While experiments are useful in identifying potential

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Unformatted text preview: tings. Experiments often focus on a single variable of interest. While experiments are useful in identifying potential influences and developing basic theory, they are limited in their ability to determine the relative importance of the treatment variable in more complex field-based settings. Our archival approach potentially enhances existing experiment-based theory. The linkage between an auditor’s assessment of management integrity and auditor assessed risk of material misstatement (RMM), audit planning, and misstatement detection is important for three reasons. First, management integrity is a key determinant of the client’s risk structure. It provides the foundation of internal control. Without management integrity, or the ‘‘tone at the top,’’ it is unlikely even the most proficient internal controls will be effective in reducing financial statement misstatement. As a result, it is important to evaluate evidence that auditors incorporate this risk component into their audit judgments. Second, auditors rely on management to provide a great deal of evidence during the course of the audit. The auditor must carefully evaluate management integrity to assess source credibility relating to client-supplied evidence. We examine whether auditors adjust the evidence source in response to lower management integrity. Finally, the recent enactment of the Sarbanes-Oxley Act (U.S. House of Representatives 2002), especially Section 404, requires that auditors evaluate and report on client internal controls, including management integrity. This requirement will increase the amount of information available to auditors in making evidential planning decisions. Auditors, therefore, need to understand the linkages between management integrity, audit risk, and evidence. We hypothesize that the auditor’s management integrity assessment directly impacts the auditor’s assessment of RMM. RMM is the combination of inherent risk (IR) and control risk (CR). We do not attempt to separate IR and CR as management integrity influences both components. After establishing a link between management integrity and RMM, we extend the anal...
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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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