The Descriptive Ability of Models of Audit Risk

Abstract

Auditors are required to perform assessments of risk during the planning stages of an audit. Consequently, the efficiency and effectiveness of audits should be affected by risk assessments. Various models that could assist auditors in the risk assessment task have been discussed in the auditing literature.This study investigated the degree of consistency between auditors’ intuitive assessments of audit risk and the audit risk values generated by various models. In addition to the traditional audit risk model, this study was interested in the performance of models that allowed for belief revision.Sixty-nine auditors in Western Australia participated in this study. The auditors were required to complete two experimental booklets. The first booklet was designed to elicit the auditors’ intuitive judgments concerning audit risk. The second booklet was used to extract estimates of the components required to generate model values. The auditors’ judgments were then compared to the model-generated responses.The results of this study indicated inconsistencies between auditors’ intuitive assessments and the traditional audit risk model. Tests based on absolute mean differences indicated inconsistencies also existed between auditors’ intuitive assessments and the belief revision models. Paired t-tests confirmed these inconsistencies, with the exception of the Belief Function model. The paired t-test showed no significant difference between auditors’ intuitive assessments and the values generated by the Belief Function model.