This paper reports on a study that examines the effect of pervasive and specific risk factors on auditors' inherent risk and control risk assessments in an experimental setting. Two hypotheses concerning the significance of inherent and control risk factors on auditors' inherent risk (IR) and control risk (CR) assessments were tested by having 124 senior auditors and managers provide risk assessments on eight cases. The results show that the pervasive and specific risk factors included in the experiment were significant to both the auditors' IR and CR assessments. For the case used in this study, there was a significant positive association between auditors' IR and CR assessments. Taken together, these findings are consistent with Waller's (1993) notion of a knowledge-based dependency between IR and CR assessments. The findings are not consistent with Kinney's (1989) reformulation of the (IR×CR) component of the audit risk model.

This paper presents information on the causes and detection of misstatements by auditors and the relationship of those misstatements with information technology (IT). The last major study of misstatements and IT used data that was gathered in 1988. In the intervening period, there have been significant changes in IT, possibly altering the error generation and detection process. Two research questions related to detected misstatements and the effect of IT are examined. The six largest public accounting firms in Norway provided data from 58 engagements. We find that (1) the major causes of misstatements were missing, poorly designed, and improperly applied controls; inadequate methods used to select, train and supervise accounting personnel; and an excessive workload for accounting personnel, (2) missing and poorly designed controls, and excessive workload for accounting personnel were more likely to be causes of misstatements in computerized business processes than those that were not computerized, and (3) the increased use of tests of details over attention directing procedures on audits appears to result from auditors deciding that it is more effective or efficient to conduct such tests than rely upon IT controls. These findings have important implications for both audit practitioners and researchers.

In this case, you will examine corporate governance in an international context and gain a thorough understanding of the ramifications of the Sarbanes-Oxley Act of 2002 (SOX), as you observe very different reactions to the provisions of SOX by two Mexican companies, both of whom were trading on the NYSE at the time SOX was enacted. One company, TV Azteca, withdrew from the exchange on the grounds that U.S. regulations ignore Mexico's legal framework and corporate culture. You are required to contrast TV Azteca's response with the actions of another Mexican company, Cemex, which embraces the concepts of SOX. Cemex views compliance with SOX as an integral component of its corporate governance and sees it as necessary for continued access to international capital markets.

Once the enactment of the Sarbanes-Oxley Act of 2002 (SOX) became imminent, many companies protested that complying with SOX provisions was too onerous and costly and would result in many companies choosing to withdraw from public trading. We investigate whether these doomsday predictions were well-founded based on a review of SEC Form 15 requests to delist and related news releases during the period 2002 to 2004. Our findings suggest that there has not been a significant increase in the number of requests to delist since the enactment of SOX. Furthermore, we find that of companies that delist, relatively few (4.7 percent) attribute their delisting to SOX. Companies that did attribute their delisting to SOX were smaller and less likely to be audited by Big 4 auditors, characteristics that have been previously found to be associated with poorer financial reporting quality.