Stephen Asare - Academia.edu (original) (raw)
Papers by Stephen Asare
African Journal of International and Comparative Law, 2010
Abstract: Ghana, the country widely acknowledged as the contemporary leader in African democratiz... more Abstract: Ghana, the country widely acknowledged as the contemporary leader in African democratization, is currently embarked on a comprehensive review of its Fourth Republican Constitution, in force since the restoration of constitutional democracy in 1993. This ...
We investigate the joint role of auditors' and auditees' incentives and disincentives in ... more We investigate the joint role of auditors' and auditees' incentives and disincentives in the decision to waive detected economically important misstatements (EIM) using a proprietary dataset with longitudinal information from 850 audit engagements completed over the period 2005 to 2015 in Netherlands. The empirical results show that auditors are more likely to waive EIM as their economic incentives (e.g., abnormally high audit fees, provision of non-audit services) increase. Auditors are also more likely to waive EIM as the auditee's incentive increase but less likely to waive as the auditee emplaces disincentives in the form of independent governance structures. Further, we find that the presence of an independent supervisory board dampened the effect of non-audit services on waiving EIM. Taken together, the results show that auditors' and auditees' incentives affect waiving decisions, which can potentially compromise both financial reporting reliability and aud...
Congress passed the Sarbanes-Oxley Act to restore investor confidence, which had been deflated by... more Congress passed the Sarbanes-Oxley Act to restore investor confidence, which had been deflated by massive business and audit failures, epitomized by the demise of the Enron Corporation and Arthur Andersen LLP. The Act altered the roles and responsibilities of auditors, corporate officers, audit committee members, as well as other participants in the financial reporting process. We evaluate the potential legal implications of some of the Act’s major provisions and anticipate participants’ likely responses. Our evaluation suggests that these provisions will significantly change behavior, increase compliance costs and alter the legal landscape. We also identify promising avenues for future research in light of the new landscape.
Key Words: Evaluation, Competing hypotheses, Auditing. Data Availability: Contact the authors. Au... more Key Words: Evaluation, Competing hypotheses, Auditing. Data Availability: Contact the authors. Auditors routinely evaluate competing hypotheses (e.g., when unexpected fluctuations are considered in conducting analytical procedures). In this paper evidence is presented on how auditors evaluate competing hypotheses. Hypothesis evaluation can affect audit efficiency, decision defensibility, judgment coherence and decision aid development. For instance, evaluating hypotheses as related entities allows evidence to play the dual role of directly (indirectly) implicating a particular hypothesis (the competing hypotheses). This strategy is efficient since it obviates the need to gather direct evidence about each competing hypothesis (i.e., confirming evidence about a hypothesis indirectly disconfirms the competing hypotheses). However, not gathering direct evidence about a competing hypothesis may be less defensible or may reduce confidence. Hypothesis evaluation encompasses the cognitive r...
Journal of Business Ethics
Although regulators have identified ethical lapses as a key factor contributing to auditors’ fail... more Although regulators have identified ethical lapses as a key factor contributing to auditors’ failure to detect their clients’ fraudulent financial reporting (fraud), research using ethical theory to examine auditors’ fraud detection remains limited. We provide evidence on the joint effect of ethical idealism and trait skepticism on auditors’ fraud judgments. Ethical idealism reflects an individual’s concern for the welfare of others while trait skepticism reflects an individual’s disposition to validating a proposition. Forsyth (J Pers Soc Psychol 39:175–184, 1980) theorizes that there is an association between ethical idealism and tolerance for deception. Drawing on that insight, we posit that ethical idealism and trait skepticism have a complementary effect on auditors’ fraud planning performance. This is because the former determines an auditor’s tolerance for allowing a client to get away with an ethically questionable act while the latter is important in determining how evidence is generally sought and evaluated. We used the Forsyth (1980) ethical position questionnaire to measure ethical idealism and the Hurtt (Auditing: A J Pract Theory 29(1):149–171, 2010) scale to measure trait skepticism. Our results indicate that there is a significant positive association between trait skepticism and the number of effective audit procedures but only for auditors who have high ethical idealism. The results highlight the importance of measuring and controlling for the effects of these traits when evaluating fraud detection performance. The paper also contributes by showing that an ethics theory can generate additional understanding of and insights into an important accounting phenomenon.
AUDITING: A Journal of Practice & Theory
SUMMARY Regulators have expressed concerns about auditors' tendency to over-rely on imprecise... more SUMMARY Regulators have expressed concerns about auditors' tendency to over-rely on imprecise compensating controls when evaluating the severity of control deficiencies. We provide evidence on whether prompting auditors to use a prudent official's evaluative perspective will mitigate this tendency. We hypothesize that auditors who are prompted to adopt the prudent official's perspective evaluate compensating controls and the severity of control deficiencies more effectively than those who are not prompted. We examine our hypotheses by manipulating a prompt to adopt the prudent official's perspective (present versus absent) and the precision of compensating controls (precise versus imprecise) in a 2 × 2 between subjects experiment where experienced auditors evaluate a revenue control deficiency that resulted in an immaterial misstatement. The experimental results are consistent with our hypotheses and support the conclusion that regulators and firms can alter auditors...
AUDITING: A Journal of Practice & Theory
We investigate the joint role of auditors' and auditees' incentives and disincentives in ... more We investigate the joint role of auditors' and auditees' incentives and disincentives in the decision to waive detected economically important misstatements (EIM) using a proprietary dataset with longitudinal information from 850 audit engagements completed over the period 2005 to 2015 in Netherlands. The empirical results show that auditors are more likely to waive EIM as their economic incentives (e.g., abnormally high audit fees, provision of non-audit services) increase. Auditors are also more likely to waive EIM as the auditee's incentive increase but less likely to waive as the auditee emplaces disincentives in the form of independent governance structures. Further, we find that the presence of an independent supervisory board dampened the effect of non-audit services on waiving EIM. Taken together, the results show that auditors' and auditees' incentives affect waiving decisions, which can potentially compromise both financial reporting reliability and audit quality.
International Journal of Auditing
We define a misstatement effect as a tendency for auditors to take the non-detection of a misstat... more We define a misstatement effect as a tendency for auditors to take the non-detection of a misstatement as evidence of the absence of a material weakness and test the hypothesis that it occurs unconsciously in their internal control severity judgments. In a between-participants design, which is analogous to the practice setting, we find that auditors evaluate an internal control deficiency less severely when it has not led to a misstatement. However, in a within-participants design, where the misstatement manipulation (detected or not detected) is more salient, we find that auditors evaluate the deficiencies as equally severe, suggesting that the misstatement effect in the between-participants design is not intended. The findings suggest the need to consider the use of decision aids that align auditors' heuristics and knowledge. For instance, auditors may be required to document possible misstatements that could occur when evaluating control deficiencies that have not led to misstatements.
SSRN Electronic Journal
Professional standards direct auditors to consult with forensic specialists to enhance the qualit... more Professional standards direct auditors to consult with forensic specialists to enhance the quality of fraud decisions. However, research underlying this prescription is limited. We address this gap by examining the effect of forensic expertise and time pressure on fraud cue identification and responsiveness in an experiment manipulating forensic expertise (forensic specialist versus auditor) and time pressure (present versus absent). The results show that forensic specialists identify more fraud cues than auditors, although this did not result in differential fraud risk assessment. Further, auditors not only plan less effective audit procedures than forensic specialists but also the performance difference is more substantial in the more realistic time pressure condition. However, as with prior studies, we did not find an association between fraud risk assessment and the planning of audit procedures for both groups. Taken together, the results provide evidence that consulting forensic specialists can enhance fraud decision quality and the performance difference is attributable to fraud cue identification and program planning but not through differential assessment of fraud risk assessment or its linkage to program planning.
Behavioral Research in Accounting, 2016
Understanding the inferences that nonprofessional investors draw from material weakness disclosur... more Understanding the inferences that nonprofessional investors draw from material weakness disclosures is important because of their effect on investment decisions and for assessing whether current standards serve their needs. Prior research shows that users assess higher financial reporting risk for an entity-level material weakness compared to an account-specific material weakness because they perceive the former as presenting a higher risk of potential misstatement. We extend the literature by proposing two variables (remediation and operational risks) that mediate and incrementally explain the observed relationship between the type of material weakness and financial reporting risk assessments. In an experiment involving 181 nonprofessional investors, we find, as predicted, that the entity-level material weakness signals not just a higher potential for undetected misstatements but also higher remediation and operational risks. Further, we find that the two variables fully mediate an...
African Journal of International and Comparative Law, 2015
On 28 December 2012, the putative runner-up of Ghana’s Presidential election filed an Article 64 ... more On 28 December 2012, the putative runner-up of Ghana’s Presidential election filed an Article 64 petition, in response to the electoral commissioner’s declaration of his opponent as President-elect of the country. An Article 64 petition conscripts the country’s Supreme Court to determine whether the person declared as President-elect is validly elected and, where necessary, to invalidate the declaration and make other consequential declarations, including declaring a new President. The petition, and the ensuing hearings, were important in several important respects: (i) this was the first time the petition had been used in the history of the country; (ii) the petition captivated the public’s interest given the petitioners’ political gravitas; (iii) the petition was quintessentially about a political matter, albeit litigated in a courtroom; (iv) the members of the panel hearing the petition, along with the Chief Justice, had participated in the inauguration and swearing in of the President, whose election’s validity was now before them; (v) there was a realistic possibility of unseating an incumbent President, unheard of in Africa or even most of the advanced democracies; and (vi) the Chief Justice allowed live broadcast of the hearings, although it appeared that the panel hearing the case was not in support of such coverage. The decision to broadcast the hearings created a demand for ‘analysts’ to explain the technical proceedings in the courtroom to the general audience.
Recent Research in Psychology, 1991
The basic audit process requires that the auditor search for and evaluate evidence related to an ... more The basic audit process requires that the auditor search for and evaluate evidence related to an audit assertion (e.g., Cushing & Loebbecke, 1986; Felix & Kinney, 1982; Gibbins, 1984; Knechel & Messier, 1990). In evaluating an audit assertion (e.g., validity of accounts receivable balance), the auditor begins with an initial belief and then revises that belief upward or downward depending on whether each new piece of evidence is positive or negative, respectively. While this process has been modeled using Bayes rule (Kinney, 1975), a number of behavioral studies in auditing (e.g., Joyce & Biddle, 1981a, b; Kinney & Uecker, 1982; and others) indicate that Bayes rule is not a good descriptor of the auditor’s judgment process. In particular, the research results have indicated that an auditor’s judgment process is sensitive to normatively irrelevant variables such as hypothesis frame (Kida, 1984b), temporal sequence (Joyce & Biddle, 1981a), and more generally that auditors employ heuristics in their judgments of probability. These findings are consistent with similar research in psychology (e.g., Slovic & Lichtenstein, 1971; Tversky &Kahneman, 1974). Accordingly, decision theorists have recently focused on the effects of task variables on information-processing strategies.
Wiley Encyclopedia of Management, 2015
We discuss the evolution and nature of auditors' responsibility to report on public companies... more We discuss the evolution and nature of auditors' responsibility to report on public companies' going concern status. Our discussion includes an overview of current standards that provide guidance to auditors on the evaluation of their public clients' going concern status. We also report the incidence of going concern reports in the last decade (2000–2010), summarize research that has examined how auditors make the decision and comment on the effect that the going concern report has on various stakeholders in the financial reporting chain. Keywords: going concern; external auditors; audit standards; effect on stakeholders
Research in Accounting Regulation, 2007
Congress passed the Sarbanes-Oxley Act to restore investor confidence, which had been deflated by... more Congress passed the Sarbanes-Oxley Act to restore investor confidence, which had been deflated by massive business and audit failures, epitomized by the demise of the Enron Corporation and Arthur Andersen LLP. The Act altered the roles and responsibilities of auditors, corporate officers, audit committee members, as well as other participants in the financial reporting process. We evaluate the potential legal implications of some of the Act's major provisions and anticipate participants' likely responses. Our evaluation suggests that these provisions will significantly change behavior, increase compliance costs and alter the legal landscape. We also identify promising avenues for future research in light of the new landscape.
Organizational Behavior and Human Decision Processes, 1995
African Journal of International and Comparative Law, 2010
Abstract: Ghana, the country widely acknowledged as the contemporary leader in African democratiz... more Abstract: Ghana, the country widely acknowledged as the contemporary leader in African democratization, is currently embarked on a comprehensive review of its Fourth Republican Constitution, in force since the restoration of constitutional democracy in 1993. This ...
We investigate the joint role of auditors' and auditees' incentives and disincentives in ... more We investigate the joint role of auditors' and auditees' incentives and disincentives in the decision to waive detected economically important misstatements (EIM) using a proprietary dataset with longitudinal information from 850 audit engagements completed over the period 2005 to 2015 in Netherlands. The empirical results show that auditors are more likely to waive EIM as their economic incentives (e.g., abnormally high audit fees, provision of non-audit services) increase. Auditors are also more likely to waive EIM as the auditee's incentive increase but less likely to waive as the auditee emplaces disincentives in the form of independent governance structures. Further, we find that the presence of an independent supervisory board dampened the effect of non-audit services on waiving EIM. Taken together, the results show that auditors' and auditees' incentives affect waiving decisions, which can potentially compromise both financial reporting reliability and aud...
Congress passed the Sarbanes-Oxley Act to restore investor confidence, which had been deflated by... more Congress passed the Sarbanes-Oxley Act to restore investor confidence, which had been deflated by massive business and audit failures, epitomized by the demise of the Enron Corporation and Arthur Andersen LLP. The Act altered the roles and responsibilities of auditors, corporate officers, audit committee members, as well as other participants in the financial reporting process. We evaluate the potential legal implications of some of the Act’s major provisions and anticipate participants’ likely responses. Our evaluation suggests that these provisions will significantly change behavior, increase compliance costs and alter the legal landscape. We also identify promising avenues for future research in light of the new landscape.
Key Words: Evaluation, Competing hypotheses, Auditing. Data Availability: Contact the authors. Au... more Key Words: Evaluation, Competing hypotheses, Auditing. Data Availability: Contact the authors. Auditors routinely evaluate competing hypotheses (e.g., when unexpected fluctuations are considered in conducting analytical procedures). In this paper evidence is presented on how auditors evaluate competing hypotheses. Hypothesis evaluation can affect audit efficiency, decision defensibility, judgment coherence and decision aid development. For instance, evaluating hypotheses as related entities allows evidence to play the dual role of directly (indirectly) implicating a particular hypothesis (the competing hypotheses). This strategy is efficient since it obviates the need to gather direct evidence about each competing hypothesis (i.e., confirming evidence about a hypothesis indirectly disconfirms the competing hypotheses). However, not gathering direct evidence about a competing hypothesis may be less defensible or may reduce confidence. Hypothesis evaluation encompasses the cognitive r...
Journal of Business Ethics
Although regulators have identified ethical lapses as a key factor contributing to auditors’ fail... more Although regulators have identified ethical lapses as a key factor contributing to auditors’ failure to detect their clients’ fraudulent financial reporting (fraud), research using ethical theory to examine auditors’ fraud detection remains limited. We provide evidence on the joint effect of ethical idealism and trait skepticism on auditors’ fraud judgments. Ethical idealism reflects an individual’s concern for the welfare of others while trait skepticism reflects an individual’s disposition to validating a proposition. Forsyth (J Pers Soc Psychol 39:175–184, 1980) theorizes that there is an association between ethical idealism and tolerance for deception. Drawing on that insight, we posit that ethical idealism and trait skepticism have a complementary effect on auditors’ fraud planning performance. This is because the former determines an auditor’s tolerance for allowing a client to get away with an ethically questionable act while the latter is important in determining how evidence is generally sought and evaluated. We used the Forsyth (1980) ethical position questionnaire to measure ethical idealism and the Hurtt (Auditing: A J Pract Theory 29(1):149–171, 2010) scale to measure trait skepticism. Our results indicate that there is a significant positive association between trait skepticism and the number of effective audit procedures but only for auditors who have high ethical idealism. The results highlight the importance of measuring and controlling for the effects of these traits when evaluating fraud detection performance. The paper also contributes by showing that an ethics theory can generate additional understanding of and insights into an important accounting phenomenon.
AUDITING: A Journal of Practice & Theory
SUMMARY Regulators have expressed concerns about auditors' tendency to over-rely on imprecise... more SUMMARY Regulators have expressed concerns about auditors' tendency to over-rely on imprecise compensating controls when evaluating the severity of control deficiencies. We provide evidence on whether prompting auditors to use a prudent official's evaluative perspective will mitigate this tendency. We hypothesize that auditors who are prompted to adopt the prudent official's perspective evaluate compensating controls and the severity of control deficiencies more effectively than those who are not prompted. We examine our hypotheses by manipulating a prompt to adopt the prudent official's perspective (present versus absent) and the precision of compensating controls (precise versus imprecise) in a 2 × 2 between subjects experiment where experienced auditors evaluate a revenue control deficiency that resulted in an immaterial misstatement. The experimental results are consistent with our hypotheses and support the conclusion that regulators and firms can alter auditors...
AUDITING: A Journal of Practice & Theory
We investigate the joint role of auditors' and auditees' incentives and disincentives in ... more We investigate the joint role of auditors' and auditees' incentives and disincentives in the decision to waive detected economically important misstatements (EIM) using a proprietary dataset with longitudinal information from 850 audit engagements completed over the period 2005 to 2015 in Netherlands. The empirical results show that auditors are more likely to waive EIM as their economic incentives (e.g., abnormally high audit fees, provision of non-audit services) increase. Auditors are also more likely to waive EIM as the auditee's incentive increase but less likely to waive as the auditee emplaces disincentives in the form of independent governance structures. Further, we find that the presence of an independent supervisory board dampened the effect of non-audit services on waiving EIM. Taken together, the results show that auditors' and auditees' incentives affect waiving decisions, which can potentially compromise both financial reporting reliability and audit quality.
International Journal of Auditing
We define a misstatement effect as a tendency for auditors to take the non-detection of a misstat... more We define a misstatement effect as a tendency for auditors to take the non-detection of a misstatement as evidence of the absence of a material weakness and test the hypothesis that it occurs unconsciously in their internal control severity judgments. In a between-participants design, which is analogous to the practice setting, we find that auditors evaluate an internal control deficiency less severely when it has not led to a misstatement. However, in a within-participants design, where the misstatement manipulation (detected or not detected) is more salient, we find that auditors evaluate the deficiencies as equally severe, suggesting that the misstatement effect in the between-participants design is not intended. The findings suggest the need to consider the use of decision aids that align auditors' heuristics and knowledge. For instance, auditors may be required to document possible misstatements that could occur when evaluating control deficiencies that have not led to misstatements.
SSRN Electronic Journal
Professional standards direct auditors to consult with forensic specialists to enhance the qualit... more Professional standards direct auditors to consult with forensic specialists to enhance the quality of fraud decisions. However, research underlying this prescription is limited. We address this gap by examining the effect of forensic expertise and time pressure on fraud cue identification and responsiveness in an experiment manipulating forensic expertise (forensic specialist versus auditor) and time pressure (present versus absent). The results show that forensic specialists identify more fraud cues than auditors, although this did not result in differential fraud risk assessment. Further, auditors not only plan less effective audit procedures than forensic specialists but also the performance difference is more substantial in the more realistic time pressure condition. However, as with prior studies, we did not find an association between fraud risk assessment and the planning of audit procedures for both groups. Taken together, the results provide evidence that consulting forensic specialists can enhance fraud decision quality and the performance difference is attributable to fraud cue identification and program planning but not through differential assessment of fraud risk assessment or its linkage to program planning.
Behavioral Research in Accounting, 2016
Understanding the inferences that nonprofessional investors draw from material weakness disclosur... more Understanding the inferences that nonprofessional investors draw from material weakness disclosures is important because of their effect on investment decisions and for assessing whether current standards serve their needs. Prior research shows that users assess higher financial reporting risk for an entity-level material weakness compared to an account-specific material weakness because they perceive the former as presenting a higher risk of potential misstatement. We extend the literature by proposing two variables (remediation and operational risks) that mediate and incrementally explain the observed relationship between the type of material weakness and financial reporting risk assessments. In an experiment involving 181 nonprofessional investors, we find, as predicted, that the entity-level material weakness signals not just a higher potential for undetected misstatements but also higher remediation and operational risks. Further, we find that the two variables fully mediate an...
African Journal of International and Comparative Law, 2015
On 28 December 2012, the putative runner-up of Ghana’s Presidential election filed an Article 64 ... more On 28 December 2012, the putative runner-up of Ghana’s Presidential election filed an Article 64 petition, in response to the electoral commissioner’s declaration of his opponent as President-elect of the country. An Article 64 petition conscripts the country’s Supreme Court to determine whether the person declared as President-elect is validly elected and, where necessary, to invalidate the declaration and make other consequential declarations, including declaring a new President. The petition, and the ensuing hearings, were important in several important respects: (i) this was the first time the petition had been used in the history of the country; (ii) the petition captivated the public’s interest given the petitioners’ political gravitas; (iii) the petition was quintessentially about a political matter, albeit litigated in a courtroom; (iv) the members of the panel hearing the petition, along with the Chief Justice, had participated in the inauguration and swearing in of the President, whose election’s validity was now before them; (v) there was a realistic possibility of unseating an incumbent President, unheard of in Africa or even most of the advanced democracies; and (vi) the Chief Justice allowed live broadcast of the hearings, although it appeared that the panel hearing the case was not in support of such coverage. The decision to broadcast the hearings created a demand for ‘analysts’ to explain the technical proceedings in the courtroom to the general audience.
Recent Research in Psychology, 1991
The basic audit process requires that the auditor search for and evaluate evidence related to an ... more The basic audit process requires that the auditor search for and evaluate evidence related to an audit assertion (e.g., Cushing & Loebbecke, 1986; Felix & Kinney, 1982; Gibbins, 1984; Knechel & Messier, 1990). In evaluating an audit assertion (e.g., validity of accounts receivable balance), the auditor begins with an initial belief and then revises that belief upward or downward depending on whether each new piece of evidence is positive or negative, respectively. While this process has been modeled using Bayes rule (Kinney, 1975), a number of behavioral studies in auditing (e.g., Joyce & Biddle, 1981a, b; Kinney & Uecker, 1982; and others) indicate that Bayes rule is not a good descriptor of the auditor’s judgment process. In particular, the research results have indicated that an auditor’s judgment process is sensitive to normatively irrelevant variables such as hypothesis frame (Kida, 1984b), temporal sequence (Joyce & Biddle, 1981a), and more generally that auditors employ heuristics in their judgments of probability. These findings are consistent with similar research in psychology (e.g., Slovic & Lichtenstein, 1971; Tversky &Kahneman, 1974). Accordingly, decision theorists have recently focused on the effects of task variables on information-processing strategies.
Wiley Encyclopedia of Management, 2015
We discuss the evolution and nature of auditors' responsibility to report on public companies... more We discuss the evolution and nature of auditors' responsibility to report on public companies' going concern status. Our discussion includes an overview of current standards that provide guidance to auditors on the evaluation of their public clients' going concern status. We also report the incidence of going concern reports in the last decade (2000–2010), summarize research that has examined how auditors make the decision and comment on the effect that the going concern report has on various stakeholders in the financial reporting chain. Keywords: going concern; external auditors; audit standards; effect on stakeholders
Research in Accounting Regulation, 2007
Congress passed the Sarbanes-Oxley Act to restore investor confidence, which had been deflated by... more Congress passed the Sarbanes-Oxley Act to restore investor confidence, which had been deflated by massive business and audit failures, epitomized by the demise of the Enron Corporation and Arthur Andersen LLP. The Act altered the roles and responsibilities of auditors, corporate officers, audit committee members, as well as other participants in the financial reporting process. We evaluate the potential legal implications of some of the Act's major provisions and anticipate participants' likely responses. Our evaluation suggests that these provisions will significantly change behavior, increase compliance costs and alter the legal landscape. We also identify promising avenues for future research in light of the new landscape.
Organizational Behavior and Human Decision Processes, 1995