The Auditor's Loss Function and Investors' Perceptions of Audit Effectiveness: Effects of Regulatory Change

Persistent Link:
http://hdl.handle.net/10150/194784
Title:
The Auditor's Loss Function and Investors' Perceptions of Audit Effectiveness: Effects of Regulatory Change
Author:
Smith, Jason Lance
Issue Date:
2008
Publisher:
The University of Arizona.
Rights:
Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
Abstract:
In this dissertation, I examine the effects of regulatory changes that affect the auditor's loss function on investors' perceptions of audit effectiveness. Specifically, I examine two changes intended (1) to improve audit efficiency and (2) to reduce auditor liability exposure. The first regulatory change, which was recently enacted, is the replacement of Auditing Standard 2 (AS2) with Auditing Standard 5 (AS5). The second regulatory change, which is currently a hypothetical change, is the passage of litigation reform aimed at limiting the auditor's liability exposure following an alleged audit failure. I examine perceived audit effectiveness rather than actual effectiveness because actual audit effectiveness is unobservable by investors. In an experiment using 101 MBA students as proxies for individual investors, I find that both changes are perceived by investors as reducing the amount of testing performed by the auditor when performing the internal control audit. I also find that both regulatory changes negatively affect investors' perceptions of audit effectiveness. Following the change in the auditing standard, experienced and inexperienced investors predict opposite stock price movement and, as a result, make different investment allocation decisions. In performing supplemental analyses, I find significant gender differences in predicted future stock prices, but not in perceptions of audit effectiveness or in perceptions of internal control quality.
Type:
text; Electronic Dissertation
Keywords:
Audit Effectiveness; Auditing Standard 5; Liability
Degree Name:
PhD
Degree Level:
doctoral
Degree Program:
Accounting; Graduate College
Degree Grantor:
University of Arizona
Advisor:
Felix, William L.
Committee Chair:
Felix, William L.

Full metadata record

DC FieldValue Language
dc.language.isoENen_US
dc.titleThe Auditor's Loss Function and Investors' Perceptions of Audit Effectiveness: Effects of Regulatory Changeen_US
dc.creatorSmith, Jason Lanceen_US
dc.contributor.authorSmith, Jason Lanceen_US
dc.date.issued2008en_US
dc.publisherThe University of Arizona.en_US
dc.rightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.en_US
dc.description.abstractIn this dissertation, I examine the effects of regulatory changes that affect the auditor's loss function on investors' perceptions of audit effectiveness. Specifically, I examine two changes intended (1) to improve audit efficiency and (2) to reduce auditor liability exposure. The first regulatory change, which was recently enacted, is the replacement of Auditing Standard 2 (AS2) with Auditing Standard 5 (AS5). The second regulatory change, which is currently a hypothetical change, is the passage of litigation reform aimed at limiting the auditor's liability exposure following an alleged audit failure. I examine perceived audit effectiveness rather than actual effectiveness because actual audit effectiveness is unobservable by investors. In an experiment using 101 MBA students as proxies for individual investors, I find that both changes are perceived by investors as reducing the amount of testing performed by the auditor when performing the internal control audit. I also find that both regulatory changes negatively affect investors' perceptions of audit effectiveness. Following the change in the auditing standard, experienced and inexperienced investors predict opposite stock price movement and, as a result, make different investment allocation decisions. In performing supplemental analyses, I find significant gender differences in predicted future stock prices, but not in perceptions of audit effectiveness or in perceptions of internal control quality.en_US
dc.typetexten_US
dc.typeElectronic Dissertationen_US
dc.subjectAudit Effectivenessen_US
dc.subjectAuditing Standard 5en_US
dc.subjectLiabilityen_US
thesis.degree.namePhDen_US
thesis.degree.leveldoctoralen_US
thesis.degree.disciplineAccountingen_US
thesis.degree.disciplineGraduate Collegeen_US
thesis.degree.grantorUniversity of Arizonaen_US
dc.contributor.advisorFelix, William L.en_US
dc.contributor.chairFelix, William L.en_US
dc.contributor.committeememberSchatzberg, Jeffrey W.en_US
dc.contributor.committeememberWaller, William S.en_US
dc.identifier.proquest2632en_US
dc.identifier.oclc659749621en_US
All Items in UA Campus Repository are protected by copyright, with all rights reserved, unless otherwise indicated.