UK Auditors' Perceptions of Inherent Risk

BRITISH ACCOUNTING REVIEW, Vol 28, No 1, March 1996

Posted: 13 Nov 1996

See all articles by Christine Helliar

Christine Helliar

University of Dundee

Bob Lyon

University of Dundee

Gary S. Monroe

University of New South Wales (UNSW) - Australian School of Business

Juliana Ng

Australian National University - School of Accounting & Business Information Systems

David R. Woodliff

University of Western Australia

Abstract

In March 1995, the APB in the UK issued its Statements of Auditing Standards 300 (SAS 300): 'Accounting and Internal Control Systems and Audit Risk Assessment'. The standard identifies inherent risk as one of the three components of audit risk; inherent risk being defined as 'the susceptibility of an account balance or class of transactions to material mis-statement'. If the inherent risk is low, less substantive testing is required, with possible resultant savings in staff time and audit costs. It is thus beneficial for audit firms (and clients) to assess adequately the inherent risk element of an audit assignment to ensure that audits are carried out as efficiently and effectively as possible. This research project focuses on inherent risk and using a questionnaire survey investigates 100 auditors' perceptions of the importance of certain factors which may determine inherent risk. The findings of the study suggest that the variables identified in the literature as being closely associated with inherent risk factors are regarded in a similar fashion by auditors; variables such as bonus schemes tied to management earnings, a high turnover rate in top management personnel, a company reputation for taking unusual business risks and a history of material errors are believed to be the major determinants of inherent risk. Perhaps unsurprisingly, the findings of this study suggest that auditors attach greater importance to high risk variables than to low risk variables in their evaluation of inherent risk. Finally, the evidence revealed that auditors had difficulty in distinguishing between inherent risk and control risk factors.

JEL Classification: M40, M49, D81

Suggested Citation

Helliar, Christine and Lyon, Bob and Monroe, Gary S. and Ng, Juliana and Woodliff, David R., UK Auditors' Perceptions of Inherent Risk. BRITISH ACCOUNTING REVIEW, Vol 28, No 1, March 1996, Available at SSRN: https://ssrn.com/abstract=2803

Christine Helliar (Contact Author)

University of Dundee ( email )

Dundee, Scotland DD1 4HN
United Kingdom
44 1382 344198 (Phone)
44 1382 224419 (Fax)

Bob Lyon

University of Dundee

Dundee, Scotland DD1 4HN
United Kingdom

Gary S. Monroe

University of New South Wales (UNSW) - Australian School of Business ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia
+61293856443 (Phone)

Juliana Ng

Australian National University - School of Accounting & Business Information Systems ( email )

Canberra, 2600
Australia
+61 2 6125 7331 (Phone)

David R. Woodliff

University of Western Australia ( email )

Department of Accounting & Finance
Nedlands WA 6907
AUSTRALIA

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
3,129
PlumX Metrics