Can restructuring the risk assessment process improve group auditors’ sensitivity to component-level qualitative risk?

45 Pages Posted: 20 Jun 2019 Last revised: 22 Dec 2022

See all articles by Ann G. Backof

Ann G. Backof

University of Virginia - McIntire School of Commerce

Brant E. Christensen

Brigham Young University

Steven M. Glover

Brigham Young University

Jaime J. Schmidt

University of Texas at Austin

Date Written: December 21, 2022

Abstract

Audits of reporting groups are increasingly common, yet regulators find that auditors insufficiently respond to the risks of material misstatement on these engagements. In this study, we leverage judgment decomposition and information acquisition theories to develop and test an intervention aimed to improve auditors’ identification of and response to component-level risk. In an experiment with 88 audit partners and managers, we find that our restructured risk assessment approach helps experienced auditors make more effective but equally efficient group audit planning decisions. Specifically, auditors are better able to identify component-level qualitative risks and plan procedures to address such risks without compromising their consideration of component-level quantitative risks. Our intervention has the potential to improve audit quality on the types of audit engagements that are most essential to our global capital market.

Keywords: Group audit planning decisions; decomposition theory; information acquisition theory; note-taking; audit risk assessment

JEL Classification: M40, M41, M42

Suggested Citation

Backof, Ann G. and Christensen, Brant E. and Glover, Steven M. and Schmidt, Jaime J., Can restructuring the risk assessment process improve group auditors’ sensitivity to component-level qualitative risk? (December 21, 2022). 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

Brigham Young University ( email )

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

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