Our results do not change if we multiply our ir and

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Unformatted text preview: ation to be difficult. More importantly, the model will fail to account for the ordinal nature of the dependent variable (Greene 1997). Nonetheless inferences based on a multinomial logit results are the same as the inferences based on our OLS approach. We thank William Waller and Mark Zimbelman for suggesting the combination approach. Prior research asked survey respondents to rate risk on a seven-point scale even though the firm they surveyed used the same classification scheme as our firm (Mock and Wright 1993, 1999). Our results do not change if we multiply our IR and CR coding rather than the ranking used above. Our ranking scheme makes no distributional assumptions other than increases in the qualitative measures of risk increase the quantitative measures. A multiplicative approach assumes that risk increases dramatically as the qualitative risk increases. Auditing: A Journal of Practice & Theory, November 2005 56 Kizirian, Mayhew, and Sneathen Low CR Low Medium High IR Medium High 1 2 3 2 3 4 3 4 5 The test variable, management integrity (MI), is assessed and documented as ‘‘strong,’’ ‘‘moderate,’’ or ‘‘weak.’’ This assessment is coded 2 for strong, 1 for moderate, and 0 for weak.11 The data-granting firm’s management integrity assessment is made prior to the assessment of control risk and inherent risk. The assessment attempts to capture management’s integrity and control consciousness. Auditors arrive at a management integrity measure by investigating factors related to management’s attitude toward reporting, controls, and the external audit, as well as their reputation in the business community. The datagranting firm’s guidance states ‘‘the reputation, character, and integrity of senior management and the tone set for the overall control environment provides us with an indication of whether they are responsible and reputable, and whether meaningful representations and full disclosure can be reasonably expected during the engagement...
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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.

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