Investigating the Effect of Auditor's Prior Commitment and Risk on Evaluation of Subsequent Events

Document Type : Research Paper

Authors

1 Assistant Professor, Department of Accounting, Payame Noor University, Tehran, Iran

2 Assistant Professor, Department of Accounting, Vali -e- Asr University of Rafsanjan, Rafsanjan, Iran

3 Academic Member, Department of Accounting, Baft Higher Education Center, Shahid Bahonar University of Kerman, Kerman, Iran

10.22051/jera.2024.47113.3239

Abstract

The goal of the present study was to investigate the effect of prior commitment and control environment risk on auditors’ proposed adjustments regarding subsequent events. To this end, a between-groups 2x2 factorial design was used. The statistical sample of this research includes 130 supervisors, senior supervisors, managers and partners who were employed in auditing organizations certified by Tehran Securities & Exchange Organization in 2023. To test the research hypotheses, independent multifactor analysis of variance was used. The findings revealed that auditors make smaller (larger) audit adjustments of subsequent events when these events are identified after (before) communicating their initial viewpoint regarding the fair presentation of financial statements to the management.  Moreover, the findings indicate that control environment risk moderates the effect of prior commitment on auditors’ assessment of subsequent events and, compared to a high-risk control environment, auditors’ prior commitment to the management regarding the fair presentation of financial statements leads to a greater reduction in the proposed audit adjustments under a low-risk control environment.  With regard to these findings, we can say that considering supervisory mechanisms for reducing the bias stemming from auditors’ prior commitment can improve the quality of their judgment about the evaluation of subsequent events.

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References

منابع
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Empirical Research in Accounting
Volume 14, Issue 3 - Serial Number 53
October 2024
Pages 191-212

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History

  • Receive Date: 06 May 2024
  • Revise Date: 05 June 2024
  • Accept Date: 18 June 2024

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