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- Title
PRACTICE SUMMARIES.
- Authors
Anderson, Urton; Kadous, Kathryn; Koonce, Lisa; Reynolds, J. Kenneth; Deis, Jr., Donald R.; Francis, Jere R.; Muzatko, Steven R.; Johnstone, Karla M.; Mayhew, Brian W.; Rittenberg, Larry E.; Abbott, Lawrence J.; Parker, Susan; Peters, Gary F.; O'Reilly, Dennis M.; Leitch, Robert A.; Wedell, Douglas H.; Sankaraguruswamy, Srinivasan; Whisenant, J. Scott; Casterella, Jeffrey R.; Lewis, Barry L.
- Abstract
Management inquiry is a particularly important source of information for subjective accounts that require estimation, as auditors' ability to obtain reliable information from other sources may be limited for such accounts. Given the increasing importance of subjective accounts and estimates in the financial reporting process, it is critical to understand how auditors evaluate management-provided information about such accounts and estimates. The features are: whether the explanation is quantified or not; and the strength of the manager's incentives to manage earnings. To examine this issue, an experiment was conducted using 113 experienced auditors as participants. In the experiment, the auditors performed planning analytical procedures and, in doing so, discovered an unusual fluctuation in revenue. They then inquired with management about the fluctuation and were provided with an explanation from them. Results show that auditors' planning judgments are primarily determined by the manager's incentives to manage earnings, and that quantification of the explanation does not influence auditors' planning judgments.
- Subjects
AUDITORS; AUDITING; FINANCIAL statements; MANAGEMENT
- Publication
Auditing: A Journal of Practice & Theory, 2004, Vol 23, Issue 1, p1
- ISSN
0278-0380
- Publication type
Article
- DOI
10.2308/aud.2004.23.1.1