rather than on the disclosure of KAMIT. The authors also noted that the moderating effect of audit firm specialization does not influence the gender diversity composition of audit partners in disclosing KAMs. This study’s empirical findings demonstrate that the interaction between different gender compositions in a dual-signature environment influences KAM disclosure.The effect of gender diversity on the disclosure of key audit matters: examination of dual-signature environment
Li Jen He, Faradillah Amalia Rivai
Managerial Auditing Journal, Vol. ahead-of-print, No. ahead-of-print, pp.-

This paper aims to investigate the impact of gender diversity in the composition of engagement auditors on the disclosure of key audit matters (KAMs) in a dual-signature environment.

The authors used the unique institutional setup of Taiwan, where the law requires that audit reports be signed by two audit partners. The authors examined the effect of gender diversity composition among engagement auditors on KAM disclosure, considering behavioral differences between female and male auditors.

The empirical results indicate that gender diversity composition in the dual-signature environment is associated with the number of disclosed KAM items (KAMIT) and the length of the explanations for each KAMIT. Furthermore, the authors found that gender diversity composition, particularly when led by female audit partners, has a more pronounced impact on the explanation of each KAMIT rather than on the disclosure of KAMIT. The authors also noted that the moderating effect of audit firm specialization does not influence the gender diversity composition of audit partners in disclosing KAMs.

This study’s empirical findings demonstrate that the interaction between different gender compositions in a dual-signature environment influences KAM disclosure.

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The effect of gender diversity on the disclosure of key audit matters: examination of dual-signature environment10.1108/MAJ-09-2022-3695Managerial Auditing Journal2024-03-01© 2024 Emerald Publishing LimitedLi Jen HeFaradillah Amalia RivaiManagerial Auditing Journalahead-of-printahead-of-print2024-03-0110.1108/MAJ-09-2022-3695https://www.emerald.com/insight/content/doi/10.1108/MAJ-09-2022-3695/full/html?utm_source=rss&utm_medium=feed&utm_campaign=rss_journalLatest© 2024 Emerald Publishing Limited