Does Intent Modify Risk-Based Auditing?

40 Pages Posted: 29 Oct 2011 Last revised: 4 Dec 2013

Steven J. Kachelmeier

University of Texas at Austin - Department of Accounting

Tracie M. Majors

University of Southern California

Michael G. Williamson

University of Illinois at Urbana-Champaign - Department of Accountancy

Date Written: November 1, 2013

Abstract

Risk-based auditing implies that auditors invest more (fewer) resources as reporting risks increase (decrease). We find from an interactive experiment that participants in an audit-like role reflect this reasoning to a lesser extent when risks arise from the intentional actions of human reporters than when the same risks arise from an unintentional source. We interpret this pattern as reflecting an emotive “valuation by feeling” when risks arise from human intent, meaning that the presence of such risk is more influential than the magnitude of risk, whereas unintentional risks reflect a “valuation by calculation” that weighs audit resources against the magnitude of risks faced. Because we construct intentional and unintentional risks that have equivalent magnitudes, probabilities, and consequences, these results could seem irrational in a strict economic sense. Outside the laboratory, however, if human intent makes auditors less sensitive to risk magnitudes, this propensity could make auditors less vulnerable to changes in the magnitudes of intent-based risks that arise from client responses to observed auditor strategies.

Keywords: risk-based auditing, fraud, intent, risk, scale insensitivity, experimental economics

Suggested Citation

Kachelmeier, Steven J. and Majors, Tracie M. and Williamson, Michael G., Does Intent Modify Risk-Based Auditing? (November 1, 2013). McCombs Research Paper Series No. ACC-06-11. Available at SSRN: https://ssrn.com/abstract=1950791 or http://dx.doi.org/10.2139/ssrn.1950791

Steven J. Kachelmeier (Contact Author)

University of Texas at Austin - Department of Accounting ( email )

Austin, TX 78712
United States
512-471-3517 (Phone)
512-471-3904 (Fax)

Tracie McDonald Majors

University of Southern California ( email )

Los Angeles, CA 90089
United States

Michael G. Williamson

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

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