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Auditor Judgment about Misstatement Risk at the Account Level in a Risk-Based Audit: A Descriptive Model and Experimental Evidence
Natalia Kotchetova, University of Waterloo
Ed O' Donnell, University of Kansas
Alan Webb, University of Waterloo
ABSTRACT. This paper investigates several factors that are likely to influence auditor judgment about the risk of material misstatement at the account level. We develop a descriptive model that includes the associations between account-level misstatement risk judgments and auditors’ selections of accounts for future investigation, and the following features of audit ecology: timing of strategic analysis; level of the client’s business risk communicated by strategic analysis; results of analytical procedures indicating inconsistency in account fluctuations; auditor task-specific experience; and several task structure interventions that affect how auditors may document their judgment during the business-risk audit planning process. Collectively, our findings indicate support for links depicted by the descriptive model, although in a number of cases we determine that associations are more complex that we had originally envisioned.
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