Our results indicate that after controlling for

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Unformatted text preview: t. Nonetheless, our findings indicate that management integrity exhibits incremental explanatory power beyond the risk of material misstatement for the persuasiveness of audit evidence collected. This result suggests that when the client’s information is not trustworthy, the auditor seeks external validation of the financial statement information instead of pursuing additional scrutiny of client-supplied evidence. It also suggests that adjustments to the audit risk model are not the only way auditors adjust audit planning when conducting an audit. Auditors appear to adjust the persuasiveness of evidence sought beyond that indicated by their revised audit risk assessment. We also examine the direct linkage between assessed management integrity and misstatements discovered during the course of the audit. Our results indicate that after controlling for overall audit effort and prior-year errors, management integrity is associated with the discovery of current period misstatements. Management integrity goes beyond the ability of prior-year differences to predict the likelihood of discovering misstatements in the current year. Our findings are especially important given that most audit firms assess management’s integrity during client acceptance. Generally most firms believe they ‘‘only accept clients with high management integrity.’’ Therefore, one can argue that the fact we observe variation in management integrity assessments and that the variation appears to be systematically associated with both audit planning and audit outcomes is particularly interesting. It appears that while severe cases of low management integrity may be weeded out during client acceptance, auditors nonetheless retain clients with a spectrum of management integrity that must be managed within the audit process. That is, management integrity matters even when auditors only accept clients with high integrity. The data utilized in this study brings with it certain limitations. The data was drawn from a single Big...
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