Evidence on the Audit Risk Model: Do Auditors Increase Audit Fees in the Presence of Internal Control Deficiencies? *

Evidence on the Audit Risk Model: Do Auditors Increase Audit Fees in the Presence of Internal... Contemporary Accounting Research Vol. 25 No. 1 (Spring 2008) pp. 219–42 © CAAA doi:10.1506/car.25.1.9 Contemporary Accounting Research Prior studies examining the relationship between risk factors and auditor effort find mixed evidence on whether auditors’ behavior is actually consistent with the audit risk model. Studies such as Mock and Wright 1993, Mock and Wright 1999, and Bedard 1989 use data from the working papers of actual audit engagements and examine the association between client risks and variations in audit plans. The overall conclusion of this research is that audit plans in practice are not strongly risk-adjusted; however, many of these studies are limited to small sample sizes and evidence from one audit firm. Studies examining the sensitivity of audit hours or audit fees to various risk factors do find evidence of a relationship between audit effort and inherent risk, but no evidence that audit effort is sensitive to reliance on internal controls (Felix, Gramling, and Maletta 2001; Hackenbrack and Knechel 1997; O’Keefe, Simunic, and Stein 1994). It is worth noting that these studies all use data from time periods prior to the most recent round of high-profile accounting scandals, and prior to the Sarbanes-Oxley Act of 2002. It is http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Contemporary Accounting Research Wiley

Evidence on the Audit Risk Model: Do Auditors Increase Audit Fees in the Presence of Internal Control Deficiencies? *

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Publisher
Wiley
Copyright
2008 Canadian Academic Accounting Association
ISSN
0823-9150
eISSN
1911-3846
D.O.I.
10.1506/car.25.1.9
Publisher site
See Article on Publisher Site

Abstract

Contemporary Accounting Research Vol. 25 No. 1 (Spring 2008) pp. 219–42 © CAAA doi:10.1506/car.25.1.9 Contemporary Accounting Research Prior studies examining the relationship between risk factors and auditor effort find mixed evidence on whether auditors’ behavior is actually consistent with the audit risk model. Studies such as Mock and Wright 1993, Mock and Wright 1999, and Bedard 1989 use data from the working papers of actual audit engagements and examine the association between client risks and variations in audit plans. The overall conclusion of this research is that audit plans in practice are not strongly risk-adjusted; however, many of these studies are limited to small sample sizes and evidence from one audit firm. Studies examining the sensitivity of audit hours or audit fees to various risk factors do find evidence of a relationship between audit effort and inherent risk, but no evidence that audit effort is sensitive to reliance on internal controls (Felix, Gramling, and Maletta 2001; Hackenbrack and Knechel 1997; O’Keefe, Simunic, and Stein 1994). It is worth noting that these studies all use data from time periods prior to the most recent round of high-profile accounting scandals, and prior to the Sarbanes-Oxley Act of 2002. It is

Journal

Contemporary Accounting ResearchWiley

Published: Mar 1, 2008

References

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