Wiley: International Journal of Auditing: Table of Contents

Are Critical Audit Matters (CAMs) Associated With Subsequent Auditor Switches?

Pureum Kim, Jiwon Nam, Myungsoo Son — Tue, 26 May 2026 02:08:47 -0700

ABSTRACT

This study investigates the relationship between Critical Audit Matters (CAMs) and subsequent auditor changes. Using a comprehensive dataset of hand-collected CAMs from 2019 to 2022, we find that a higher number of CAMs is associated with an increased likelihood of auditor–client realignment. This association is driven primarily by auditor resignations, rather than dismissals. In addition, firms disclosing multiple CAMs are more likely to experience downward auditor switches. Finally, among firms that disclose at least two CAMs and dismiss their auditors, the successor auditors tend to report fewer CAMs. Overall, our findings suggest that CAM disclosures are associated with economically meaningful outcomes in the audit market, rather than serving solely as a reporting requirement. Consistent with this view, CAMs may play a role in shaping auditor–client matching and the evolution of audit engagements over time.

Who Bears the Pen? Audit Partner–Manager Report Signatures, Multilevel Accountability and Audit Quality in China

Yanming Cao, Jengfang Chen, Meiting Lu, Grant Richardson — Mon, 25 May 2026 20:33:03 -0700

ABSTRACT

Using data pertaining to China's mandatory two-signature regime, under which a certified public accountant licensed as an audit manager can serve as an audit report signatory, we examine whether reallocating accountability within the audit engagement team is associated with audit quality. We find that audit reports signed by an audit partner and manager are of higher quality than those signed by two audit partners. Additional analyses show that this effect is especially pronounced among audit clients with complex operations and that signing by a partner and manager is associated with improved audit efficiency due to reductions in audit report lags and audit fees. Our study extends audit accountability research by providing novel evidence that the identity combination of audit partner and manager signatories changes accountability pressure across hierarchical levels and process versus outcome audit engagement responsibilities, with implications for audit effort, scepticism and issue escalation within the audit engagement team.

Mandatory Audits of Private Companies

Darren Henderson, Min Jeong Hong, Kaleab Mamo — Mon, 18 May 2026 19:19:59 -0700

ABSTRACT

We examine mandatory audits using Spanish private companies to generate insight into (1) how audit thresholds vary in tightness and impact, (2) which audit thresholds are crossed to cause audit commencement and cessation, (3) whether firms take actions to avoid audits and (4) whether audits provide economic benefits. Sample firms are subject to mandatory audits when they exceed two of three size thresholds for assets, revenue and number of employees. Investigating these thresholds, we find significant variation in their impacts on mandatory audits: The assets threshold is the tightest, whereas the number of employees is the least tight, and revenue best distinguishes mandatory audit status. Using discontinuity analysis, we find evidence that firms take actions to avoid crossing the audit thresholds, especially if another threshold has already been exceeded. Finally, we find that mandatory audits are associated with decreased borrowing costs and increased levels of debt that may persist beyond audit cessation. Our study provides regulators with insights into how each size threshold drives mandatory audit status. We also demonstrate that despite providing economic benefits, firms act to avoid mandatory audits, which suggests that regulators should seek to reduce the frictions driving such behaviour.

Auditability in the Digital Age

Michael Power — Sun, 26 Apr 2026 23:00:13 -0700

ABSTRACT

In this Perspective essay, I offer some provocations about the future of auditing. I suggest that auditing is currently undergoing technological change in its practice unlike any other in its history in which notions of evidence and auditability have become fluid. The pervasiveness of algorithms in auditee systems necessitates that auditing itself becomes algorithmic in nature. Although there may be considerable efficiency benefits from this, there is a risk that auditing becomes ‘platformized’ as one app attached to auditee systems. This in turn implicates the non-independence of the evidentiary basis of the audit. At the extreme, auditing becomes algorithmically self-referential, and the human auditor is reduced to the ‘de-skilled’ curator of analytical models and their decisions. At the same time, the underlying algorithms remain beyond auditability and human comprehension. I suggest that scholars have an opportunity to explore these processes empirically and that practitioners and professional institutes need to be vigilant about the side effects of technology in auditing. They must nurture the human-centric and dialogic nature of the practice in the face of these changes.

How to Choose a Fairness Measure: A Decision‐Making Workflow for Auditors

Federica Picogna, Jacques de Swart, Heysem Kaya, Ruud Wetzels — Mon, 13 Apr 2026 23:47:28 -0700

ABSTRACT

Recent developments in Artificial Intelligence (AI) have greatly benefited society but also introduced considerable risks. Among these risks is the potential for AI systems to produce discriminatory outcomes against specific social groups. In response, benchmark regulations such as the EU AI Act have been created, requiring AI systems to be fair and tasking auditors with ensuring their compliance. In practice, AI audits rely on fairness measures to perform an AI audit; however, two major challenges persist: selecting the most appropriate measure among the many available and defining fairness itself. To address these challenges, we developed a decision-making workflow that guides auditors in identifying the most suitable fairness measure and, by extension, the corresponding definition of fairness. To facilitate its practical application, the workflow has been integrated into the open-source program JASP for Audit, and its functionality is demonstrated through three illustrative case studies: the COMPAS recidivism case, the DUO case and the German Credit Risk case.

Relational and Contractual Governance in Auditor–Client Relationships: Effects on Value‐Added Auditing

Ranjith Appuhami, Jing Jia, Zhongtian Li — Thu, 09 Apr 2026 22:58:32 -0700

ABSTRACT

Prior research examining value-added auditing in auditor–client relationships is primarily based on the auditor's perspective. We extend this line of research by examining how governance patterns and clients' perceived risk of material misstatement and cognitive conflict are associated with the provision of value-added audit services. Using the partial least squares (PLS) technique to analyse survey data collected from 249 senior managers in listed firms in Australia, we found that clients' perceived risk of material misstatement is positively related to the service provision, both directly and indirectly, through cognitive conflict. Of the two governance patterns, only contractual use is directly related to the service provision. Moreover, cognitive conflict between clients and auditors is found to mediate the relationship between relational governance and service provision. Overall, our study highlights the distinct roles of relational and contractual governance, perceived risk of material misstatement and cognitive conflict in interdependent relationships between auditors and clients, contributing to the provision of value-added audit services.

External Auditors' Reliance on Internal Audit Findings and Recommendations

Abdulaziz Alzeban — Mon, 06 Apr 2026 22:09:43 -0700

ABSTRACT

This study investigates whether implementation of internal audit recommendations and management's acceptance of internal audit findings are associated with the extent of external auditors' reliance on internal audit work. Data were collected from two sources. We obtained 325 survey responses from the heads of internal audit of companies listed on the Bursa Malaysia, along with the annual reports of the surveyed companies for 2022–2023. Using a unified regression framework, the results indicate a significant positive association between the implementation of internal audit recommendations and external auditors' reliance decisions. Management's acceptance of IA findings and audit committee oversight features, particularly private meetings between the head of internal audit and the audit committee, are also positively associated with reliance on internal audit work. These findings have important implications for external auditors, senior managers and regulators, by providing insight into how observable IA outputs and governance mechanisms shape external auditors' reliance decisions. Specifically, greater reliance may enable external auditors to reduce duplicative audit procedures, whereas senior management may be encouraged to strengthen corrective actions by implementing internal audit recommendations.

Understanding Key Audit Matters: How Readability Boosts Analyst Forecast Precision in Indonesia's Early Implementation

Aria Farah Mita, Yudhistira Dharma Putra — Mon, 06 Apr 2026 02:06:53 -0700

ABSTRACT

This study provides initial empirical evidence on whether the readability of Key Audit Matters (KAMs) enhances analyst forecast accuracy following the adoption of ISA 701 in Indonesia. KAMs are intended to improve the communicative value of audit reports by highlighting matters that, in the auditor's professional judgement, were of most significance in the audit. While prior studies have largely focused on the presence or quantity of KAM disclosures, this paper shifts attention to their linguistic clarity, a dimension critical to the practical usefulness of audit reports yet often overlooked in empirical auditing research. Using a sample of 188 firm-year observations from 2022 to 2023, we measure KAM readability using the Flesch Reading Ease Score and conduct robustness checks using the Flesch–Kincaid Grade Level and Gunning Fog Index. The findings reveal a significant negative association between KAM readability and analyst forecast error, indicating that clearer audit language contributes to more accurate forecasts. Additional analysis reveals that this effect is more pronounced in firms audited by non-Big 4 auditors, suggesting that readable KAMs play a compensatory role in lower-assurance environments. When audit brand credibility is limited, stakeholders appear to rely more heavily on the accessibility and clarity of audit disclosures to assess financial reporting risks. By offering early evidence from an emerging market context, this study contributes to the auditing literature by reframing readability as a core determinant of KAM effectiveness and provides practical implications for auditors and regulators seeking to enhance the communicative value of audit reports. In sum, this analysis shows that KAM readability helps improve analyst forecast accuracy, not just as a matter of style, but as a useful signal of information quality, especially when audit credibility is limited.

Family Firms and Audit Effort: An Empirical Examination of Audit Hours per Auditor Rank

Jagadison K. Aier, Eunhye Jo, Mindy Kim, Jung Wha (Jenny) Lee — Mon, 06 Apr 2026 02:06:53 -0700

ABSTRACT

This study examines how audit effort varies across auditor ranks in response to family firm ownership. Prior research suggests that family firms typically face lower information asymmetry between shareholders and managers, leading to reduced audit fees and effort. Utilizing the Korean audit environment, where audit hours by auditor rank are publicly disclosed, we investigate how auditors adjust their effort for family versus non-family firms. Our empirical findings show that family firms are associated with lower effort by engagement partners, with much weaker or insignificant effects observed for senior or junior auditors. However, among family firms, those with higher volumes of related-party transactions (RPTs) are associated with increased partner and senior auditor effort. This suggests that auditors perceive RPT-heavy firms as riskier and respond by enhancing oversight and expanding the role of experienced members on the team. This effect is more pronounced in firms with stronger monitoring mechanisms, suggesting that family firms with higher governance quality support greater auditor involvement in response to elevated risk. Overall, our study provides new insights into how auditors allocate their efforts across ranks in response to ownership structure, financial reporting risk and governance quality.

The COVID‐19 US National Emergency Declaration and Auditing

Christiana Antwi‐Obimpeh, K. K. Raman — Mon, 06 Apr 2026 02:06:53 -0700

ABSTRACT

The COVID-19 US national emergency declaration on March 13, 2020, called for social distancing, triggered a national lockdown, made travel and in-office work impractical and accelerated the use of remote auditing. We use the emergency declaration as a marker event to compare audit fees, audit report lag and audit quality in the year before and after the declaration. Our findings suggest a decrease in audit fees and audit report lag and an increase in audit quality in four of our five audit quality proxies (with no change in the fifth proxy) in the post-declaration year. Collectively, our findings suggest that remote auditing enabled auditors to overcome the constraints imposed by the pandemic's social distancing and to ‘do more with less’ by potentially increasing the efficiency, timeliness and overall effectiveness of public company audits. Our findings are of potential interest to investors, regulators and audit firms in view of the current accountant shortage and the importance of maintaining the professional pipeline via work policies that meet the needs and preferences of an evolving work force.

Does CEO Inside Debt Improve the Quality of Internal Control Audit Opinions? Actual and Suspected Failures

Encarna Guillamon‐Saorin, Andrés Guiral, Doocheol Moon — Mon, 06 Apr 2026 02:06:53 -0700

ABSTRACT

This study examines whether CEO inside debt is associated with the quality of internal control audit opinions (ICOPs), focusing on both actual and suspected failures to issue adverse ICOPs when warranted. Motivated by recent findings that CEO inside debt may lower demand for accounting conservatism and increase audit risk, we address the growing concern over clean ICOPs issued to firms that merit adverse opinions. We find that CEO inside debt reduces the likelihood of adverse ICOPs for firms without concurrent misstatements; however, this effect vanishes when a misstatement is present. Auditors are more likely to issue adverse ICOPs to misstated firms with high CEO inside debt, ruling out an increase in Type II audit errors. Further, CEO inside debt is positively associated with adverse ICOPs in firms with high predicted misstatement risk. These findings hold when considering inside debt holdings of non-CEOs and top management teams. Our results have implications for audit committees and regulators, suggesting that executive compensation structure—particularly inside debt—can enhance audit quality and reduce ICOP audit failures.

Health Risk, Anxiety and Audit Quality: Evidence From Engagement Audit Partners

Christofer Adrian, Prabashi Dharmasiri, Mukesh Garg, Cameron Truong — Mon, 06 Apr 2026 02:06:53 -0700

ABSTRACT

Health concerns among employees can cause stress and anxiety, which can result in a shift in their priorities. We investigate how factors such as ethnicity-related immunity, gender, and older age can impact audit quality due to perceived health-related risks, anxiety, and fear among engagement audit partners. Our research shows that client firms with female and older engagement audit partners tend to have lower quality audits because the perceived health-related risks and fears lead them to prioritize their family and personal well-being over work. Our study provides evidence of the negative impact of health-related risks and fears on engagement audit firms' ability to conduct effective and efficient audits, leading to more discretionary accruals. Contrary to the belief that female and more experienced engagement audit partners are associated with higher quality audits, our findings suggest otherwise. This has implications for investors, regulators and auditors, as it highlights how health-related issues can influence employee performance and calls for a more empathetic and considerate approach to addressing these issues.

Can Mandatory Governance Mechanism Promote Corporate Green Innovation—Evidence From Internal Audit

Guochao Liu, Yufei Zhao, Jianluan Guo — Mon, 06 Apr 2026 02:06:53 -0700

ABSTRACT

Green innovation is a vital strategy for firms to achieve sustainable development goals and a key component of national sustainable development agendas. Green innovation is influenced by the corporate governance mechanism. Internal audit, as a mandatory system, plays a critical role in improving corporate governance and, as a result, is crucial for enhancing corporate green innovation. This study collects and analyses data on internal audit practices from Chinese listed companies between 2007 and 2022 to examine how internal audit influences corporate green innovation. The results show that (1) internal audit significantly enhances green innovation, with findings remaining robust after various robustness and endogeneity tests. (2) Mechanism analysis indicates that internal audit enhances firms' green innovation by strengthening executives' environmental background, increasing firms' risk-taking capacity and curbing financialization. These three mechanisms, respectively, reflect firms' strategic choices, risk assessment and resource allocation. (3) Heterogeneity analysis shows that internal audits have a stronger impact on green innovation in firms with high internal control quality, nonstate-owned enterprises, high-tech firms and those with greater analyst attention. This study contributes to the theoretical understanding of the role of internal audit in green innovation and provides insights for Chinese regulators to assess, guide and improve internal audit practices in promoting sustainability.

Critical Audit Matters and SEC Filing Review

Joung W. Kim, Daeun Lee — Mon, 06 Apr 2026 02:06:53 -0700

ABSTRACT

This study explores the alignment between auditors' critical audit matters (CAMs) and the issues raised in SEC comment letters. CAMs highlight areas involving significant auditor judgement, whereas SEC comment letters address concerns related to compliance and the quality of financial disclosure. When deficiencies are identified, the SEC issues comment letters requesting clarification or additional information, a resolution process that reflects investor priorities. We find that SEC comment letters are more likely to reference the same financial statement note numbers referenced in CAMs. Additionally, we document strong associations between the accounting topics addressed in SEC comment letters and those disclosed in CAM reports. Furthermore, firms exhibiting higher uncertainty sentiment in CAMs are more likely to receive SEC comment letters on related issues. Our results support the informational validity and credibility of CAMs, suggesting that these reports highlight salient financial reporting issues that are relevant to investors.

Exploring the Role of Technology in Auditing: Opportunities and Challenges From Stakeholder Perspectives

Ozair Siddiqui, Abdul Raheman — Mon, 06 Apr 2026 02:06:53 -0700

ABSTRACT

This study explores the impact of technology on the auditing profession (specifically focusing on the main opportunities offered and challenges perceived from technology) by exploring the comments received from various stakeholder groups on the International Auditing and Assurance Standards Board's (IAASB) request for input on their document considering the use of technology in audit. We employ a hybrid methodology that combines qualitative thematic analysis with sentiment analysis to yield deeper insights into stakeholder perspectives. Therefore, our analysis goes beyond the identification of themes and emphasizes regional differences, perspective-wise insights and overall sentiments of stakeholder groups, which remain overlooked in earlier studies. As such, our findings provide actionable insights to help regulators address obstacles hindering effective integration of technology in auditing practices. The findings show an overall negative sentiment in the tone of the stakeholders, indicating a dominance of concern over optimism regarding the use of technology in audit. Findings also suggest current skill gaps, data handling concerns and the need for regulatory clarity as the central challenges that must be addressed as a priority by the regulators. Additionally, our findings also show a strong consensus in the views of different stakeholders, advocating for a uniform global approach to address key challenges.

Effects of Environmental Audits on Green Development Efficiency: Evidence From China

Chen Zhao, Bin Liu — Mon, 06 Apr 2026 02:06:53 -0700

ABSTRACT

Although the literature has examined various factors affecting the efficiency of green development, there is a relative dearth of empirical studies quantitatively analysing the relationship between environmental audits and green development efficiency. Based on the environmental audit events carried out by the Chinese audit institutions, this study thus employs panel data of 283 China's cities for the period of 2003–2019 to explore the influence of environmental audits on green development efficiency, revealing estimation results that environmental audits significantly improve the green development efficiency. This beneficial effect is more pronounced in the eastern region, central region and non-resource-based cities compared with the western region and resource-based cities. We also find that the pathways through which environmental audits influence this efficiency primarily involve innovations in green technologies and reductions in local government competition. The empirical results herein offer policy implications for China's environmental audit planning and environmental policy.

Issue Information

Mon, 06 Apr 2026 02:06:53 -0700

International Journal of Auditing, Volume 30, Issue 2, April 2026.

Expediting Standard‐Setting for Sustainability Assurance in the Public Interest

Chrystelle Richard, Claire Grayston, Tom Seidenstein — Mon, 06 Apr 2026 02:06:53 -0700

ABSTRACT

The global transition from voluntary to mandatory sustainability reporting has heightened the demand for credible, comparable and decision-useful sustainability information. In this context, assurance plays a crucial role in reinforcing trust and accountability. Responding to widespread regulatory and market expectations, the International Auditing and Assurance Standards Board (IAASB) developed International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements, the first comprehensive, profession-agnostic international standard dedicated to sustainability assurance. In this Perspectives article invited by the Editor-in Chief, we analyse the rationale, development process and implications of ISSA 5000 within the broader evolution of sustainability reporting and assurance. It examines how the IAASB, in coordination with the International Standards Board of Accountants (IESBA), expedited the standard-setting process to deliver a globally applicable framework aligned with the public interest. Drawing on extensive stakeholder consultation, the article explores how ISSA 5000 addresses fundamental challenges (materiality, ethical requirements, assurance levels and the use of experts) while balancing conceptual robustness with practical applicability. The study further investigates the emerging challenges of adoption and implementation across jurisdictions, particularly in relation to the European Union's (EU) Corporate Sustainability Reporting Directive (CSRD) and parallel developments in other regulatory regimes. By formalizing a unified assurance framework, ISSA 5000 marks a pivotal step in institutionalizing sustainability assurance as a distinct professional field. The article concludes by outlining future research opportunities on assurance quality, cross-jurisdictional convergence, practitioner adaptation and the evolving role of technology in shaping assurance practice.

Changes in the Reporting of Critical Audit Matters

Kristyn Calabrese, Mary Durkin, Kate Suslava — Sun, 22 Mar 2026 16:14:40 -0700

ABSTRACT

We examine how critical audit matter (CAM) disclosures changed over the first 4 years of their adoption in the United States. Controlling for client firm and auditor characteristics, we find a significant decline in both the number of disclosed CAMs and the length of CAM reports. Even as CAM disclosures become less extensive over time, they remain significantly associated with client firm size, complexity, profitability, liquidity and uncertainty. Lastly, although audit fees are positively associated with CAMs in the first year, this relationship reverses in subsequent years, particularly for large accelerated filers. Our findings offer evidence of sustained informativeness of CAMs and improved efficiencies for auditors and their clients.

When the Group Matters: Audit Pricing of Affiliated Companies

Donghua Chen, Jiafeng Xiang, Xin Yu — Fri, 13 Mar 2026 01:42:26 -0700

ABSTRACT

This study examines how the relative financial strength of business groups, compared with their affiliated companies, affects audit pricing, using data from publicly listed companies in China. We find that affiliates of financially stronger business groups pay significantly lower audit fees, suggesting that group-level financial strength reduces auditors' perceived risk and the required audit effort. This effect is more pronounced when auditors are located in the same province as the parent company, facilitating better access to private information, and when affiliates are more operationally integrated with their parent companies, such as sharing industry classification or board members. These findings indicate that auditors incorporate group-level financial information into audit pricing only when the benefits of doing so outweigh the costs of acquiring and processing such information. We also find that affiliates of financially stronger groups engage in more related-party transactions (RPTs) for risk-sharing purposes, but no evidence of decreased RPTs for expropriation purposes, and the effect of group financial strength on audit fees is stronger for distressed affiliates compared with non-distressed ones. Overall, the study highlights the importance of considering group-level financial characteristics in understanding audit fee variation among group-affiliated companies.

Assurance of Sustainability Information: Recent Research Trends and Implications for Standard‐Setting

Roger Simnett, Yi She — Sun, 22 Feb 2026 19:45:53 -0800

ABSTRACT

With the growth in reporting of sustainability information and the necessity to improve the credibility and trustworthiness of this information, independent assurance of sustainability information is becoming increasingly important. Internationally, we have seen the recent development of reporting standards on sustainability and climate-related information, accompanied by the development of assurance standards by the IAASB. With countries and companies increasingly reporting this information and adopting these standards, the need for high-quality research has never been greater. In this perspectives article invited by the editor-in-chief, we identify trends in the most recent sustainability assurance research (107 publications in leading journals from 2018–2025), examining research methods, topics and publication outlets. To identify how this body of research has the potential to inform assurance standard-setting, we develop an assurance quality framework (adapted from the IAASB's Audit Quality Framework) and code these publications against the elements of this developed framework. We also identify and categorise from these 107 publications any references to, and implications for, assurance standards. In this way, we outline current level of knowledge and identify potential future research topics. The changing assurance environment, challenges remaining and gaps in the research allow us to identify unresolved issues needing further research, which can also inform future policy and practice.

Key Audit Matters Disclosures (KAMs) and Financial Reporting Quality: The Moderating Role of KAMs‐Related Audit Efforts in Joint vs. Single Audit Markets

Sumit Dhull, Ammad Ahmed, Atia Hussain — Mon, 16 Feb 2026 00:00:00 -0800

ABSTRACT

This paper investigates how the quality of key audit matters (KAMs) disclosures and KAMs-related audit efforts interact to improve financial reporting quality, and how these effects vary by audit regimes, joint versus single audits and Big Four participation. Drawing on agency and signalling theories, we posit that under joint audit regimes, the quality of KAMs disclosures constrains managerial discretion more effectively when auditors allocate significant efforts to audit procedures related to KAMs, and that Big Four involvement amplifies these mechanisms. Using UK- and French-listed companies from 2017 to 2021, we find that the interaction of KAMs disclosures quality and KAMs-related audit efforts significantly enhances financial reporting quality in joint audit markets but not in single-audit settings. This effect is further strengthened when a Big Four auditor is involved in a joint audit. These associations hold under alternative accrual specifications, real-activities controls, COVID-19 adjustments and auditor tenure. Our study contributes to the literature by operationalizing agency and signalling theories through the interaction of two text-based measures, KAMs disclosure quality and KAMs-related audit efforts, shedding light on their combined effect on financial reporting quality within joint and single audit settings. The findings also offer practical benchmarks for audit committees and regulators by identifying conditions, such as audit regimes and Big Four involvement, under which KAMs disclosures are most effective.

Audit Partner Tenure and Audit Fees: The Role of Regulatory Disclosure Requirements in Western Europe

Adam Aoun, Cédric Poretti — Thu, 12 Feb 2026 00:00:00 -0800

ABSTRACT

This paper examines the role of country-level regulatory disclosure requirements in moderating the relationship between audit partner tenure and audit fees. Using a sample of publicly listed companies in Western Europe, our findings reveal that audit partners with longer tenure charge higher fees, reflecting their incremental contribution to the audit process. This fee premium is more pronounced in countries with weaker disclosure requirements, where companies pay 15.33% higher audit fees when compared to companies with stronger regulatory requirements, highlighting the critical role of audit partners' firm-specific tenure in providing assurance about the credibility of financial information in such contexts. Additional analyses show that a new EU regulatory disclosure requirement had a positive effect on audit fees only in previously weak regulatory disclosure requirement settings, confirming the importance of audit partner tenure in explaining the high audit fee premiums. Overall, our study provides valuable insights for policymakers, practitioners and academics.

Macroeconomic Context and Earnings Quality in Social Enterprises: Does Audit Quality Matter?

Damaris Ning Mufur, Hubert Tchakoute Tchuigoua — Fri, 16 Jan 2026 01:40:26 -0800

ABSTRACT

There is limited empirical evidence on the impact of audit quality on earnings quality in social enterprises, especially among microfinance institutions (MFIs). To address this research gap, we frame our analysis using agency theory and examine a sample of 5284 MFIs from 115 emerging countries between 2007 and 2014. We define earnings quality as the extent to which reported earnings are less affected by earnings management. Our findings suggest that Big 4 auditors enhance earnings quality in MFIs. However, we also observe that MFIs are more likely to misreport during economic downturns and that Big 4 auditors are less effective in curbing this discretionary behaviour under such conditions.

Sales Order Backlog and Audit Fees

Md. Borhan Uddin Bhuiyan, Ahsan Habib — Wed, 14 Jan 2026 07:03:18 -0800

ABSTRACT

This study examines the association between sales order backlog and audit fees. We hypothesize that backlog indicates operating, supply chain and financial reporting quality risks, leading to higher audit fees. Analysing US-listed firms from 2000 to 2022, we find a positive relationship between order backlog and audit fees. Moreover, the positive association strengthens with heightened supply chain risk, suggesting that auditors adjust audit fees for order backlog-related risks. The association is more pronounced for firms with make-to-stock practices. Our findings are robust to several endogeneity tests. This study contributes to the audit fee literature by demonstrating the positive association between order backlog and audit fees, enhancing our understanding of audit fee determinants.

Audit Committee Member Scepticism and Questioning Behaviour

Yoon Ju Kang, Andrew J. Trotman — Wed, 07 Jan 2026 06:49:45 -0800

ABSTRACT

Audit committee members' (ACMs) need to exercise appropriate levels of scepticism in overseeing the financial reporting and auditing processes. However, concerns have been raised about ACMs' application of scepticism. Responding to calls for research on audit committees' oversight processes, this paper employs a multimethod qualitative design to examine ACM scepticism through their questioning behaviour. First, we analyse the questions 29 very experienced ACMs prepare for external auditors and CFOs regarding a significant accounting estimate. We outline the observed similarities and differences in the questioning behaviour between ACMs with alternate expertise, namely, former audit partners and nonaccountant directors. The questions reveal the focus and nature of ACMs' scepticism and questioning behaviour, and how this differs between former audit partners and nonaccountant directors. Second, we conduct supplementary interviews with Big 4 audit partners about their experiences of ACM questioning behaviour and scepticism to triangulate our findings from our analysis of ACM questions.

Voluntary Adoption of Internal Audit by NASDAQ Firms and Its Impact on Internal Control Reporting

Omar Watts, Randal Elder, Michael Hyman — Wed, 07 Jan 2026 06:39:29 -0800

ABSTRACT

NASDAQ firms are not required to have an internal audit function. We exploit this voluntary setting to provide further insight into internal audit's role as a governance function. We search proxy statements and other sources to identify whether NASDAQ firms have an internal audit function. Firms with a higher risk profile are more likely to have an internal audit function, whereas smaller/resource constrained firms are less likely to invest in internal audit. NASDAQ firms with an internal audit function are more likely to report a material weakness under Sarbanes-Oxley Section 302 or 404, indicating that internal audit reduces information asymmetry by communicating internal control issues.

Increasing Efficiency in Stratified Audit Sampling via Bayesian Hierarchical Modelling

Wed, 07 Jan 2026 00:00:00 -0800

ABSTRACT

Stratification is a statistical technique commonly used in audit sampling to increase efficiency. The reason for this increase is that stratification enhances the representativeness of the sample data and increases the accuracy of the misstatement estimate, which leads to a reduction in overall sample size. However, currently dominant methods for evaluating stratified audit samples have suboptimal efficiency. That is because these methods exclusively focus on the differences between the strata and do not acknowledge their similarities. In practice, this means that auditors often test more samples than necessary to reduce the audit risk to an appropriately low level. In this article, we propose an intuitive and powerful statistical approach to evaluate stratified audit samples that uses this information: Bayesian hierarchical modelling. We show that, compared to current methods, Bayesian hierarchical modelling consistently increases efficiency across many stratified audit sampling situations by reducing sample sizes by 63% up to 93%.

Auditing in the Digital Age: The Role of IoT, Staff Training and Client Confidentiality

Awni Rawashdeh — Tue, 30 Dec 2025 23:39:32 -0800

ABSTRACT

This study examines how auditing IoT data impacts client confidentiality and the role of professional competency development in mitigating associated risks. Using survey data from 242 external auditors, structural equation modelling reveals that while IoT auditing increases confidentiality risks due to heightened data exposure, professional competency development significantly mitigates these threats. Well-trained auditors enhance security, ensuring more effective data management. However, reliance on self-reported data introduces potential bias, and a cross-sectional design limits causal interpretations. Future research should explore objective breach records and internal auditors' confidentiality strategies. Practically, firms must implement advanced training programmes, regulators should update auditing standards and clients should engage auditors proficient in IoT security. This study extends Organizational Information Processing Theory, shifting the focus from IoT's efficiency benefits to its confidentiality challenges. The findings provide crucial insights for firms and regulators seeking to balance technological advancements with robust confidentiality safeguards.