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Unformatted text preview: AUDITING: A JOURNAL OF PRACTICE & THEORY
Vol. 24, No. 2
pp. 49–67 The Impact of Management Integrity on
Audit Planning and Evidence
Timothy G. Kizirian, Brian W. Mayhew, and
L. Dwight Sneathen, Jr.
SUMMARY: This study uses working paper data from 60 clients of a U.S. Big 4 auditing
ﬁrm to directly examine the inﬂuence of auditor-assessed management integrity on
auditor’s assessments of risk of material misstatement, audit planning, and audit outcomes. We hypothesize that management integrity is related to preliminary risk assessments, and to the persuasiveness, timing, and extent of planned audit procedures.
We also hypothesize that the management integrity assessment inﬂuences the auditor’s
evaluation of source credibility of management provided evidence beyond its inﬂuence
via risk assessments (Beaulieu 2001). Finally, we expect the auditor’s management
integrity assessment to be associated with the discovery of client misstatements.
When we add management integrity to empirical models motivated by Mock and
Wright (1993, 1999), we ﬁnd support for our hypotheses. However, all but two hypothesized associations disappear when we add an indicator variable for prior-year errors.
We continue to ﬁnd that management integrity impacts the persuasiveness of evidence
sought beyond what is suggested by the auditor’s risk assessment. Interestingly, even
after controlling for prior-year errors, we ﬁnd an inverse association between the auditor’s assessment of management integrity and the likelihood of detecting misstatements, suggesting the management integrity assessment aids the auditor in ultimately
discovering errors. The results support the importance of assessing management integrity in planning the audit and discovering misstatements.
Keywords: audit risk model; management integrity; evidence.
Data Availability: A conﬁdentiality agreement with the data-granting ﬁrm precludes
revealing its identity or disseminating the data. T INTRODUCTION
his study uses...
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This note was uploaded on 11/11/2010 for the course MIS BMBM31101 taught by Professor Ms.sara during the Spring '10 term at Asian Institute of Management.
- Spring '10