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Impact on pre-and post-sarbanes oxley users’ perceptions by incorporating the auditor’s fraud detection responsibility into the auditor’s internal control report

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  • Foster, Benjamin P.
  • McClain, Guy
  • Shastri, Trimbak

Abstract

The Department of the Treasury’s Advisory Committee on the Auditing Profession (Advisory Committee, 2008) has recommended that the Public Company Accounting Oversight Board (PCAOB) clarify the auditor’s role in detecting fraud in the auditor’s report. The PCAOB replaced Auditing Standard No. 2 (AS2) with Auditing Standard No. 5 (AS5) but did not clarify the auditor’s fraud detection responsibility in the auditor’s report covering internal control and/or the financial statements. The focus of this study is to evaluate (i) whether the PCAOB mandated auditor’s internal control report (ICR) format with a ‘limitations’ paragraph meets users’ expectations, (ii) whether users’ prefer an ICR incorporating auditor’s fraud detection responsibility, and (iii) whether users’ expectations have changed over time. Results based on analyses of data from prior studies indicate that in pre-and post-SOX time frames, an ICR format without a limitations paragraph and clarifying the auditor’s role for fraud detection best met users’ expectations from an audit, consistent with the Advisory Committee’s recommendation. Users’ perceptions of potential auditor liability associated with ICR formats have changed significantly over time. Pre-SOX users perceived reduced auditor liability associated with an ICR that contained a limitations paragraph, but post-SOX users perceive similar potential auditor liability with all ICR formats.

Suggested Citation

  • Foster, Benjamin P. & McClain, Guy & Shastri, Trimbak, 2010. "Impact on pre-and post-sarbanes oxley users’ perceptions by incorporating the auditor’s fraud detection responsibility into the auditor’s internal control report," Research in Accounting Regulation, Elsevier, vol. 22(2), pages 107-113.
    • Handle: RePEc:eee:reacre:v:22:y:2010:i:2:p:107-113
    DOI: 10.1016/j.racreg.2010.07.005
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    Cited by:

    1. Cullinan, Charles P. & Du, Hui & Zheng, Xiaochuan, 2012. "Barriers to entry to the big firm audit market: Evidence from market reaction to switches to second Tier audit firms in the post-sox period," Research in Accounting Regulation, Elsevier, vol. 24(1), pages 6-14.
    2. Jengchung Victor Chen & I-Han Lu & David C. Yen & Andree E. Widjaja, 2017. "Factors affecting the performance of internal control task team in high-tech firms," Information Systems Frontiers, Springer, vol. 19(4), pages 787-802, August.
    3. Jengchung Victor Chen & I-Han Lu & David C. Yen & Andree E. Widjaja, 0. "Factors affecting the performance of internal control task team in high-tech firms," Information Systems Frontiers, Springer, vol. 0, pages 1-16.

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