write:Keywords:internalcontrols;managementdefensiveness;auditpartnerjudgment;managementreviewcontrols;compensatingcontrols;PCAOBoversight.I.INTRODUCTIONSection404(b)oftheSarbanes-OxleyAc

weconductedsemi-structuredinterviewswith20auditpartners.CommonthemesinourinterviewssuggestthatthesubjectivityinherentintheICFRevaluationtaskcontributestoresistanceagainstICFRauditfindingsandcougnterargumentsfrommanagement.Moreover
auditorsperceivethattheirjudgmentsarebeingsecond-guessedbyPCAOBinspectors.Auditorsbelievethatmanagershavedifficultyacceptingthatmaterialweaknessescanexistwithoutadetectederror
thatmanagement’sreflexivereactionistodeny/avoidamaterialweaknessfinding
andmanagersroutinelyclaimthatmanagementreviewcontrols(MRCs)wouldhavecaughtthedetectedcontroldeficiency.Auditorscopewithmanagement’sdefensesbyconsultingwiththeirnationalofficeandleveragingsupportfromstrongauditcommittees.DataAvailability:Requestsforthedatashouldbeaccompaniedbyadescriptionofintendeduses.Keywords:internalcontrols;managementdefensiveness;auditpartnerjudgment;managementreviewcontrols;compensatingcontrols;PCAOBoversight.I.INTRODUCTIONSection404(b)oftheSarbanes-OxleyActof2002(hereafterSOX)requiresanexternalauditortoconductanannualauditofinternalcontroloverfinancialreporting(ICFR)forallpubliccompanieswhosepublicfloatexceeds$75million(U.S.HouseofRepresentatives2002;2010).AlthoughtheprofessionhasworkedtodevelopandrefineICFRaudits
regulatorsworldwidehaveexpressedconcernsoverauditqualityaroundICFR(e.g.
FRC2011;PCAOB2011
2012a
2017;WeacknowledgeresearchsupportfromtheCenterforAuditQuality(CAQ).WethankmembersoftheResearchAdvisoryBoardattheCAQfortheirassistanceindevelopingandrefiningthecasematerialsusedinthisstudy.Additionally
wewouldliketothanktheparticipantswhotookpartinthestudy.WeespeciallywanttothankoureditorDanaR.Hermansonforprovidingsuchtimelyandinsightfulguidance.WealsowanttoacknowledgeKimWestermann
LoriHolder-Webb
SteveSalterio
KellyMcKenna
theNyenrodeBusinessUniversityandNorthCarolinaStateUniversityresearchworkshopparticipantsandparticipantsatthe2017MidyearAuditconferenceforcommentsonearlierdrafts.TheviewsexpressedinthisarticleanditscontentarethoseoftheauthorsaloneandnotthoseoftheCAQ.Pleasenotethatthispaperwasthe2019–2020recipientoftheGlenMcLaughlinPrizeforResearchinAccountingEthicsfromtheSteedSchoolofAccounting(TheUniversityofOklahoma).JeffreyR.Cohen
BostonCollege
CarrollSchoolofManagement
DepartmentofAccounting
Boston
MA
USA;JenniferR.Joe
UniversityofDelaware
LernerBusiness&Economics
DepartmentofAccountingandManagementInformationSystems
Newark
DE
USA;JayC.Thibodeau
BentleyUniversity
DepartmentofAccounting
Waltham
MA
USA;GregoryM.Trompeter
CollegeofBusiness
KennethG.DixonSchoolofAccounting
UniversityofCentralFlorida
Orlando
FL
USA.Editor’snote:AcceptedbyDanaR.Hermanson
undertheSeniorEditorshipofChristopherP.Agoglia.Submitted:July2018Accepted:May2020PublishedOnline:August202057Downloaded from http://meridian.allenpress.com/ajpt/article-pdf/39/4/57/2659805/i1558-7991-39-4-57.pdf by Case Western Reserve University
John Keyser on 25 January 2021