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Specically we test whether management integrity

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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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