Managing Group Audit Risk in a Multicomponent Audit Setting

15 Pages Posted: 12 Feb 2018

See all articles by Lynford E. Graham

Lynford E. Graham

Bentley University

Jean C. Bedard

Bentley University - Department of Accountancy

Saurav K. Dutta

State University of New York (SUNY) at Albany

Date Written: March 2018

Abstract

This paper considers the challenges in planning the scope of auditing procedures in a group audit setting for an entity with geographically dispersed components which vary in risk characteristics. Auditing all the components for a complex group entity is often infeasible, hence the auditor faces risk from components not audited, as well as the normal sampling risk resulting from applying audit procedures to certain components. Auditing standards do not explain how to consider the risk factors and consider what portion of a multiple component entity should be selected for audit to be able to issue an unqualified audit opinion on the group. In this paper we describe a step‐by‐step method for determining a minimum number of component audits needed to support an aggregate low level of audit risk of material misstatement. The paper responds to calls from academics, practitioners, and standards‐setters for theoretically valid and practically feasible solutions to the group audit problem, using a method that combines professional judgment and experience with basic statistical principles in an ensemble approach.

Keywords: audit methodology, audit planning, sampling

Suggested Citation

Graham, Lynford E. and Bedard, Jean C. and Dutta, Saurav K., Managing Group Audit Risk in a Multicomponent Audit Setting (March 2018). International Journal of Auditing, Vol. 22, Issue 1, pp. 40-54, 2018. Available at SSRN: https://ssrn.com/abstract=3121457 or http://dx.doi.org/10.1111/ijau.12103

Lynford E. Graham (Contact Author)

Bentley University ( email )

175 Forest Street
Waltham, MA 02145
United States

Jean C. Bedard

Bentley University - Department of Accountancy ( email )

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

Saurav K. Dutta

State University of New York (SUNY) at Albany ( email )

135 Western Ave
Building, Room 109
Albany, NY 12222
United States

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