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Inherent Risk and Control Risk Assessments: Evidence on the Effect of Pervasive and Specific Risk Factors

65 citations0/0 files storedAuditing A Journal of Practice & Theory

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Auditing, Earnings Management, Governance Accounting and Organizational Management Corporate Governance and Financial Management

Abstract

This paper reports on a study that examines the effect of pervasive and specific risk factors on auditors' inherent risk and control risk assessments in an experimental setting. Two hypotheses concerning the significance of inherent and control risk factors on auditors' inherent risk (IR) and control risk (CR) assessments were tested by having 124 senior auditors and managers provide risk assessments on eight cases. The results show that the pervasive and specific risk factors included in the experiment were significant to both the auditors' IR and CR assessments. For the case used in this study, there was a significant positive association between auditors' IR and CR assessments. Taken together, these findings are consistent with Waller's (1993) notion of a knowledge-based dependency between IR and CR assessments. The findings are not consistent with Kinney's (1989) reformulation of the (IR×CR) component of the audit risk model.

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References

1997Auditing organizations through a strategic-systems lens : the KPMG Business Measurement Process 1992Implications of Seemingly Irrelevant Evidence in Audit Judgment 1999An Experimental Investigation of Auditor-Auditee Interaction Under Ambiguity 1991Inherent risk assessment and audit firm technology: A contrast in world theories 1997Representations as Decision Aids: The Asymmetric Effects of Words and Numbers on Auditors' Inherent Risk Judgments*

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