Kotchetova Paper For Midyear

The Impact of Client Strategy Content and Strategy Process on
Risk Assessment and Audit Planning

Natalia Kotchetova
Assistant Professor
School of Accountancy,
Faculty of Arts
University of Waterloo [e-mail] This paper is based on my Ph. D. dissertation at Georgia State University. I am indebted to Bill Messier, the Chair of my Dissertation Committee, and to the committee members Audrey Gramling, Galen Sevcik, and Shaker Zahra for their support and assistance throughout this project. I thank audit professionals from the four international accounting firms for participating in this study. I appreciate the valuable comments provided by Efrim Boritz, Larry Brown, Lynn Hannan, Karla Johnstone, Ken Klassen, Thomas Kozloski, Morley Lemon, Brian Mayhew, Mark Peecher, Steve Salterio, Joe Schultz, Ira Solomon, Alan Webb, and by the workshop participants at the University of California-Riverside, University of Illinois at Urbana-Champaign, Georgia State University, University of South Carolina, University of Toronto, University of Waterloo, and University of Wisconsin-Madison.

The Impact of Client Strategy Content and Strategy Process on Risk Assessment and Audit Planning

Abstract
Current risk-based audit approaches place strong emphasis on understanding the client’s industry, regulatory, and market environments using a set of techniques generally known as strategic analysis (SA). I use a behavioral experiment to investigate whether auditors who perform SA make more accurate risk assessments (i.e., assessments of the risk of material misstatement, inherent risk, and control risk) and select more effective audit procedures than auditors who do not perform SA. The results show that analyses of strategy content and/or strategy process lead to higher accuracy in assessing the risk of material misstatement at both the entity and business process level. Analysis of strategy content results in smaller deviations from the

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