Risk identification and assessment in a risk based audit environment: the effects of budget constraints and decision aid use

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Title: Risk identification and assessment in a risk based audit environment: the effects of budget constraints and decision aid use
Author: Diaz, Michelle Chandler
Abstract: Risk based audit (RBA ) approaches represent a major trend in current audit methodology . The approach is based on risk analysis used to identify business strategy risk . The RBA has created a new set of research issues that need investigation . In particular , this approach has important implications for risk identification and risk assessment . The success of the RBA approach is contingent on understanding what factors improve or interfere with the accuracy of these risk judgments . I examine how budget constraints and decision aid use affect risk identification and risk assessment . Unlike previous budget pressure studies , I cast budget constraints as a positive influence on auditors . I expect more stringent budget constraints to be motivating to the auditor as they provide a goal for the auditor to achieve . I also expect budget constraints to induce feelings of pressure leading to the use of time -pressure adaptation strategies . When auditors have use of a decision aid , they take advantage of these motivational goals and /or use beneficial adaptive strategies . Overall , I find that auditor participants tend to be more accurate when identifying financial statement risks compared to business risks . Budget constraints have no effect on risk identification for financial or business risks ; they also have no effect on financial risk assessments . On the other hand , business risk assessments are improved by implementing more stringent budget constraints , but only when a decision aid is also provided . Budget constraints can affect performance through a goal theory route or a time -pressure adaptation route . I investigate the paths through which budget constraints improve business risk assessments under decision aid use . I find that budget constraints directly affect performance , supporting a goal theory route . However , I do not find that budget constraints are mediated by perceived budget pressure as expected . Auditors appear to use a positive adaptive strategy to respond to perceived budget pressure , however perceived budget pressure is not induced by providing a more stringent budget .
URI: http : / /hdl .handle .net /1969 .1 /4363
Date: 2006-10-30

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Risk identification and assessment in a risk based audit environment: the effects of budget constraints and decision aid use. Available electronically from http : / /hdl .handle .net /1969 .1 /4363 .

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