Auditing a journal of practice theory november 2005

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Unformatted text preview: 18 of the clients, which resulted in a final sample of 60 clients 5 6 As a condition to accessing this data we agreed not to disclose the identity of this firm. We retained all rights to publish our findings without any review or approval from the supplying firm. The number of observations selected was not intentional, rather a result of time constraints imposed upon the researcher. Auditing: A Journal of Practice & Theory, November 2005 55 The Impact of Management Integrity on Audit Planning and Evidence used in our tests.7 Within the sample, 54 clients are publicly traded. The firm has been auditing these clients for an average of 7 years (see Table 1). The data set does not contain any first-year audits. All sampled engagements received unqualified opinions, none of the sample clients has failed as of 2001, and there were no restatements or known allegation of audit failure as of 2001. The firm assisted in coding the variables used, and provided a subsequent multilevel review to facilitate consistent coding of the data.8 The data-granting firm considers revenue to be a ‘‘significant account.’’ Several sources corroborate the perceived higher risk of errors and fraud within the revenue cycle (e.g., COSO 1999). For example, SAS No. 99 requires the auditor to presume there is a high fraud risk related to revenue. The firm considers an account or cycle to be ‘‘significant’’ if it is critical to the prevention of audit failure, or if its examination will significantly decrease audit firm risk. Given these characteristics, revenue is a primary area in which risk assessment and related audit testing can vary, and therefore provides a more powerful setting to study management integrity decisions. Assessed risk and audit planning measures are drawn from the revenue cycle audit programs. The revenue cycle includes procedures applied to sales and accounts receivable. We include audit procedures applied to the recording of sales, accounts receivable and colle...
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