FCBE Faculty Have Paper Published in Journal of Information Systems

For release:  November 12, 2015

Dr. Zabi Rezaee, Thompson-Hill Chair of Excellence and professor of Accounting, recently had his paper entitled, "The Association between Information Technology Investments and Audit Risk," accepted for publication in the Journal of Information Systems. The paper was coauthored with FCBE assistant professor in the School of Accountancy, Dr. Joseph Zhang; former FCBE PhD student, Dr. Shipeng Han University of Massachusetts Dartmouth; and former FCBE professor, Dr. Ling Xue, Georgia State University.

The paper examined the relationship between a firm's information technology (IT) investments and external audit risk and audit quality. Business organizations have invested significantly in IT and related resources to meet operational and reporting needs. The ever-increasing use of computers in data processing and the application of various enterprise systems have had a substantial impact on business processes and internal controls, financial reporting quality, and the audit process and effectiveness. The authors used three areas of IT infrastructure; counts of PCs, servers, and network nodes.

Examples included decentralized computing equipment, centralized computing equipment, and electronic communication equipment, respectively to develop proxies of companies' overall extent of IT investments.

The authors found that client firms' IT investments were positively associated with both audit fees and abnormal audit fees. These results suggested that auditors considered the impacts of IT on their client firms' business and accounting processes and internal controls. Thus, they charged higher audit fees with regard to the unintended business risk (e.g., business uncertainty or bankruptcy) and unforeseen audit risk associated with IT investments. Also found was the positive relationship between clients' IT investments and audit fees is stronger in the early stages of auditor tenure. In addition, auditors were more likely to issue going-concern opinions to financially distressed companies with extensive IT investments and that IT investments were positively associated with auditor's opinion errors.