Date of Graduation
8-2014
Document Type
Dissertation
Degree Name
Doctor of Philosophy in Business Administration (PhD)
Degree Level
Graduate
Department
Accounting
Advisor/Mentor
Linda Myers
Committee Member
Gary Peters
Second Committee Member
Cory Cassell
Third Committee Member
Junhee Han
Keywords
Account Level, Audit Risk, Control Risk, Internal Control, Restatements
Abstract
I examine whether auditors effectively respond to an assessment of high control risk at the account level. The audit risk model assumes that auditors alter their audit procedures to compensate for a greater risk of material misstatement to maintain a low risk of audit failure (i.e., low audit risk). I use internal control weakness disclosures in interim and annual filings to identify assessments of high control risk within specific accounts, and restatements of these specific accounts to identify account–level audit failures. I find an increased incidence of account–level misstatements when control risk within that particular account is high, suggesting that, on average, auditors do not maintain a consistent level of audit risk at the account level in the presence of high control risk. In further analyses, I examine whether the effectiveness of the auditor’s response varies as auditor effort (measured using excess audit fees) increases. For certain accounts, I find that additional auditor effort mitigates the likelihood of an ineffective response to high control risk, but that this mitigating effect occurs only at high levels of auditor effort. The results of this study provide insight into the effectiveness of auditors’ use of the audit risk model at the account level and suggest areas of the audit where auditors can improve the link between account–level risk assessments and the design, performance, and evaluation of substantive audit tests.
Citation
Seidel, T. A. (2014). The Effective Use of the Audit Risk Model at the Account Level. Graduate Theses and Dissertations Retrieved from https://scholarworks.uark.edu/etd/2261