IDEAS home Printed from https://ideas.repec.org/a/wly/accper/v6y2007i4p343-367.html
   My bibliography  Save this article

What's Wrong with the Current Audit Risk Model?/QU'EST‐CE QUI NE VA PAS DANS LE MODÈLE ACTUEL DE RISQUE DE VÉRIFICATION?

Author

Listed:
  • Wally Smieliauskas

Abstract

ABSTRACT This paper identifies a serious risk anomaly between the accounting and auditing literatures. This anomaly has important consequences for the validity of auditor professional judgement in today's rapidly evolving financial reporting environment. These risk consequences were comprehensively surveyed in a recent forum in this journal (2005, vol. 4, no. 2). I refer to these risk consequences as accounting risks. Accounting risks require an expanded concept of misstatements that incorporates forecast errors. The problem with the current audit risk concept is that it does not incorporate accounting risks. This is shown by reference to accounting and auditing standards and other authoritative literature, including empirical research. To remedy this limitation I propose a new risk model that helps integrate the accounting and auditing perspectives on financial reporting into one combined conceptual framework. Such an approach also addresses the problems of integrating into a conceptual framework the new business risk approaches to auditing. RÉSUMÉ L'auteur relève une sérieuse anomalie relative au risque selon qu'il est abordé à travers le prisme de la comptabilité ou celui de la vérification. Cette anomalie a d'importantes répercussions sur la validité du jugement professionnel du vérificateur dans le contexte actuel de l'information financière qui évolue rapidement. Ces répercussions ont fait l'objet d'une étude approfondie dans un récent forum paru dans la présente publication (vol. 4, n0 2). L'auteur assimile ces répercussions au risque comptable, qui fait appel à une extension de la notion d'inexactitude incorporant les erreurs prévisionnelles. La notion actuelle de risque de vérification pose problème, car elle n'englobe pas le risque comptable. C'est ce que révèle la consultation des normes de comptabilité et de vérification, ainsi que d'autres textes faisant autorité, notamment ceux qui sont issus de la recherche empirique. Pour résoudre ce problème, l'auteur propose un nouveau modèle de risque qui facilite la conjugaison des points de vue de la comptabilité et de la vérification sur l'information financière dans un cadre conceptuel mixte. Ce modèle s'attaque également à un autre problème: celui d'insérer dans un cadre conceptuel les nouvelles approches de la vérification tenant compte du risque d'entreprise.

Suggested Citation

  • Wally Smieliauskas, 2007. "What's Wrong with the Current Audit Risk Model?/QU'EST‐CE QUI NE VA PAS DANS LE MODÈLE ACTUEL DE RISQUE DE VÉRIFICATION?," Accounting Perspectives, John Wiley & Sons, vol. 6(4), pages 343-367, November.
    • Handle: RePEc:wly:accper:v:6:y:2007:i:4:p:343-367
    DOI: 10.1506/ap.6.4.1
    as

    Download full text from publisher

    File URL: https://doi.org/10.1506/ap.6.4.1
    Download Restriction: no
    File URL: https://libkey.io/10.1506/ap.6.4.1?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Ioannis Karatzas & Jaksa Cvitanic, 1999. "On dynamic measures of risk," Finance and Stochastics, Springer, vol. 3(4), pages 451-482.
    2. Mary Barth, 2006. "Including estimates of the future in today's financial statements," BIS Working Papers 208, Bank for International Settlements.
    3. Knechel, W. Robert, 2007. "The business risk audit: Origins, obstacles and opportunities," Accounting, Organizations and Society, Elsevier, vol. 32(4-5), pages 383-408.
    4. Peecher, Mark E. & Schwartz, Rachel & Solomon, Ira, 2007. "It's all about audit quality: Perspectives on strategic-systems auditing," Accounting, Organizations and Society, Elsevier, vol. 32(4-5), pages 463-485.
    5. Petroni, K & Beasley, M, 1996. "Errors in accounting estimates and their relation to audit firm type," Journal of Accounting Research, Wiley Blackwell, vol. 34(1), pages 151-171.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wally Smieliauskas, 2008. "A Framework for Identifying (and Avoiding) Fraudulent Financial Reporting," Accounting Perspectives, John Wiley & Sons, vol. 7(3), pages 189-226, August.
    2. Wally Smieliauskas, 2012. "Principles‐Based Reasoning about Accounting Estimates," Accounting Perspectives, John Wiley & Sons, vol. 11(4), pages 259-296, December.
    3. Holm, Claus & Zaman, Mahbub, 2012. "Regulating audit quality: Restoring trust and legitimacy," Accounting forum, Elsevier, vol. 36(1), pages 51-61.
    4. Wright, William F., 2016. "Client business models, process business risks and the risk of material misstatement of revenue," Accounting, Organizations and Society, Elsevier, vol. 48(C), pages 43-55.
    5. Schultz Jr., Joseph J. & Bierstaker, James Lloyd & O'Donnell, Ed, 2010. "Integrating business risk into auditor judgment about the risk of material misstatement: The influence of a strategic-systems-audit approach," Accounting, Organizations and Society, Elsevier, vol. 35(2), pages 238-251, February.
    6. Philip Beaulieu & Louise Hayes & Lev M. Timoshenko, 2023. "Changes in accounting estimates: An update of priors or an earnings management strategy of “last resort”?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 50(3-4), pages 622-659, March.
    7. Knechel, W. Robert & Salterio, Steven E. & Kochetova-Kozloski, Natalia, 2010. "The effect of benchmarked performance measures and strategic analysis on auditors' risk assessments and mental models," Accounting, Organizations and Society, Elsevier, vol. 35(3), pages 316-333, April.
    8. Bruynseels, Liesbeth & Willekens, Marleen, 2012. "The effect of strategic and operating turnaround initiatives on audit reporting for distressed companies," Accounting, Organizations and Society, Elsevier, vol. 37(4), pages 223-241.
    9. Guénin-Paracini, Henri & Malsch, Bertrand & Paillé, Anne Marché, 2014. "Fear and risk in the audit process," Accounting, Organizations and Society, Elsevier, vol. 39(4), pages 264-288.
    10. Du Jianguo & Rauf Ibrahim & Peter Lartey Yao & Rupa Jaladi Santosh & Amponsah Clinton Kwabena, 2019. "The Effectiveness of Internal Controls in Rural Community Banks: Evidence from Ghana," Business Management and Strategy, Macrothink Institute, vol. 10(1), pages 202-218, December.
    11. Peter Lindberg, 2012. "Optimal partial hedging of an American option: shifting the focus to the expiration date," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 75(3), pages 221-243, June.
    12. Luippold, Benjamin L. & Kida, Thomas & Piercey, M. David & Smith, James F., 2015. "Managing audits to manage earnings: The impact of diversions on an auditor’s detection of earnings management," Accounting, Organizations and Society, Elsevier, vol. 41(C), pages 39-54.
    13. Zhang, Eagle & Andrew, Jane, 2016. "Rethinking China: Discourse, convergence and fair value accounting," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 36(C), pages 1-21.
    14. Leitner Johannes, 2005. "Optimal portfolios with expected loss constraints and shortfall risk optimal martingale measures," Statistics & Risk Modeling, De Gruyter, vol. 23(1/2005), pages 49-66, January.
    15. Martin F. Grace & J. Tyler Leverty, 2010. "Political Cost Incentives for Managing the Property‐Liability Insurer Loss Reserve," Journal of Accounting Research, Wiley Blackwell, vol. 48(1), pages 21-49, March.
    16. Jannis Bischof & Ulf Brüggemann & Holger Daske, 2012. "Fair Value Reclassifications of Financial Assets during the Financial Crisis," SFB 649 Discussion Papers SFB649DP2012-010, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    17. Riedel, Frank, 2004. "Dynamic coherent risk measures," Stochastic Processes and their Applications, Elsevier, vol. 112(2), pages 185-200, August.
    18. Hayoun, Shaul, 2019. "How fair value is both market-based and entity-specific: The irreducibility of value constellations to market prices," Accounting, Organizations and Society, Elsevier, vol. 73(C), pages 68-82.
    19. Hung Chan, K. & Mo, Phyllis L. L., 1998. "Ownership effects on audit-detected error characteristics: An empirical study in an emerging economy," The International Journal of Accounting, Elsevier, vol. 33(2), pages 235-261.
    20. Lasse Niemi, 2004. "Auditor size and audit pricing: evidence from small audit firms," European Accounting Review, Taylor & Francis Journals, vol. 13(3), pages 541-560.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:accper:v:6:y:2007:i:4:p:343-367. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1111/(ISSN)1911-3838 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.