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Management’s Assessment of Internal Controls, External Consultants, and Audit Efficiency: Evidence of New Factors in Client-Auditor Interactions.
Jennifer Blaskovich, University of Nebraska - Omaha
Natalia Mintchik, University of Missouri - St. Louis
ABSTRACT. We investigate how the involvement of an external consultant in management’s assessment of internal control affects external auditors’ planning decisions. In particular, we find that when management integrity is low, an external consultant’s involvement results in auditors’ higher reliance on internal control and lower budgeted hours. Surprisingly however, when management integrity is high, an external consultant’s involvement results in higher budgeted hours. Overall, we conclude that external auditors perceive an external consultant’s involvement as a positive trait. It appears to signal a legitimate managerial interest to accurately assess the state of internal control rather than intent to hide its deficiencies. However, in case of high integrity management the involvement of external consultants might be seen by auditors as inconsistent with the prior evidence and thus might signal the existence of the additional risk factors of material weaknesses in internal control.
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