Independent auditor perceptions of client strategic planning processes: A conceptual and empirical investigation

Abstract

The purpose of our paper is to make three contributions by examining the relationship between client strategic planning and the independent audit function. First, it sets forth a theoretical framework which reasons that: 1) strategic planning is a fundamental activity engaged in by business entities; 2) strategic planning has a direct impact on the processes which companies employ for effecting management and task control, as well as shaping the overall risks which inhere in the strategies followed; and 3) independent auditors should be knowledgeable about the strategic planning process in order to fully understand a client's business and conduct effective audits. Second, it empirically tests auditor awareness of the dimensions which differentiate strategic planning from management and task control. Third, it examines the extent to which such awareness varies with individual differences, specifically the cognitive style and experience of the independent auditor. Based on both in-depth interviews with independent audit-firm partners, and a case study experiment that entailed eliciting the perceptions of 120 practitioners, it is concluded that independent auditors are generally sensitive to strategic planning with some notable exceptions that are conditioned by the individual differences examined.