Audrey A. Gramling

The Impact of Legal Liability Regimes and Differential Client Risk on Client Acceptance, Audit Pricing, and Audit Effort Decisions

This study uses experimental methods to examine client acceptance, auditor pricing and effort decisions for clients of varying risk under two legal rules, joint and several liability, and proportionate liability. We predict greater availability of audit services for high-risk clients, lower audit prices, and lower audit effort under proportionate liability relative to joint and several liability. Our experimental evidence does not strongly support predicted prices due to underpricing behavior, but prices do reflect risk differences across client groups for both liability regimes. The results also exhibit some support for the predictions that auditors select low effort for the lowest-risk clients, and a lower effort level under proportionate liability relative to joint and several liability for moderate-risk clients. As predicted for the highest-risk clients, high effort is selected under proportionate liability, and there is some evidence of a substantial reduction in contracting under joint and several liability.

A Descriptive Study of Factors Associated with the Internal Audit Function Policies Having an Impact: Comparisons Between Organizations in a Developed and an Emerging Economy

Abstract An internal audit function (IAF) should positively impact financial reporting and governance, and add value to its organization. The study provides evidence on IAF factors (i.e. characteristics, activities, and work areas) associated with these types of impact and whether these factors, and their influence on various impacts, differ between a developed and an emerging economy (i.e. the USA and Turkey). Factors positively associated with financial reporting in the USA are assurance activities, control work, and competence; in Turkey, significant factors are governance work and competence. For governance, it is found that the factors positively associated with it in the USA include assurance activities, governance work, and competence; in Turkey, the significant factors are governance work and competence. In the USA, assurance activities are negatively associated with adding value, while consulting activities, risk work, and control work are positively associated with this measure. In Turkey, only risk work and control work are positively associated with adding value. Finally, several measures of IAF objectivity are not associated with any of the impact measures.