Totalrevenue is total revenue and is included for

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Unformatted text preview: ures in the revenue cycle (the persuasiveness score is given on a three-level scale: 3 for outside information, 2 for outside / inside information, and 1 for inside information). TIMING is the percentage of audit testing conducted at the end of the fiscal year of the client. EXTENT is the total hours spent performing test of controls and substantive testing in the revenue cycle during the audit divided by total audit hours. DIFF is an indicator variable where 1 indicates that the auditor discovered an audit difference during the evidential process. The control variables are: natural log of revenue (REVENUE), tenure as auditor (TENURE), prior year, revenue cycle, audit differences (PYERR), public or private ownership (PUBLIC), and industry categorization (INDUSTRY). TOTALREVENUE is total revenue, and is included for descriptive purposes only. as one would expect (r – 0.58, p 0.001). These results suggest that the main driver of risk assessment is prior-year error. Prior-year error is a key determinant of MI, and it dominates MI when both variables are included in the RMM model. Equations (2)–(4) indicate that when PERSUASIVENESS is the dependent variable MI is significantly negative ( 0.092, p 0.019), however when TIMING ( 1.154, p 0.252) 0.175) are the dependent variables the coefficient on MI is and EXTENT (0.005, p insignificant. RMM is significant when PERSUASIVENESS (0.136, p 0.019) and EXTENT 0.001) are dependent variables, but not when TIMING (3.153, p 0.111) is (0.049, p the dependent variable. This finding indicates that the auditor responds to low MI by varying the persuasiveness of audit tests requiring more independent (i.e., persuasive) evidence beyond what RMM would suggest. This evidence provides support for H2p. Examination of the change in adjusted R2 when MI is removed from the model supports our inferences concerning the marginal impact of MI beyond the effect of RMM (adjusted R2 decreases from 66.39 percent to 60.5 percent).16 Due to the...
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