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Unformatted text preview: ysis to evaluate management integrity’s impact on audit planning beyond its
indirect effect through RMM. Speciﬁcally, we test whether management integrity impacts
the persuasiveness, timing, and extent of audit evidence while controlling for the auditor’s
RMM assessment. Management integrity impacts the perceived reliability (i.e., source credibility) of evidence gathered from management. This assessment can result in changes in
the persuasiveness, timing, and extent of evidence gathered beyond the impact caused by
1 The use of a combined measure is consistent with authoritative guidance (i.e., SAS No. 47) and the more recent
AICPA Exposure Draft—Proposed Statements on Auditing Standards, December 2, 2002 (AICPA 2002c). Auditing: A Journal of Practice & Theory, November 2005 The Impact of Management Integrity on Audit Planning and Evidence 51 increased RMM. Finally, we extend our analysis to the identiﬁcation of ﬁnancial statement
misstatements. An association between management integrity and misstatement discovery
is consistent with both auditors’ accurately assessing management integrity and the increased RMM assessment.
We ﬁnd partial support our hypotheses. Auditor-assessed management integrity is negatively related to the auditor’s RMM assessment (i.e., high integrity is related to low risk),
but only when we exclude an indicator for prior-year error from the model. If we include
prior-year errors in the model, then the management integrity assessment no longer inﬂuences RMM. This is consistent with prior literature that shows auditors rely more on a
simple heuristic of whether there was a prior-year error in their overall risk assessment,
rather than on a speciﬁc evaluation of management integrity (Wright and Ashton 1989;
Kinney 1979). Our analysis of audit planning parallels the ﬁndings for RMM with one
notable exception. After controlling for RMM and prior-year errors, it appears the management integrity assessment incrementally inﬂuences the planned persuasiveness of evidence....
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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.
- Spring '10