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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
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.
- Spring '10