Implications of Financial and Non-financial Measures on the Refinement of the Assessments of Audit Risk: An Empirical Investigation

Abstract

Identifying and assessing audit risk is a key part of the audit process. Prior research documented that auditors primarily look at financial data, information, and measures when assessing the audit risk for an audit engagement. However, professional standard setters, regulators, and academic researchers have discussed the potential for non-financial data, information, and measures to provide a powerful and independent benchmark for evaluating the validity of the numbers of financial statements of an audit client. A field study was conducted in Egypt during the years 2013 and 2014 to explore how auditors perceive and assess audit risk for an audit engagement in the period following the Egyptian revolution of January 25, 2011. The results of the field study indicated that auditors appear not to give sufficient attention to non-financial data, information, and measures when assessing the audit risk during an audit engagement. Auditors seem to rely on financial data, information, and measures when assessing the audit risk of an audit engagement. Furthermore, auditors do not seem to consider the inconsistencies between financial and non-financial data, information, and measures of an audit client as an indicator of the existence of fraud or material misstatements in the financial statements of an audit client.