The Effects Of Individual Differences And Industry Stability On Auditors' Perceived Risk Assessments

The U. S. Public Oversight Board’s Panel on Audit Effectiveness suggests that both audit effectiveness and efficiency may benefit from greater consideration being given to auditors’ risk assessments. The association between several independent variables (e.g., tolerance-for-ambiguity, field dependence/independence, and industry stability) and auditors’ perceived risk assessments is examined in an experimental setting. Six hypotheses suggested from a review of the literature are tested. The results indicate that industry stability and (to a lesser extent) tolerance-for-ambiguity (TFA) each have a main effect on auditors’ perceived risk assessments. Further, these two variables are found to have a moderately significant interactive effect on such assessments. The level of industry stability (stable or unstable) is found to affect the risk assessments of low-TFA subjects more than high-TFA subjects. Implications of these results for the audit process are provided

The impact of experience, industry characteristics, and individual differences on audit risk and the extent of testing decisions: An empirical investigation

The first part of the study examined the effect of industry risk changes on perceived audit risk at the financial statement level and whether these changes depended on individual differences such as experience and tolerance for ambiguity. Forty-eight auditors from two offices of one of the “Big 5” CPA firms participated in this study. The ANOVA results supported the effect of industry risk in the assessment of audit risk at the financial statement level. Higher industry risk was associated with higher perceived audit risk. Tolerance for ambiguity was also significant in explaining the changes in the assessment of audit risk. Auditors with a high tolerance for ambiguity perceived lower audit risk than auditors with a low tolerance for ambiguity. Although ANOVA results did not find experience to be significant, a t-test for experience showed it to be marginally significant and inversely related to audit risk. The second part of this study examined whether differences in perceived audit risk at the financial statement level altered the extent, nature or timing of the planned auditing procedures. The results of the MANOVA suggested an overall audit risk effect at the financial statement level. Perceived audit risk was significant in explaining the variation in the number of hours planned for the total cycle and the number of hours p1anned for the tests of balances and details. Perceived audit risk was not significant in determining the analytical review procedures planned, but assessed inherent risk at the cycle level was significant. The higher the inherent risk the more analytical procedures were planned. Perceived audit risk was not significant in explaining the timing of the procedures, but individual differences were significant. The results showed that experienced auditors and those with a high tolerance for ambiguity were less likely to postpone the performance of the interim procedures or the time at which the majority of audit work would be done