Auditors' Consideration of Corporate Governance and Management Control Philosophy in Preplanning and Planning Judgments
- 1 September 2000
- journal article
- Published by American Accounting Association in AUDITING: A Journal of Practice & Theory
- Vol. 19 (2), 133-146
- https://doi.org/10.2308/aud.2000.19.2.133
Abstract
The professional literature (e.g., COSO 1992, POB 1993), recent auditing standards (e.g., SAS Nos. 78 and 82), and prior research (e.g., Beasley 1996; Beasley et al. 1999; Dechow et al. 1996) highlight the importance of corporate governance and management control philosophy in ensuring the integrity of the financial-reporting process. We examine the link between these two macro-level factors and both preplanning (e.g., client acceptance, business risk judgments) and planning judgments (e.g., extent and timing of testing). Ninety-six auditors evaluated a hypothetical client with corporate governance and management control philosophy characteristics that were either strong or weak. More experienced auditors performed preplanning (client acceptance) judgments, while the remaining auditors performed planning judgments related to the extent and timing of substantive testing. As predicted, management control philosophy and the governance structure did affect the preplanning and planning judgments, with a stronger effect observed for management control philosophy. While the results for judgments related to the extent of testing were consistent with professional guidance, auditors lacked consensus in judging the effect on the timing of tests. The results provide insight into the effect of two important elements of the control environment on preplanning and planning judgments and could prove useful in the development of work papers and risk assessment models.Keywords
This publication has 9 references indexed in Scilit:
- Client-Acceptance Decisions: Simultaneous Effects of Client Business Risk, Audit Risk, Auditor Business Risk, and Risk AdaptationAUDITING: A Journal of Practice & Theory, 2000
- Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC*Contemporary Accounting Research, 1996
- Evidence on the Relation Between Corporate Governance Characteristics and the Quality of Financial ReportingSSRN Electronic Journal, 1996
- Termination of information evaluation in auditingJournal of Behavioral Decision Making, 1995
- Proper compromises: The management control dilemma in public accounting and its impact on auditor behaviorAccounting, Organizations and Society, 1991
- An examination of information search during initial audit planningAccounting, Organizations and Society, 1989
- Assessing inherent risk during audit planning: The development of a knowledge based modelAccounting, Organizations and Society, 1989
- The Impact of Analytical Review Results, Internal Control Reliability, and Experience on Auditors' Use of Analytical ReviewJournal of Accounting Research, 1989
- Expert Judgment in the Audit Team: A Source Reliability ApproachJournal of Accounting Research, 1983