Stuart Manson

Audit automation as control within audit firms

This paper explores the nature of audit automation as control within audit firms. The themes of the paper are control over the work process and audit staff, deskilling and resistance, and competition, which are analysed using the theoretical framework provided by Coombs et al., who applied Giddens’ structuration theory to research the impact of information technology in organizations. Building on a previous survey study we interviewed audit staff at all levels in two Big 5 audit firms. The results show that audit automation cannot be viewed simply as a technology for improving the quality and/or productivity of the audit process. It also has value as a symbol of the firm’s market competitiveness and hence helps to promote the firm both to clients and internally. In addition, the research shows that audit automation offers considerable opportunities for greater managerial surveillance and control, but at the same time it facilitates a less hierarchical and more informal organisational structure.

Identifying the Sources of Gains From Takeovers

In the research literature on UK take-overs there seems to be an appar-ent conundrum. First, it appears that, in general, the market anticipatesoverall equity cash flow gains from a take-over in the sense that theshare price of the acquiree firm typically increases relative to someappropriately market-adjusted benchmark over the period of time fromthe announcement of the take-over to the date when the take-over offeris declared unconditional while the share price of the acquirer firm doesnot decrease over the same period of time

Audit Automation in the UK and the US: A Comparative Study

The purpose of this paper is to investigate the nature and extent of the use of audit automation by audit firms in the UK and the US. In particular, the paper seeks to identify the significant differences between practices in the two countries. The authors argue in the paper that there are two main forces that might account for these differences. On the one hand, globalization tends to promote similar audit automation practices in the two countries. On the other hand, cultural factors mitigate homogeneity in audit automation practices. The research consisted of a survey of current audit automation practice in large and medium sized audit firms in the UK and the US. The principal conclusions from the research are: (1) that there are differences in the practice of audit automation in the UK and the US; (2) that these differences persist even amongst Big 6 firms. These two conclusions would suggest that cultural differences are not dominated by the forces of globalization. The authors also conclude that (3) the most important benefit of audit automation in both countries is perceived to be improvements in audit quality; and (4) the most important costs across all types of audit firm are training and staff learning time.

Does Volatility Improve UK Earnings Forecasts

We investigate the relation between UK accounting earnings volatility and the level of future earnings using a unique sample comprising some 10,480 firm-year observations for 1,481 non-financial firms over the 1985–2003 period. The findings confirm the in-sample result of an inverse volatility-earnings relation only for the 1998–2003 sub-period and for the most profitable firms. The out-of-sample forecast accuracy for the top earnings quintile improves when volatility is added as a regressor to a model including only lagged earnings. The findings are consistent with the over-investment hypothesis and the view that the earnings of the most volatile firms tend to mean revert more rapidly.

Changes in Non-current Assets and in Property, Plant and Equipment and Future Stock Returns: The UK Evidence

We examine the effect of changes in non-current operating assets (NCOA) and of changes in property, plant and equipment (PPE) on future abnormal stock returns using a sample of 21,549 UK non-financial firm observations over the 1990-2012 event period. The results from a matching portfolio procedure and 4-factor regressions indicate that abnormal returns from investing in a portfolio of low-minus-high quintile NCOA and PPE change firms are between 5.5% and 6.1%. This negative association is confirmed by cross-sectional regressions. The economic significance of mispricing seems weaker than in the US and weaker than the mispricing of working capital accruals adjusted for depreciation in the UK. Changes in PPE drive the predictability of share returns with respect to changes in NCOA. There is no significant evidence that return predictability is stronger in less liquid firms. We find two strands of evidence that lend some support to behavioural explanations of predictability through overreaction to investment. On one hand, fundamental information about investment explains one-third of the predictability of returns while, on the other, predictability is generally not significantly stronger in firms with high operating leverage as a proxy for risk. [ABSTRACT FROM AUTHOR]