Doctoral Dissertations

Date of Award

5-1993

Degree Type

Dissertation

Degree Name

Doctor of Philosophy

Major

Business Administration

Major Professor

James H.Scheiner

Committee Members

Jack Kiger, Douglass Izard, Tom Ladd

Abstract

The purpose of this study was to investigate how auditors make audit planning decisions given the general guidance provided by auditing standards. First, the study investigated factors that impact auditors' inherent risk assessments for assertions for the revenue class of transactions. Attribution theory provided the theoretical basis for selecting three factors identified in SAS No. 53 that should impact auditors' inherent risk assessments for assertions at the class of transactions level. The three factors selected were (1) the existence of a material error or material irregularity in the class of transactions in the prior year's audit, (2) the turnover recency in the CFO's position, and (3) the auditor's perception of the ability of the current CFO based on the CFO's previous work experience. In addition to these three factors, the study also investigated the impact of years of auditing experience on auditors' inherent risk assessments. Second, the study examined the relationship between auditors' inherent risk assessments and subsequent audit planning decisions, particularly decisions relating to the extent of planned audit procedures and staff scheduling. The impact of years of auditing experience on the extent of planned audit procedures and staff scheduling was also investigated. Hypothetical client scenarios and questionnaires developed by the researcher were mailed to seventy-two auditors located in nine offices of a large public accounting firm. Fifty-seven (79%) auditors participated in the study by returning a completed questionnaire. Kendall's coefficient of concordance was used to identify the treatment groups that tended to contain predominantly high or low inherent risk assessments. The treatment groups identified by Kendall's coefficient of concordance were not consistent with the treatment groups hypothesized by attribution theory to contain predominantly high or low inherent risk assessments. A discussion of the reasons for this conflict is presented in the results section of the study. Multivariate analysis of variance (MANOVA) procedures found statistically significant (.0335) results for the interaction effect between the recency of turnover in the CFO's position and the type of misstatement that occurred in the prior year. MANOVA procedures were also used to examine the impact of auditors' inherent risk assessments on the extent of planned audit procedures and staff scheduling. Contrary to the guidance provided in auditing standards, the MANOVA procedures did not find a strong, positive relationship linking inherent risk assessments to the extent of planned audit procedures and staff scheduling. Pearson correlation coefficients were not significant for the relationship between auditors' years of auditing experience and their inherent risk assessments. Pearson correlation coefficients found moderate support for the significance between auditors' years of auditing experience and the extent of planned audit procedures and staff scheduling. The majority (79%) of the significant correlations were negative which indicates that as the auditors' years of auditing experience increased they tended to reduce the extent of planned audit procedures and decrease the experience level of the staff scheduled to perform the audit procedures.

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