{"id":81627,"date":"2021-02-05t14:30:28","date_gmt":"2021-02-05t19:30:28","guid":{"rendered":"https:\/\/48e130086c.nxcli.net\/?p=81627"},"modified":"2023-10-05t09:20:02","modified_gmt":"2023-10-05t13:20:02","slug":"what-auditors-know-about-amazon-product-ratings","status":"publish","type":"post","link":"\/\/www.g005e.com\/2021\/02\/05\/what-auditors-know-about-amazon-product-ratings\/","title":{"rendered":"what auditors know about amazon product ratings"},"content":{"rendered":"

\"\"<\/a>and four more lessons from new cutting-edge audit research.<\/strong><\/p>\n

by donny c. shimamoto
\nstrategic technology decisions<\/em><\/p>\n

often academia is criticized for being out of touch with that is happening in the \u201creal world.\u201d when i was invited to attend the hawaii accounting research conference, i was interested to see whether some of the contemporary research being done by university researchers across the world was actually relevant to those of us in practice.<\/p>\n

more:<\/b> non-cpa \u201ccpa\u201d firms? really?<\/a> | covid-19 turns cpas into first responders<\/a> | what small and midsized firms can learn from pwc\u2019s digital upskilling<\/a> | what big data means to small firms<\/a>
\n\"goprocpa.com\"exclusively for pro members. <\/span><\/strong>log in here<\/a> or 2022世界杯足球排名 today<\/a>.<\/span><\/p><\/blockquote>\n

while quite a bit of the research provided some data to support commonly held assumptions that many of us have, there were some papers that provided some good food for thought that audit firms big and small should consider.
\n
\nhere are some of the implementable takeaways that i got from listening to the paper and discussions.<\/p>\n

address internal control weaknesses to improve customer satisfaction<\/strong><\/p>\n

the paper \u201cinternal control and customer satisfaction \u2013 a study of amazon product ratings<\/a>\u201d by chen, liu, wan and wang demonstrated a direct relationship between higher internal control weaknesses (\u201cicws,\u201d as reported under section 404) and lower product ratings on amazon. additionally, increased organizational complexity, increased geographical distribution and if a product was not one of the company\u2019s core product all increased the likelihood for lower ratings.<\/p>\n

the authors provided the reasoning that when icws are present, the company must spend more of its resources addressing the icws, which causes decreased spend in product development, operations and customer support, which could all be reasons for the lower ratings.<\/p>\n

takeaway:<\/strong> if you\u2019re trying to convince a client to address your management letter comments or other less severe icws, see if you can identify how it ties to their product quality or customer satisfaction \u2013 which could then potentially be tied to increased customer loyalty, increased revenue and reduced customer service costs \u2013 all reasons a cfo could use to get buy-in from other executives that icws need to be addressed.<\/p>\n

more diversity in audit partners results in better audit quality<\/strong><\/p>\n

diversity and inclusion have been a hot topic in our profession for a while, but is there really a benefit to increased diversity? this paper provided a resounding \u201cyes\u201d to this question for audit. \u201caudit leadership diversity and audit quality<\/a>\u201d by zimmerman, seidel, lisic and truelson, showed that when there is a culture emphasizing diversity, there are fewer subsequent restatements and a more conservative approach to accruals. the authors measured diversity using the following factors: age, gender, ethnicity, industry specialization and education.<\/p>\n

takeaway:<\/strong> even if your audit team can\u2019t be ethnically diverse (perhaps because of the region of the country that you live in) be sure to consider the other diversity factors when assembling your audit team.<\/p>\n

charitable auditors result in better audit quality<\/strong><\/p>\n

china\u2019s audit environment differs from ours in the u.s. in that signing auditors are identified on audit reports, and there is publicly available information about whether cpa license holders have engaged in charitable activities. liu, wang and zhou used that data to answer the question \u201cdo charitable auditors deliver better audit quality? \u2013 evidence from chinese cpas<\/a>.\u201d their research showed that auditors who engage in charitable activities demonstrate lower discretionary accruals, and are more conservative in issuing modified audit opinions.<\/p>\n

takeaway:<\/strong> when hiring for your audit teams, hire people who show a strong history of volunteerism and other charitable activities. my assumption on this is people who feel a stronger connection to serving the public and less fortunate will prioritize the \u201ccorrect\u201d opinion over potential pressure from client\u2019s management and audit fees.<\/p>\n

reward professional skepticism to reduce detection risk when using data analytics<\/strong><\/p>\n

being someone who is asked to speak often about data analytics, i was definitely interested when i saw the title of this paper, \u201cdata analytics and skeptical actions: the countervailing effects of false positives and consistent rewards for skepticism<\/a>\u201d by barr-pulliam, brazel, mccallen and walker. the research found that you must reward people for investigating false positives, even if they don\u2019t result in an actual change. this is often contrary to the \u201cdon\u2019t blow up my engagement budget\u201d pressure that many audit leaders place on their audit teams, which the research shows actually decreases auditor exercise of professional skepticism, which potentially also increases the detection risk of the audit.<\/p>\n

takeaway:<\/strong> firms need to ensure that they create an environment where professional skepticism is rewarded, not penalized, to not increase their detection risk. in my view, when artificial intelligence is also used with data analytics, firms need to include additional data that can be identified as the mitigating factor for the false positive so that the ai can learn to look for that additional data to decrease the volume of false positives.<\/p>\n

digital audits = higher audit fees<\/strong><\/p>\n

a lot of the talk around the use of digital technologies for audit efficiency focuses on the decrease in cost of performing the audit \u2013 which could result in better engagement profitability. rather than reducing audit fees, most partners probably see this as recouping write-offs that they have been sustaining for years. the research done by maghakyan, jarva, niemi and sihvonen on \u201cthe effect of partner digitalization expertise on audit fees<\/a>\u201d shows instead that firms with a higher digitization expertise can charge premiums for their audits. in fact, in the u.s. this premium was 63-65 percent \u2013 and clients were not balking at paying these higher fees.<\/p>\n

when i thought about it, the higher fees made sense … the more digital the client, the more the auditor would have to engage specialists like it auditors, digital product specialists, cybersecurity specialists, etc. to be able to properly assess risk and understand the operations of the client. but with the coming changes in the cpa exam<\/a>, i wonder how long this fee premium will last because eventually all auditors will have some level of digital skills.<\/p>\n

takeaway:<\/strong> if you\u2019re working with digitally focused clients, be sure that you\u2019re getting your full potential fees and don\u2019t feel like you should be charging them the same as your non-digital clients. also, if your clients are starting to go through digital transformation be sure that you are starting to have the conversations with them about how that may affect their fees \u2013 and be sure that you have the right specialists on your team or on contract from a partner firm.<\/p>\n

closing thoughts<\/strong><\/p>\n

most of the sessions i chose were focused on improving audits because this is the area that had the most potential application to those of us in practice, but there is a wide variety of topics including tax, financial reporting, disclosures, diversity, governance, esg and valuation. a couple of the organizers and professors reached out to me after the conference to thank me for providing insights from how their research may apply (or conflict) with what is actually happening in practice, so i\u2019m sure that if any of you would like to help improve the usefulness of accounting research, they would welcome your participation too.<\/p>\n

next year\u2019s hawaii accounting research conference<\/a> will be january 3-5 again. hopefully we will be able to meet in person by then and you can justify a trip to hawaii for some cpe too!<\/p>\n

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