The Effects of Sas No. 82 on Auditors' Attention to Fraud Risk Factors and Audit Planning Decisions

Abstract

A computerized test instrument was used to investigate the effects of requiring experienced auditors to separately assess fraud risk on their attention to fraud risk factors and audit planning decisions. Computer software randomly manipulated, between subjects, the type of risk assessment required and indicators of fraud risk in an audit case. A model is developed linking risk assessment policy to knowledge use, attention to risk factors, risk assessments, and audit planning decisions. 108 auditors were monitored by the software as they read about a hypothetical audit client and provided risk assessments, budgeted hours, and audit procedure selections. Results indicate that auditors who separately assessed fraud risk, as required by SAS No. 82, spent more time attending to red-flag cues and significantly increased their budgeted hours at both risk levels. Mixed results are reported for the prediction that auditors' budgeted hours exhibit increased sensitivity to fraud risk when they separately assess fraud risk. Finally, variability in planned audit tests was not systematically related to fraud risk for either group of auditors. In sum, these results suggest that SAS No. 82 can be expected to direct auditors' attention to fraud cues and lead to changes in budgeted hours but the nature of audit plans will not likely be affected.

JEL Classification: M49