Does Industry-level Information Affect Auditors’ Assessment of Client-level Risk?

<p>This study investigates auditors’ consideration of industry-level information in their assessment of client-level risk. Auditing standards suggest that industry-level information is likely to be important in the assessment of client-level risk, but the standards provide few specifics about how auditors should use industry-level information in the risk assessment process. I argue that industry norms serve as a benchmark for evaluating the risk of the client and that deviations from industry norms could indicate increased audit risk. I create measures that capture the extent to which clients deviate from industry norms using proxies for client-level risk factors. In my primary tests, I investigate whether auditors respond to these measures of deviation from industry norms and whether these measures are associated with adverse audit outcomes. I find consistent evidence of a positive relation between these measures and audit fees, suggesting that auditors identify and respond to deviations from industry norms. I find limited evidence of a relation between these measures and the likelihood of misstatement, suggesting that auditors’ response to deviations from industry norms is generally appropriate. In subsequent tests, I consider whether auditors’ response to deviations from industry norms varies by auditor type. I find that Big Four auditors and industry specialist auditors are more responsive to deviations from industry norms than non-Big Four and non-specialist auditors. Consistent with this, I also find some evidence that deviations from industry norms for certain risk factors are more strongly associated with adverse outcomes for non-Big Four or non-specialist auditors relative to Big Four or specialist auditors. My findings should be of interest to auditors, regulators, and market participants because they suggest that identifying and responding to industry-level information when assessing client-level risk is an important component of effective audit risk assessment. </p>

Name thesis:degree_name

Doctor of Philosophy in Business Administration (PhD)

Level thesis:degree_level

Dissertation

Year dc:date.available

2017

Author dc:creator

• Rosser, David

Advisor dc:contributor.advisor

• Cassell, Cory A.

Contributors dc:contributor

• Myers, Linda A.
• Peters, Gary F.

• Audit Quality
• Industry Specialization
• Risk Assessment
• Accounting
• Business Administration, Management, and Operations

Repository record dc:identifier

https://scholarworks.uark.edu/etd/2414

OAI identifier oai:identifier

oai:scholarworks.uark.edu:etd-3954