The Effects of Risk Decision Aid Orientation, Client Risk, and Repeat Client Experience on Risk Factor Identification and Audit Test Planning

Posted: 9 Apr 2002

See all articles by Jean C. Bedard

Jean C. Bedard

Bentley University - Department of Accountancy

Lynford E. Graham

Bentley University

Abstract

In auditing, risk management involves identifying client facts or issues that may affect engagement risk and planning evidence-gathering strategies accordingly. The purpose of this paper is to examine whether auditors' identification of risk factors and planning of audit tests is affected by decision aid design. Specifically, we expect that auditors will identify more risk factors using a negatively oriented decision aid, but only when engagement risk is relatively high. We address this issue in the context of auditors' knowledge of actual clients, manipulating decision aid orientation as negative or positive (i.e., relatively high or low emphasis on client risk and its consequences) in a matched-pair design. Results show that auditors using the negative decision aid orientation identify more risk factors than those using a positive orientation, for their higher-risk clients. We also find that decisions to apply substantive tests are more directly linked to specific risk factors identified than to the level of risk assessed. Further, our results show that auditors with repeat engagement experience with the client identify more risk factors. The findings of this study imply that audit firms may improve their risk management strategies through simple changes in the design of decision aids used to support audit planning.

Keywords: Risk identification, Audit risk, Decision aid design, Client business risk, Audit planning

JEL Classification: M49

Suggested Citation

Bedard, Jean C. and Graham, Lynford E., The Effects of Risk Decision Aid Orientation, Client Risk, and Repeat Client Experience on Risk Factor Identification and Audit Test Planning. Auditing: A Journal of Practice & Theory, September 2002. Available at SSRN: https://ssrn.com/abstract=299331

Jean C. Bedard (Contact Author)

Bentley University - Department of Accountancy ( email )

175 Forest Street
Waltham, MA 02452
United States
781-891-2410 (Phone)
781-891-2896 (Fax)

Lynford E. Graham

Bentley University ( email )

175 Forest Street
Waltham, MA 02145
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
1,364
PlumX Metrics