Behavioral Research in Auditing 2011 AAA Auditing Doctoral Consortium E. Michael Bamber J.M. Tull School of Accounting The University of Georgia

Outline  Perspective: 1999 vs  Publishing BAuR  Sources of Research Questions Examples  Issues

Publishing Trends - Numbers % Increase The Accounting Review # of Papers # of Auditing Papers # of Behavioral Auditing Papers37133 Auditing: A Journal of Practice & Theory # of Papers # of Auditing Papers # of Behavioral Auditing Papers81025

Publishing Trends - Numbers % Increase The Accounting Review # of Papers # of Auditing Papers # of Behavioral Auditing Papers37133 Auditing: A Journal of Practice & Theory # of Papers # of Auditing Papers # of Behavioral Auditing Papers81025 Consortium Participants386571

Publishing Trends - Topics TitleYearJournal The Audit Risk Model, Business Risk and Audit-Planning Decisions The Audit Review Process and Sensitivity to Information Source Objectivity The Influence of Documentation Specificity and Priming on Auditors’ Fraud Risk Assessments and Evidence Evaluation Decisions A Field Experiment Comparing the Outcomes of Three Fraud Brainstorming Procedures How do Audit Workpaper Reviewers Cope with the Conflicting Pressures of Detecting Misstatements and Balancing Client Workloads? The Role of Problem Representation Shifts on Auditor Decision Processes The Effects of Fee Pressure and Client Risk on Audit Seniors’ Time Budget Decisions Joint Effects of Principles-Based versus Rules-Based Standards and Auditor Type in Constraining Financial Managers’ Aggressive Reporting

Publishing Trends - Topics TitleYearJournal The Audit Risk Model, Business Risk and Audit-Planning Decisions 1999TAR The Audit Review Process and Sensitivity to Information Source Objectivity The Influence of Documentation Specificity and Priming on Auditors’ Fraud Risk Assessments and Evidence Evaluation Decisions A Field Experiment Comparing the Outcomes of Three Fraud Brainstorming Procedures How do Audit Workpaper Reviewers Cope with the Conflicting Pressures of Detecting Misstatements and Balancing Client Workloads? The Role of Problem Representation Shifts on Auditor Decision Processes The Effects of Fee Pressure and Client Risk on Audit Seniors’ Time Budget Decisions Joint Effects of Principles-Based versus Rules-Based Standards and Auditor Type in Constraining Financial Managers’ Aggressive Reporting

Publishing Trends - Topics TitleYearJournal The Audit Risk Model, Business Risk and Audit-Planning Decisions 1999TAR The Audit Review Process and Sensitivity to Information Source Objectivity 1999AJPT The Influence of Documentation Specificity and Priming on Auditors’ Fraud Risk Assessments and Evidence Evaluation Decisions A Field Experiment Comparing the Outcomes of Three Fraud Brainstorming Procedures How do Audit Workpaper Reviewers Cope with the Conflicting Pressures of Detecting Misstatements and Balancing Client Workloads? The Role of Problem Representation Shifts on Auditor Decision Processes The Effects of Fee Pressure and Client Risk on Audit Seniors’ Time Budget Decisions Joint Effects of Principles-Based versus Rules-Based Standards and Auditor Type in Constraining Financial Managers’ Aggressive Reporting

Publishing Trends - Topics TitleYearJournal The Audit Risk Model, Business Risk and Audit-Planning Decisions 1999TAR The Audit Review Process and Sensitivity to Information Source Objectivity 1999AJPT The Influence of Documentation Specificity and Priming on Auditors’ Fraud Risk Assessments and Evidence Evaluation Decisions 2010TAR A Field Experiment Comparing the Outcomes of Three Fraud Brainstorming Procedures How do Audit Workpaper Reviewers Cope with the Conflicting Pressures of Detecting Misstatements and Balancing Client Workloads? The Role of Problem Representation Shifts on Auditor Decision Processes The Effects of Fee Pressure and Client Risk on Audit Seniors’ Time Budget Decisions Joint Effects of Principles-Based versus Rules-Based Standards and Auditor Type in Constraining Financial Managers’ Aggressive Reporting

Publishing Trends - Topics TitleYearJournal The Audit Risk Model, Business Risk and Audit-Planning Decisions 1999TAR The Audit Review Process and Sensitivity to Information Source Objectivity 1999AJPT The Influence of Documentation Specificity and Priming on Auditors’ Fraud Risk Assessments and Evidence Evaluation Decisions 2010TAR A Field Experiment Comparing the Outcomes of Three Fraud Brainstorming Procedures 2010TAR How do Audit Workpaper Reviewers Cope with the Conflicting Pressures of Detecting Misstatements and Balancing Client Workloads? The Role of Problem Representation Shifts on Auditor Decision Processes The Effects of Fee Pressure and Client Risk on Audit Seniors’ Time Budget Decisions Joint Effects of Principles-Based versus Rules-Based Standards and Auditor Type in Constraining Financial Managers’ Aggressive Reporting

Publishing Trends - Topics TitleYearJournal The Audit Risk Model, Business Risk and Audit-Planning Decisions 1999TAR The Audit Review Process and Sensitivity to Information Source Objectivity 1999AJPT The Influence of Documentation Specificity and Priming on Auditors’ Fraud Risk Assessments and Evidence Evaluation Decisions 2010TAR A Field Experiment Comparing the Outcomes of Three Fraud Brainstorming Procedures 2010TAR How do Audit Workpaper Reviewers Cope with the Conflicting Pressures of Detecting Misstatements and Balancing Client Workloads? 2010AJPT The Role of Problem Representation Shifts on Auditor Decision Processes The Effects of Fee Pressure and Client Risk on Audit Seniors’ Time Budget Decisions Joint Effects of Principles-Based versus Rules-Based Standards and Auditor Type in Constraining Financial Managers’ Aggressive Reporting

Publishing Trends - Topics TitleYearJournal The Audit Risk Model, Business Risk and Audit-Planning Decisions 1999TAR The Audit Review Process and Sensitivity to Information Source Objectivity 1999AJPT The Influence of Documentation Specificity and Priming on Auditors’ Fraud Risk Assessments and Evidence Evaluation Decisions 2010TAR A Field Experiment Comparing the Outcomes of Three Fraud Brainstorming Procedures 2010TAR How do Audit Workpaper Reviewers Cope with the Conflicting Pressures of Detecting Misstatements and Balancing Client Workloads? 2010AJPT The Role of Problem Representation Shifts on Auditor Decision Processes 1999AJPT The Effects of Fee Pressure and Client Risk on Audit Seniors’ Time Budget Decisions 1999AJPT Joint Effects of Principles-Based versus Rules-Based Standards and Auditor Type in Constraining Financial Managers’ Aggressive Reporting 2010TAR

A Publishable Paper Provides Insights That Are:  New – Cause belief revision  Interesting – Belief revision is consequential  True  Clear

Deciding on a Topic  Prior literature  Innovations in practice  Psychology theory

Prior Literature  Critically evaluate prior research (Sources: SSRN, Web of Science, AAA and conference websites) What is the question? What is the research method? What is the punchline? Critique. What would we still like to know?

Prior Literature  Build a framework How do the prior papers fit together? Distill stylized facts: What do we think we know? Identify research opportunities: What would we like to know?  Rely on others Existing literature reviews and frameworks

Prior Literature - Examples  Nelson, M A model and literature review of professional skepticism in auditing. Auditing: A Journal of Practice and Theory 28(2): Framework for classifying failures in professional skepticism (PS): More important antecedents? Definition of PS: Presumptive doubt?  Influence of traits and incentives? “Justifiable inefficiencies”  Incentives to avoid? Interventions to highlight and reward?

Prior Literature - Examples  Peecher, M.E., I. Solomon, and K.T. Trotman Improving the quality of financial-statement audits by updating external auditors’ accountabilities. Working paper Focus less on penalties and more on rewards Propose 7 reforms, including  Refine the concept of professional skepticism  Improve the content of the audit report  Reward auditors who uncover fraud

Prior Literature - Examples  Hammersley, J.S A Review and Model of Auditor Judgments in Fraud-Related Planning Tasks. Working Paper. Fraud knowledge obtained primarily from training rather than experience Antecedents to effectively perform fraud related tasks? Conditions under which auditors do/do not respond to risk?

Innovations in Practice  Carefully read and analyze the practice literature (Sources: AICPA, PCAOB, SEC, Accounting firms) One-on-one communications  Distill state of practice: Where would the profession like to be?  Identify research opportunities: Improve practice? E.g., Carpenter, T Audit team brainstorming, fraud risk identification, and fraud risk assessment: Implications of SAS No. 99. The Accounting Review 82 (5): Messier, W.F., T.M. Kozloski, and N. Kochetova-Kozloski An analysis of SEC and PCAOB enforcement actions against engagement quality reviewers. Auditing: A Journal of Practice & Theory 29(2):

Innovations in Practice - Examples  PCAOB Standards New  AS No. 7 Engagement Quality Review Proposed  Concept Release on Requiring the Engagement Partner to Sign the Audit Report Future  The Auditors’ Reporting Model (2011 Agenda)

Innovations in Practice - Examples  PCAOB Inspection Reports Report on Observations of PCAOB Inspectors Related to Audit Risk Areas Affected by the Economic Crisis (Sept. 2010)  Fair value assumptions – failure to test beyond inquiry of management  Fair values – failure to reconcile inconsistencies between management and third party estimates  Revenue recognition - failure to respond to specific risks, including risk of fraud

Psych Theory  Coursework, esp. non-accounting  Read the literature, esp. literature reviews and seminal papers Citation searches for most recent work  Examples Wilks, T.J Predecisional distortion of evidence as a consequence of real-time audit review. The Accounting Review 77(1):51-72 Organizational Identity Theory, Small Group Theory, Social Identity Theory, Construal Level Theory

Developing the Topic  Goal: a publishable paper  Consequential belief revision in behavioral auditing will likely require integration of all three: Prior auditing literature – New – moving literature forward Practice – Interesting – others care about the topic Theory – New and Interesting – results are generalizable/consequential

Issues  Publishable topics? Yes, more than ever (SOX, PCAOB standards agenda & inspection reports)  Journal interest? Yes, in select journals (TAR, AJPT, CAR, AOS) Top tier  Participants? The big issue, cycles Local vs. national Students  Lynch, A.L., U.S. Murthy, and T.J. Engle Fraud brainstorming using computer-mediated communication: The effects of brainstorming technique and facilitation. The Accounting Review 84 (4):