The Impact of Benefit Plan Audits on the Financial Statement Audit

Description

Benefit plan audits, a material but less understood public accounting service, represent a non-audit service that is "audit-related." We explore the implications of benefit plan audits for the financial statement audit and find that performing a benefit plan audit for a company significantly increases the likelihood that the firm will be selected as a company's financial statement auditor in the future, particularly for smaller audit firms. Companies that engage the same audit firm for both their benefit plan and financial statement audits have a significantly lower likelihood of misstatements and shorter audit report lags. There is also evidence consistent with the joint provision of these services creating greater bonding and higher switching costs for the financial statement audit. The findings speak to the continued debate over the effective market expansion of financial statement audit providers, audit quality determinants, and audit efficiencies.

Highlights

• Benefit Plan Audits • Financial Statement Audit

Objectives

• Apply critical thinking to evaluate how the shift from traditional to digital audits impacts the audit expectation gap and identify potential new areas contributing to this gap. • Analyze the threats and challenges arising from the paradigm shift towards digital audits, and assess how these challenges can affect the expectation gap in auditing practices. • Utilize the concept of a constructive approach enabled by digital tools to perform auditors' duties, and evaluate how this approach could enhance internal controls, fraud prevention, and detection, consequently narrowing the audit expectation gap in these critical areas.