Auditor Business Process Analysis and Linkages Among Auditor Risk Judgements

Abstract

This research note examines whether auditors “link” their entity-level risk assessments to their core business process risk assessments. For auditors who performed a business process analysis of the core business process, there is a positive association between the identification of significant process-level business risks and the identification of significant business risks at the entity level. We also find that performing a business process analysis leads to higher assessments of the risk of material misstatement at the process level. With respect to the linkages between risk-related judgments, we find that auditors link their assessments of misstatement risk at the process level to similar assessments at the entity level, while taking into account significant process-level risks.

Keywords: Business Process Analysis, Risk Assessment, Risk of Material Misstatement, Business Risk Identification, Risk-based Audits

JEL Classification: M40, M41, M49