A Risk Model to Opine on Internal Control

2010 ◽  
Vol 24 (1) ◽  
pp. 65-78 ◽  
Author(s):  
Abraham D. Akresh
Keyword(s):  
Conceptual Framework ◽  
Internal Control ◽  
Risk Model ◽  
Financial Statements ◽  
Financial Statement ◽  
Material Weakness ◽  
Audit Risk ◽  
Audit Risk Model ◽  
Auditing Standards

SYNOPSIS: In recent years, auditors have reported on the effectiveness of internal control, usually as part of integrated audits. The audit risk model currently in auditing standards was designed for financial statement audits, not internal control audits—a key part of integrated audits. Because the audit of processes (internal control) is conceptually different from the audit of outputs (financial statements), the auditor needs a different risk model to provide a conceptual framework for internal control audits. The model I propose1 provides the auditor a method to determine the appropriate nature, timing, and extent of testing in an integrated audit. My model is focused on the risk of material weakness, rather than the risk of material misstatement. I also show how the auditor would use two different models in an integrated audit.

Attribute Sampling: A Belief-Function Approach to Statistical Audit Evidence

2000 ◽  
Vol 19 (1) ◽  
pp. 145-155 ◽  
Author(s):  
Peter R. Gillett ◽  
Rajendra P. Srivastava
Keyword(s):  
Sample Size ◽  
Risk Model ◽  
Financial Statements ◽  
Belief Function ◽  
Occurrence Rate ◽  
Evidence Based ◽  
Belief Functions ◽  
Audit Risk ◽  
Audit Risk Model ◽  
Audit Evidence

The Dempster-Shafer belief function framework has been used to model the aggregation of audit evidence based on subjectively assessed beliefs. This paper shows how statistical evidence obtained by means of attribute sampling may be represented as belief functions, so that it can be incorporated into such models. In particular, the article shows: (1) how to determine the sample size in attribute sampling to obtain a desired level of belief that the true attribute occurrence rate of the population lies in a given interval; (2) what level of belief is obtained for a specified interval, given the sample result. As intuitively expected, we find that the sample size increases as the desired level of belief in the interval increases. In evaluating the sample results, our findings are again intuitively appealing. For example, provided the sample occurrence rate falls in the interval B for a given number of occurrences of the attribute, we find that the belief in B, Bel(B), increases as the sample size increases. However, if the sample occurrence rate falls outside of the interval, then Bel(B) is zero. Note that, in general, both Bel(B) and Bel(notB) are zero when the sample occurrence rate falls at the end points of the interval. These results extend similar results already available for variables sampling. However, the auditor faces an additional problem for attribute sampling: how to convert belief in an interval for control exceptions into belief in an interval for material misstatements in the financial statements, so that it can be combined with evidence from other sources in implementations of the Audit Risk Model.

Abnormal Audit Fees and Restatements

2012 ◽  
Vol 31 (1) ◽  
pp. 79-96 ◽  
Author(s):  
Alan I. Blankley ◽  
David N. Hurtt ◽  
Jason E. MacGregor
Keyword(s):  
Internal Control ◽  
Financial Statements ◽  
Audit Fees ◽  
Financial Statement ◽  
Prior Work ◽  
Audit Risk ◽  
Negatively Associated ◽  
Control Quality ◽  
Sarbanes Oxley ◽  
The Relationship

SUMMARY We investigate the relationship between audit fees and subsequent financial statement restatements in the years following the Sarbanes-Oxley Act of 2002 (SOX). After controlling for internal control quality, we find that abnormal audit fees are negatively associated with the likelihood that financial statements are subsequently restated. This result conflicts with prior work that finds that audit fees are positively associated with future restatements. Overall, our evidence is consistent with the notion that restatements reflect low audit effort or underestimated audit risk in the periods leading up to the restatement year.

Misstatements in Financial Statements: The Relationship between Inherent and Control Risk Factors and Audit Adjustments

2014 ◽  
Vol 33 (4) ◽  
pp. 247-269 ◽  
Author(s):  
Klaus Ruhnke ◽  
Martin Schmidt
Keyword(s):  
Risk Factors ◽  
Internal Control ◽  
Risk Model ◽  
Relative Magnitude ◽  
Level Control ◽  
Audit Risk ◽  
Big 4 ◽  
Audit Risk Model ◽  
And Control ◽  
Control Risk

SUMMARY: This paper analyzes whether audit adjustments vary systematically with inherent and control risk factors. The analysis is based on proprietary data from a large recent sample of audit adjustments detected in the financial statement audits conducted by a Big 4 audit firm in Germany. We extend the scope of prior studies by incorporating client-specific planning materiality in our design, enabling us to analyze the relative magnitude of adjustments. Our findings show that audit adjustments vary systematically, as proposed by the audit risk model. Specifically, the integrity and competence of the client's management, economic position, entity-level control strength, and internal control system are associated with the number and relative magnitude of audit adjustments. The results also suggest that inherent and control risk factors are particularly strongly associated with income-affecting adjustments. JEL Classifications: M40, M41, M42.

Academic Research in Accounting: A Framework for Quality Reviews

2016 ◽  
Vol 10 (1) ◽  
pp. A34-A46 ◽  
Author(s):  
Denise Dickins ◽  
Douglas K. Schneider
Keyword(s):  
Review Process ◽  
Risk Model ◽  
Peer Review Process ◽  
Academic Research ◽  
Financial Statements ◽  
High Quality ◽  
High Quality Research ◽  
Audit Risk ◽  
Quality Research ◽  
Audit Risk Model

SUMMARY We propose and model how a practitioner-based framework aimed at reducing the likelihood of unidentified misstatements in financial statements—the Audit Risk Model—might be adapted and used in the accounting research peer review process to, in part, address the issue of increasing retractions of academic studies. This proposal is intended to engage both practitioners and academics. Practitioners need to know the importance that the academy places on producing high-quality research; and just as practitioners can learn from the results of high-quality research studies, academics can learn from the activities of practitioners. The discussion that follows is intended to create debate. It is not intended to provide definitive answers.

Twenty-Five Years of Audit Deregulation and Re-Regulation: What Does it Mean for 2005 and Beyond?

2005 ◽  
Vol 24 (s-1) ◽  
pp. 89-109 ◽  
Author(s):  
William R. Kinney
Keyword(s):  
Corporate Governance ◽  
Risk Model ◽  
Initial Conditions ◽  
Regulatory Environment ◽  
Audit Risk ◽  
Accounting Firms ◽  
Audit Risk Model ◽  
Assurance Services ◽  
Auditing Standards ◽  
Audit Regulation

This paper explores broad trends in regulation of the auditing profession from 1981–2005, the first 25 years of Auditing: A Journal of Practice & Theory. It begins with a sketch of the 1980 regulatory environment, three constants over the next 25 years, and three external developments or “shocks” that dramatically affected audit regulation activity. The initial conditions, constants, and shocks are then related to audit regulation beginning with the audit risk model in the 1980s as the basis for selfregulated auditing standards, continuing with a vision of unregulated, non-mandated value-adding assurance services in the 1990s, and finally, the 2002 statutory adoption of independent regulation of registered accounting firms and a government-sanctioned corporate governance role for auditors. I close with some implications of the 2005 audit regulation environment for future auditing scholars and practitioners.

Design and Application Research of Audit Risk Control Program

2013 ◽  
Vol 310 ◽  
pp. 718-721
Author(s):  
Li Ya Ma ◽  
Shu Feng Wang
Keyword(s):  
Risk Model ◽  
Risk Control ◽  
Control Program ◽  
Audit Report ◽  
Audit Risk ◽  
Specific Content ◽  
Auditing Standards ◽  
Audit Reports ◽  
Independent Auditing ◽  
And Control

Strict procedures for prevention and control of audit risk is one of the most effective measures, so the research on design of audit risk control standardization program has very great practical application value. Combined with the research needs, the CPA practices respectively utilize means of summarizing method, for example, analysis method and enumeration method. The CPA practice also revealing the audit risk and audit report risk associated with different basis, combining with the traditional audit risk model. The specific content concludes the report of audit risk and then designs including audit reports preparation, audit draft, final review report to track a feedback of visit to the control standard operating requirements, and then puts forward the independent auditing standards. The auditing standards should be added to the proposal of audit report program.

Response of a Subgroup of the PCAOB's Investor Advisory Group to the PCAOB's Concept Release Concerning Reports on Audited Financial Statements and Related Amendments to PCAOB Standards

2011 ◽  
Vol 5 (2) ◽  
pp. C21-C50 ◽  
Author(s):  
Kelvin Blake ◽  
Joseph V. Carcello ◽  
Norman J. Harrison ◽  
Michael J. Head ◽  
Barbara E. Roper ◽  
...  
Keyword(s):  
Financial Statements ◽  
Capital Allocation ◽  
Financial Statement ◽  
Advisory Group ◽  
Audit Report ◽  
Audit Risk ◽  
The Public ◽  
Public Company ◽  
Risk Areas

SUMMARY Recently, the Public Company Accounting Oversight Board (PCAOB) released a concept release concerning possible revisions to PCAOB standards related to reports on audited financial statements and related amendments to PCAOB standards. The comment letter below, written by a subgroup of the PCAOB's Investor Advisory Group, was recently submitted to the PCAOB in response to the Board's concept release. The subgroup believes that the four most important changes to the audit report would require the auditor to: (1) discuss the auditor's assessment of the estimates and judgments made by management in preparing the financial statements and how the auditor arrived at that assessment, (2) disclose areas of high financial statement and audit risk and how the auditor addressed these risk areas, (3) discuss unusual transactions, restatements, and other significant changes in the financial statements (including the notes), and (4) discuss the quality, not just the acceptability, of the issuer's accounting practices and policies. They further assert that the disclosure of this information will improve investors' ability to make informed buy/sell decisions, which should result in higher returns to investors and improved capital allocation within society.

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