Can restructuring the risk assessment process during the planning phase of a group audit improve auditor performance?

48 Pages Posted: 20 Jun 2019 Last revised: 16 Jun 2020

See all articles by Ann G. Backof

Ann G. Backof

University of Virginia - McIntire School of Commerce

Brant E. Christensen

University of Oklahoma

Steven M. Glover

Brigham Young University

Jaime J. Schmidt

University of Texas at Austin

Date Written: June 8, 2020

Abstract

Audits of reporting groups are increasingly common, yet inspection findings suggest that auditors do not always sufficiently respond to the risks of material misstatement on these engagements. In this study, we investigate whether a restructured risk assessment approach increases auditors’ sensitivity to group audit risk factors. We find that auditors following a restructured approach in which each component’s quantitative and qualitative risk factors are separately considered make more effective group audit planning decisions compared to auditors following a holistic approach in which quantitative and qualitative risks are jointly considered. In particular, auditors following the restructured approach are more likely to categorize qualitatively risky components as individually significant, plan to perform more substantive tests on these risky components (but a similar amount of total work for the group as a whole), and set lower materiality thresholds. Our findings should inform standard setters with their current revisions of group audit standards.

Keywords: Group Audit, Significant Component, Component Materiality, Holistic

Suggested Citation

Backof, Ann G. and Christensen, Brant E. and Glover, Steven M. and Schmidt, Jaime J., Can restructuring the risk assessment process during the planning phase of a group audit improve auditor performance? (June 8, 2020). Available at SSRN: https://ssrn.com/abstract=3404320 or http://dx.doi.org/10.2139/ssrn.3404320

Ann G. Backof

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

Brant E. Christensen

University of Oklahoma ( email )

Norman, OK 73019-4004
United States

Steven M. Glover

Brigham Young University ( email )

Provo, UT 84602
United States
801-422-6080 (Phone)
801-422-0621 (Fax)

Jaime J. Schmidt (Contact Author)

University of Texas at Austin ( email )

Austin, TX 78712
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
61
Abstract Views
583
rank
396,477
PlumX Metrics