Determinants of the Timing of Interim and Majority of Audit Work

Abstract

This study investigates the effect of the risk of material misstatement at the financial statement level on audit program planning. Using an inventory‐production cycle case study, we engaged forty‐eight auditors to assess the risk of material misstatement at the financial statement level. The auditors incorporated their assessments in planning the total number of audit hours and the timing of performance of interim tests and the majority of audit work. To further investigate the sources of variation, we classified auditors by their level of audit experience and tolerance‐for‐ambiguity, and analyzed the effects of these variables on the audit program planning.The results indicate that the risk of material misstatement is statistically significant in explaining changes in the total number of audit hours and the timing of the majority of audit work. Moreover, experience and tolerance‐for‐ambiguity were significant in explaining changes in the timing of interim tests and majority of work. Interaction between experience and tolerance‐for‐ambiguity was also significant in explaining the variation in the total number of hours planned for the overall audit work. This result indicated that inexperienced auditors with a low tolerance‐for‐ambiguity planned more audit procedures than the more experienced auditors with a high tolerance‐for‐ambiguity. Implications for audit practice and research are discussed.