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An Exploratory Study of Control Environment Risk Factors: Client Contingency Considerations and Audit Testing Strategy
Author(s) -
Basu Progyan,
Wright Arnold
Publication year - 1997
Publication title -
international journal of auditing
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.583
H-Index - 21
eISSN - 1099-1123
pISSN - 1090-6738
DOI - 10.1111/1099-1123.00015
Subject(s) - audit , audit risk , control (management) , control environment , accounting , contingency , business , contingency theory , risk assessment , exploratory research , internal audit , joint audit , knowledge management , computer science , computer security , linguistics , sociology , anthropology , philosophy , artificial intelligence
Despite its importance, we have little knowledge of how auditors consider individual risk factors, or attributes, in evaluating the control environment of a client (SAS 55). This exploratory study examines auditor weighting of control environment factors under varying client conditions. Further, there has been no research to date on the impact of control environment risk assessments on subsequent audit actions, such as testing strategy (e.g. substantive versus control testing). This study investigates the effect of control environment factors on auditors' assessment of control risk. In an experimental study, the eight control environment factors contained in US professional auditing standards were manipulated as either positive or negative for three different client sizes. The study also extends auditors' control risk assessment to the formulation of a preliminary audit strategy. Forty‐three auditors participated in the project. The results show that auditors do not place equal emphasis on the eight factors. However, the reliance placed on these factors is not significantly different across different sized clients. Finally, the findings indicate a significant impact of control risk assessment on the planned audit strategy.