Inherent Risk
THE RELATIONSHIP OF RISK ASSESSMENTS AND INFORMATION TECHNOLOGY TO DETECTED MISSTATEMENTS
Lizabeth A. Austen Assistant Professor University of Arkansas Aasmund Eilifsen Associate Professor Institute of Accounting, Auditing and Law Norwegian School of Economics and Business Administration William F. Messier, Jr. Deloitte & Touche Professor Georgia State University Professor II Institute of Accounting, Auditing and Law Norwegian School of Economics and Business Administration
Preliminary Draft: Do not quote without authors’ permission.
December 2000 Please address all correspondence to:
Professor William F. Messier, Jr. School of Accountancy J. Mack Robinson College of Business Georgia State University P. O. Box 4050 Atlanta, GA 30303-4050 Office: 404-651-4465 Email: bmessier@gsu.edu
Funding for this research was provided to Professors Eilifsen and Messier by grants from the Norwegian Institute of Public Accountants and the Research Council of Norway.
THE RELATIONSHIP OF RISK ASSESSMENTS AND INFORMATION TECHNOLOGY TO DETECTED MISSTATEMENTS ABSTRACT
In this paper we empirically examine the relationship of (1) risk assessments and (2) the extent of computerization of accounting systems to the incidence and magnitude of misstatements. The six largest public accounting firms in Norway provided misstatement data from 58 audits. The results show that inherent risk factors related to personnel issues are related to the incidence of misstatements at the financial statement level. These factors plus factors related to management integrity and prior period accounting adjustments are related to the magnitude of the misstatements. Inherent risk assessments at the account level had a marginally significant relationship with both the incidence and magnitude of the detected misstatements. On the contrary, we find that the auditors’ CR assessments are not associated with the detected misstatements. All of the sample companies have partial or completely
Lizabeth A. Austen Assistant Professor University of Arkansas Aasmund Eilifsen Associate Professor Institute of Accounting, Auditing and Law Norwegian School of Economics and Business Administration William F. Messier, Jr. Deloitte & Touche Professor Georgia State University Professor II Institute of Accounting, Auditing and Law Norwegian School of Economics and Business Administration
Preliminary Draft: Do not quote without authors’ permission.
December 2000 Please address all correspondence to:
Professor William F. Messier, Jr. School of Accountancy J. Mack Robinson College of Business Georgia State University P. O. Box 4050 Atlanta, GA 30303-4050 Office: 404-651-4465 Email: bmessier@gsu.edu
Funding for this research was provided to Professors Eilifsen and Messier by grants from the Norwegian Institute of Public Accountants and the Research Council of Norway.
THE RELATIONSHIP OF RISK ASSESSMENTS AND INFORMATION TECHNOLOGY TO DETECTED MISSTATEMENTS ABSTRACT
In this paper we empirically examine the relationship of (1) risk assessments and (2) the extent of computerization of accounting systems to the incidence and magnitude of misstatements. The six largest public accounting firms in Norway provided misstatement data from 58 audits. The results show that inherent risk factors related to personnel issues are related to the incidence of misstatements at the financial statement level. These factors plus factors related to management integrity and prior period accounting adjustments are related to the magnitude of the misstatements. Inherent risk assessments at the account level had a marginally significant relationship with both the incidence and magnitude of the detected misstatements. On the contrary, we find that the auditors’ CR assessments are not associated with the detected misstatements. All of the sample companies have partial or completely