Inherent risk and control risk assessments.Pervasive and specific risk factors share the floor. The AICPA's audit risk model serves as the major framework for conducting audits of financial statements. Researchers and practitioners are critical of the model because its multiplicative mul·ti·pli·ca·tive adj. 1. Tending to multiply or capable of multiplying or increasing. 2. Having to do with multiplication. mul form suggests the components of inherent risk, control risk, and detection risk are independent. Many argue the components are, in reality, dependent, which if ignored can result in a biased estimate of audit risk. Specifically, the model does not take into account the preventative aspect of control risk and, as a result, does not formally capture this dependence between inherent risk and control risk. We argue that auditors recognize this dependency and make judgments accordingly. To examine this issue, 124 senior auditors and managers were asked to make inherent risk and control risk assessments on eight cases which varied four inherent risk factors and the results of control testing. The findings showed that pervasive and specific inherent and control risk factors significantly affected both auditors' inherent risk and control risk assessments. We also found a significant positive correlation Noun 1. positive correlation - a correlation in which large values of one variable are associated with large values of the other and small with small; the correlation coefficient is between 0 and +1 direct correlation between auditors' inherent risk and control risk assessments, indicating that the two judgments were dependent. The first result shows that the factors affected the auditors' judgments. The second result shows that the auditors' judgments were correlated--dependent. These results were consistent with our expectations that auditors are aware of this dependency and reflect it in their inherent risk and control risk assessments. For the full text of the published work, see Auditing: A Journal of Practice & Theory, Fall 2000, vol. 19, no. 2, "The Audit Risk Model: An Empirical Test for Conditional Dependencies Among Assessed Component Risks." WILLIAM F. MESSIER Messier is the name of :
Georgia State University was founded in 1913 as the Georgia School of Technology's "School of Commerce." The school focused on what was called "the new science of business. . His e-mail address See Internet address. e-mail address - electronic mail address is bmessier@gsu.edu. LIZABETH A. AUSTEN is an assistant professor at the University of Arkansas The University of Arkansas strives to be known as a "nationally competitive, student-centered research university serving Arkansas and the world." The school recently completed its "Campaign for the 21st Century," in which the university raised more than $1 billion for the school, used . Her e-mail address is austen@walton.uark.edu. |
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