AJPTNov05

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Unformatted text preview: to be manipulated by management. An example of outside/inside evidence is a bank statement sent by the bank to the client. This bank statement originated from the bank but passed through the hands of the client, and thus had the potential to be manipulated by the client. ‘‘Inside’’ evidence is obtained directly from the client. An example is a bank reconciliation prepared by the client. PERSUASIVENESS is the average of these rankings for all procedures listed in the revenue cycle audit program. Where PERSUASIVENESS is the dependent variable, we expect the coefficient on MI to be negative, indicating the auditor requires less persuasive evidence when management integrity is high. Persuasiveness is a complex construct to try to capture in a single variable. We acknowledge that an internal versus external categorization is a significant simplification; however, it captures a key determinant of persuasiveness—the data source. Our approach is also easy to replicate as it is straightforward to objectively implement. In the sensitivity section, we consider an alternative measure based on the sum of the individual audit procedure scores rather than the average reported in our main results. The dependent variable TIMING equals the proportion of audit testing hours conducted at the client’s fiscal year-end relative to total audit testing hours.13 Audit testing hours includes both substantive tests and test of controls to the exclusion of time spent on audit planning and final engagement wrap-up. If, for a given audit, 60 percent of audit testing hours were conducted at the client’s fiscal year-end, and 40 percent during interim work, then the observation receives a TIMING score of 60. When TIMING is a dependent variable, we expect the coefficient on MI to obtain a negative value, indicating the auditor requires less evidence collected at year-end in the presence of strong management integrity. The dependent variable EXTENT equals total revenue cycle audit hours divided by total audit hours. This var...
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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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