The Association between Information Technology Investments and Audit Risk

24 Pages Posted: 29 Mar 2018

See all articles by Shipeng Han

Shipeng Han

University of Massachusetts Dartmouth

Zabihollah Rezaee

University of Memphis - School of Accountancy

Ling Xue

Georgia State University

Joseph H. Zhang

University of Memphis

Date Written: 2016

Abstract

Advances in information technology (IT) have changed the way that companies conduct business, prepare their financial statements, and have their financial statements audited. On one hand, IT decreases audit risk by improving operation and internal control effectiveness, which may decrease inherent and internal control risk. On the other hand, the complexity of IT introduces unconventional risks for companies and their auditors, especially by creating challenges for auditors when auditing the effectiveness of internal controls and detecting accounting irregularities. Thus, the relationship between clients’ IT investments and audit risk deserves research attention. Using IT data of U.S. firms from 2000 to 2009, we find that IT investments are positively related to audit fees (and abnormal audit fees), the probability of auditors’ issuance of a going-concern opinion, and the likelihood of auditors’ Type II errors. Furthermore, we find that auditor tenure moderates the relationship between IT investments and audit fees due to the learning effect.

Keywords: information technology investments, audit risk, audit fees, auditor tenure

Suggested Citation

Han, Shipeng and Rezaee, Zabihollah and Xue, Ling and Zhang, Joseph H., The Association between Information Technology Investments and Audit Risk (2016). Journal of Information Systems, Vol. 30, No. 1, Spring 2016. Available at SSRN: https://ssrn.com/abstract=3148690

Shipeng Han

University of Massachusetts Dartmouth

285 Old Westport Road
N Dartmouth, MA 02747
United States

Zabihollah Rezaee (Contact Author)

University of Memphis - School of Accountancy ( email )

Fogelman College of Business and Economics
Memphis, TN 38152-6460
United States
901-678-4652 (Phone)

Ling Xue

Georgia State University ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

Joseph H. Zhang

University of Memphis

Memphis, TN 38152-3370
United States

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