The Effects of Fraud and Going-Concern Risk on Auditors' Assessments of the Risk of Material Misstatement and Resulting Audit Procedures

29 Pages Posted: 30 Aug 2007

See all articles by Allen D. Blay

Allen D. Blay

Florida State University

Tim Kizirian

California State University, Chico - Department of Accounting and MIS

L. Dwight Sneathen

Georgia Southern University

Multiple version iconThere are 2 versions of this paper

Date Written: June 2007

Abstract

This study uses audit file data to analyze the association between the auditors' preliminary assessments of going-concern and fraud risk and the planning and performance of the financial statement audit. We analyze the association between the above risks and the auditor's assessment of the risk of material misstatement (RMM) within the revenue cycle, and examine whether going-concern and fraud risk assessments have an effect on the persuasiveness, timing and extent of audit evidence gathered. Our results indicate that both fraud risk and going-concern risk are significantly related to RMM. Our results also indicate that although the effect of fraud risk is fully mediated by the RMM, moderate going-concern risk remains significantly related to our proxies for the persuasiveness and timing of audit evidence, even after controlling for RMM.

Keywords: Audit risk, going-concern, fraud, audit evidence, International Accounting Standards, nature, timing, extent

JEL Classification: M4, M41, M43

Suggested Citation

Blay, Allen Dennis and Kizirian, Tim and Sneathen, L. Dwight, The Effects of Fraud and Going-Concern Risk on Auditors' Assessments of the Risk of Material Misstatement and Resulting Audit Procedures (June 2007). Available at SSRN: https://ssrn.com/abstract=1010676 or http://dx.doi.org/10.2139/ssrn.1010676

Allen Dennis Blay (Contact Author)

Florida State University ( email )

Rovetta Business Bldg. (RBA)
College of Business
Tallahassee, FL 32306-1110
United States
850-727-0953 (Phone)

Tim Kizirian

California State University, Chico - Department of Accounting and MIS ( email )

Chico, CA 95929
United States
530 898-6463 (Phone)

L. Dwight Sneathen

Georgia Southern University ( email )

P.O. Box 8151
Statesboro, GA 30460-8151
United States

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