Karla M. Johnstone

Audit Partner Public-Client Specialisation and Client Abnormal Accruals

Abstract We examine the association of Big 4 audit partners’ public-client specialisation with client companies’ audit quality. Using a sample of NASDAQ OMX companies in Finland, we identify the audit partner assigned to each public-client engagement. We expect that partners with greater public-client specialisation provide higher quality auditing, since they have likely developed deep domain-specific knowledge and a keen sense of the litigation and reputational risks posed by public clients. In addition, the willingness to resist client pressure likely increases with the number of public clients in the partners portfolio because dependence on any one client diminishes, which should help to ensure audit quality. The results show that public-client specialisation is negatively associated with abnormal accruals, and this result is attributable to audit partners with three to six public clients. The results of supplemental tests imply that public-client specialisation is more important when general auditing experience is lower. Further, the results reveal that in our setting of high-tax and high alignment between financial reporting and tax reporting, greater public-client specialisation is particularly associated with smaller income-decreasing abnormal accruals, suggesting that auditors with greater public-client specialisation likely recognise the downside reputational implications and achieve audit quality by discouraging tax avoidance.

Behavioral research in auditing: Past, present, and future research

The purpose of this paper is to provide insight regarding past, present, and future research in behavioral auditing to Ph.D. students and other researchers seeking to identify productive opportunities for future research. Our analysis is informed by recent publication trends and interviews with twenty-one active researchers likely to shape behavioral auditing research in the next decade. The results demonstrate a shift in research interest toward topics including auditor independence, corporate governance, emerging audit approaches, and new assurance services. This shift highlights a growing popularity of research motivated by emerging practice trends and issues receiving attention by the SEC, AICPA, and ASB. Our interviewees stressed the importance of integrating multiple methodologies in future research. Overall, our results demonstrate that behavioral auditing research remains an active and successful area of literature.

Information Sharing during Auditors' Fraud Brainstorming: Effects of Psychological Safety and Auditor Knowledge

Conducting a fraud brainstorming session during planning assists with riskbased tailoring of the audit. An effective session should include a team environment in which all members are willing to share information to appropriately calibrate the collective assessment of fraud risk. We report the results of a study (Gissel and Johnstone 2017) in which we manipulate partner leadership in terms of engendering a safe (unsafe) psychological environment whereby subordinates are (are not) encouraged to speak up about fraud-relevant information. Participants are audit staff and seniors, and through the experimental case (based on the Krispy Kreme Doughnut Corporation fraud) they come to realize that they alone possess fraud-relevant information critical to the team’s calibration of fraud risk. These auditors participate in a simulated brainstorming session containing the partner leadership manipulation and indicate changes in their willingness to share the fraud-relevant information with the team. We find that less-knowledgeable