The Auditor's Approach to Subsequent Events: Insights from the Academic Literature

Posted: 22 Feb 2016

See all articles by Janne Chung

Janne Chung

York University - Schulich School of Business

Charles P. Cullinan

Bryant University

Michele Lynn Frank

Miami University of Ohio; University of Pittsburgh - Katz Graduate School of Business

James H. Long

Auburn University - Raymond J. Harbert College of Business - School of Accountancy

Jennifer M Mueller

Auburn University - School of Accountancy

Dennis O'Reilly

East Carolina University - Department of Accounting

Date Written: 2013

Abstract

Approximately one-third of the PCAOB’s inspection reports and several SEC enforcement releases identify deficiencies in the audit of subsequent events (SEs). Despite these issues, little research has been conducted to understand how and why these deficiencies occur. This paper integrates the psychology and behavioral accounting literatures to develop a model of the factors that influence the effectiveness of SE audit procedures. The model suggests that the effectiveness of these procedures is largely influenced by the auditor’s cognitive processing mode, which is initially affected by environmental, individual, and task-specific factors. Our model provides a theoretical basis for future research into the causes of these deficiencies and suggests potential mitigating strategies that auditors can employ to improve the effectiveness of the audit of SEs. We conclude with a discussion of the implications arising from the model for professionals, standard setters, and researchers.

Keywords: contextual factors, cognitive processing strategies, heuristics and biases, subsequent events judgment process

Suggested Citation

Chung, Janne and Cullinan, Charles P. and Frank, Michele Lynn and Long, James H. and Mueller, Jennifer M and O'Reilly, Dennis, The Auditor's Approach to Subsequent Events: Insights from the Academic Literature (2013). Auditing: A Journal of Practice & Theory, Vol. 32, No. S1, 2013, Available at SSRN: https://ssrn.com/abstract=2735512

Janne Chung

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Charles P. Cullinan

Bryant University ( email )

1150 Douglas Pike
College of Business
Smithfield, RI 02917-1284
United States
401-232-6421 (Phone)
401-232-6319 (Fax)

Michele Lynn Frank

Miami University of Ohio ( email )

Oxford, OH 45056
United States

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States
412-770-4974 (Phone)

James H. Long (Contact Author)

Auburn University - Raymond J. Harbert College of Business - School of Accountancy ( email )

301 Lowder Hall
405 West Magnolia Avenue
Auburn University, AL 36849
United States
(334) 844-6214 (Phone)
(334) 844-5875 (Fax)

HOME PAGE: http://jameshlong.com

Jennifer M Mueller

Auburn University - School of Accountancy ( email )

415 West Magnolia Avenue
301 Lowder Business Building
Auburn, AL 36849
United States

Dennis O'Reilly

East Carolina University - Department of Accounting ( email )

United States

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