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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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