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.

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

2000 ◽  
Vol 19 (2) ◽  
pp. 119-131 ◽  
Author(s):  
William F. Messier ◽  
Lizabeth A. Austen
Keyword(s):  
Risk Factors ◽  
Risk Model ◽  
Positive Association ◽  
Risk Assessments ◽  
Significant Positive Association ◽  
Audit Risk ◽  
Inherent Risk ◽  
Specific Risk ◽  
And Control ◽  
Control Risk

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.

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.

scholarly journals Evidential Effort And Risk Assessment In Auditing

2011 ◽  
Vol 6 (9) ◽  
Author(s):  
Allen Blay ◽  
Tim Kizirian ◽  
L. Dwight Sneathen, Jr,
Keyword(s):  
Risk Model ◽  
Academic Research ◽  
Risk Assessments ◽  
Audit Risk ◽  
Significant Relationships ◽  
Big 4 ◽  
Risk Aggregation ◽  
Audit Risk Model ◽  
Prior Literature ◽  
The Relationship

This study responds to prior literature highlighting the need for academic research to study the linkage of risks to audit procedures purported in the Audit Risk Model.  We use audit workpaper data from a Big 4 firm to examine two significant relationships implicit in authoritative audit guidance: (1) the application of the audit risk model in practice, and the relationship between preliminary risk assessments and audit procedures, and (2) the potential loss of risk information upon risk aggregation suggested in the Audit Risk Model.  Our findings indicate that preliminary risk assessments significantly affect planned audit procedures, and the potential for loss of information upon risk aggregation is not to be ignored.  These results provide important evidence useful in developing audit policy for linking risk assessments and audit procedures.

Dysfunctional Behavior in Organizations: Insights from the Management Control Literature

2017 ◽  
Vol 37 (4) ◽  
pp. 117-141 ◽  
Author(s):  
Krista Fiolleau ◽  
Theresa Libby ◽  
Linda Thorne
Keyword(s):  
Risk Factors ◽  
Internal Control ◽  
Management Control ◽  
Future Research ◽  
Fraud Triangle ◽  
Audit Risk ◽  
Research Opportunities ◽  
Dysfunctional Behavior ◽  
Research Questions ◽  
Published Research

SUMMARY As the scope of the audit continues to broaden (Cohen, Krishnamoorthy, and Wright 2017), research questions in management control and internal control are beginning to overlap. Even so, there is little overlap between these fields in terms of published research to date. The purpose of this paper is to take a step in bridging the gap between the management control and the internal control literatures. We survey relevant findings from the extant management control literature published between 2003 and 2016 on dysfunctional behavior and the ways in which it might be mitigated. We then use the fraud triangle as an organizing framework to consider how the management control literature might help to address audit risk factors identified in SAS 99/AU SEC 316 (AICPA 2002). The outcome of our analysis is meant to identify and classify the extant management control literature of relevance to research on internal control in a manner that researchers new to the management control literature will find accessible. We conclude with a set of future research opportunities that can help to broaden the scope of current research in internal control.

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.

scholarly journals Risicoanalyse in auditing

2004 ◽  
Vol 78 (9) ◽  
pp. 403-411
Author(s):  
H. H. W. Kloosterman
Keyword(s):  
Risk Model ◽  
Audit Risk ◽  
Audit Risk Model

Prof. Dr. K.Y. Mollema heeft mij in het MAB van december 2003 en januari/februari van 2004 aangenaam verrast (Mollema, 2003, 2004). Het is goed dat hij de discussie over risicoanalyse in de accountantscontrole weer heeft opgepakt. Hij biedt in deel twee van het artikel een stappenplan aan om aan de hand van scorecards de risicoanalyse uit te voeren. Na lezing had ik een dubbel gevoel. Enerzijds vind ik de analyse die Mollema wil laten maken om de onderneming in kaart te brengen heel waardevol. Anderzijds vind ik dat die analyse niet leidt tot risicoanalyse in de accountantscontrole. Als ik dat vind, moet ik dat wel toelichten. Ik geef daarom eerst een analyse van de artikelen van Mollema op basis van zijn hoofdlijnen van kritiek op het Audit Risk Model (ARM). Tijdens de behandeling van de opmerkingen en stellingen van Mollema breek ik een lans voor een Bayesiaans model voor de risicoanalyse in auditing. Bij mijn behandeling van het laatste kritiekpunt van Mollema ga ik proberen het verschil tussen ‘Insurance’ en ‘Assurance’ weer te geven. Ik sluit het artikel af met een belofte en een samenvatting.

scholarly journals Determinants of audit risk assessment for governmental audits in Indonesia: a study of the national audit board of the republic of Indonesia

2015 ◽  
Vol 13 (1) ◽  
pp. 379-388
Author(s):  
Agung Nur Probohudono ◽  
Payamta ◽  
Sri Hantoro
Keyword(s):  
Risk Assessment ◽  
Risk Model ◽  
National Audit ◽  
Audit Risk ◽  
Factors Affecting ◽  
And Topology ◽  
Audit Risk Model ◽  
The Republic ◽  
Expertise Level

This study aimed to determine the influence of: geography, demography and topology; culture; maturity of organization (age of government); maturity of people; auditor’s capability in the assigned region; expertise / education level; and experience of auditing team in risk assessment; on the examination of audit risk by The National Audit Board of The Republic of Indonesia (Badan Pemeriksa Keuangan (BPK) in Indonesia. This study found the factors affecting the audit risk model in general. This study identified several factors that influence the determination of audit risk assessment which occur when conducting local governmental audits in Indonesia. This study was conducted by identifying the factors that might influence the risk of audit used by The National Audit Board. The results of the identification are elaborated in some of the items included in the questionnaire. The number of respondents in this study was 143 respondents as Auditors of The National Audit Board in Indonesia. This study conducted multiple regression analysis. Maturity of people, auditor’s capability, and expertise level have a significant influence on the risk assessment. These factors are derived from an auditor’s judgment when they perform the examination seen from the condition of local government in Indonesia

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