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Integrating business risk into auditor judgment about the risk of material misstatement: The influence of a strategic-systems-audit approach

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  • Schultz Jr., Joseph J.
  • Bierstaker, James Lloyd
  • O'Donnell, Ed

Abstract

Auditing standards direct auditors to consider business risk and other risk factors when they evaluate the overall risk of material misstatement during the planning phase of an audit. Large audit firms generally use either a strategic-systems approach (SSA) or a transaction-focused approach (TFA) to evaluate misstatement risk. This study used data from a laboratory experiment to examine whether (1) being trained to use either SSA or TFA and (2) analyzing information organized in an SSA or TFA format influence the extent to which auditors integrate knowledge of business risk into their judgment about the likelihood of financial misstatement. Only auditors trained to use SSA who analyzed information provided in an SSA format effectively integrated business risk assessments with their assessment of the risk of material misstatement.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:aosoci:v:35:y:2010:i:2:p:238-251
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    References listed on IDEAS

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    1. Knechel, W. Robert, 2007. "The business risk audit: Origins, obstacles and opportunities," Accounting, Organizations and Society, Elsevier, vol. 32(4-5), pages 383-408.
    2. Robson, Keith & Humphrey, Christopher & Khalifa, Rihab & Jones, Julian, 2007. "Transforming audit technologies: Business risk audit methodologies and the audit field," Accounting, Organizations and Society, Elsevier, vol. 32(4-5), pages 409-438.
    3. repec:bla:joares:v:38:y:2000:i:1:p:165-194 is not listed on IDEAS
    4. Libby, Robert & Luft, Joan, 1993. "Determinants of judgment performance in accounting settings: Ability, knowledge, motivation, and environment," Accounting, Organizations and Society, Elsevier, vol. 18(5), pages 425-450, July.
    5. repec:bla:joares:v:35:y:1997:i::p:75-97 is not listed on IDEAS
    6. Solomon, Ira & Trotman, Ken T., 2003. "Experimental judgment and decision research in auditing: the first 25 years of AOS," Accounting, Organizations and Society, Elsevier, vol. 28(4), pages 395-412, May.
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    Cited by:

    1. 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.
    2. repec:eee:crpeac:v:28:y:2015:i:c:p:49-61 is not listed on IDEAS
    3. repec:eee:ijoais:v:20:y:2016:i:c:p:38-64 is not listed on IDEAS

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