Audit risk and audit programmes: archival evidence from four Dutch audit firms

Abstract

The audit risk model has become an extremely important element in audit practice. The basic intuition behind the model is that changes in risk should affect the work of the auditor. However, little systematic empirical evidence has been published on the assessment of audit risk and its effect on audit work. This study, using documentation from actual audits and follow-up interviews, provides such evidence. Assessments of audit risk and audit programme details have been obtained from eight clients of four Dutch audit firms. Audit risk assessments are obtained for two risk categories: (1) audit risk factors, such as the degree of client management turnover or the quality of the client's internal audit department; and (2) audit risk model variables (inherent or control risk), related to the account or assertion being audited. The results indicate that there is substantial variation in audit risk factors between clients and among the audit risk factors per client. To a lesser extent these findings hold for the risk model variables. The study also indicates that to some degree there is risk variation over time. Variability of risk factor assess-ments over time is higher than variability of risk model variable assessments over time. Audit programmes differ substantially between clients and, to a lesser extent, over time. Interestingly, the only two engagements with a change in the audit programme were the clients with most risk factor changes. The study also identifies factors other than risk, such as a change in the audit team, that influence audit programme planning. The observation in Dutch audit practice of variation in both risk assessments and audit programmes highlights the opportunity to design risk-adjusted audits, which are both efficient and effective. In addition, this observation encourages the carrying out of further research to fine-tune our models concerning which factors are most important within the audit risk model and to the audit planning process.

Internal Control and Audit Program Effectiveness: Empirical Evidence from Jordan

“…This result indicates that the risk assessment is contributed significantly toward an effective audit program. One supportive study by Quadackers, Mock and Maijoor (1996) assessed the relationship between audit risk and audit program details. The results indicated that there is material variation in audit risk factors between clients and among the audit risk factors per client.…”

“…The finding revealed that the administrative level to which the head of the internal auditing department reports and the level of the organizational independence of the internal auditing staff were the main important factors that affect the judgments made by external auditors in planning audit programs. Quadackers, Mock and Maijoor (1996) assessed the relationship between audit risk-as a one component of internal control components-and audit program planning details. The results indicated that there is much variation in audit risk aspects between clients and among the audit risk aspects per client.…”

Application of Delphi method for determining the affecting factors upon audit risk model

“…Blay et al (2008) believe that the ARM as a conceptual model promotes a risk, focused approach for allocation of audit procedures. This model has become an extremely important element in auditing (Quadackers et al 1996). Additionally, the ARM, as a normative model in the professional standards assists auditors in the judgment processes about risk (Blay et al, 2008;Iranian Audit Procedure, 2000).…”

Risk of Material Misstatement in Fluctuated Economic Environments: The Case of Greece

“…Many prior studies (Dusenbury, Reimers & Wheeler, 2000;Messier & Austen, 2000;Ritchie & Khorwatt, 2007;Bloomfield, 1995;Quadackers, Mock & Maijoor, 1996;Quick, 2012) studied the functional relationship among the variables of the Audit Risk Model (ARM) or examined the dependencies between the entity's environment as it is reflected in the business risk and in the designed and implemented audit approach. However, most studies regarding the interrelations of audit risk components have been focused on ARM variables at the assertions level and they mainly examine the inherent and control risk as two different risk components.…”

“…In the European environment, Quadackers et al (1996) examined the variability in audit risk and audit programs using data from eight clients of four Dutch audit firms. This study reports substantial variation in audit risk factors both between audited entities and among the audit risk factors per entity.…”