Management Integrity on Audit Planning and Evidence Essay Example

Management Integrity on Audit Planning and Evidence Essay Example Management Integrity on Audit Planning and Evidence Essay Management Integrity on Audit Planning and Evidence Essay Review on the Impact of Management Integrity on Audit Planning and Evidence This research is done to assess the correlation between management integrity and ARM, audit planning and misstatement detection, which leads to analysis of the impact of management integrity information on audit conduct. Motivation Some cases of failures such as Enron and Sardines-Solely have led public in general requiring auditors to be more careful in conducting their audit tasks, especially in terms of audited companies Internal controls. The basic of these internal controls Is built by Its management Integrity. By knowing the management integrity, It Is expected that auditors will be more aware In planning their audit which will affect the quality of their audit results as management Integrity may affect the credibility of the source and evidence. Prior Studies The underpinning theory suggests that there is a link between risk assessment and the way auditors planning their tasks. Previous literature which mostly based on questionnaire shows that auditors rely more on prior year error in their overall risk assessment than on a specific evaluation of management Integrity. It failed to provide good evidence regarding the correlation between risk evaluation and audit related Judgments. Hypothesis Management integrity has negative correlation to risk of material misstatement (ARM), which will affect the audit planning and source of evidence. Management integrity has negative correlation to persuasiveness, timing, and extent (PETE). There is a significant negative correlation between management integrity and the detection of material misstatements. Method From 78 random samples, only 60 clients provided management Integrity assessment. The authors did the research based on audit working papers In field setting, within focus on the transactions related to revenue such as cash, account receivables, Ana sales. I en researchers uses data cooing Ana employed ten audit risk model to connect management assessment integrity to risk of material misstatement (ARM) then ARM assessment to choice and scope of audit procedure. Results Clients who were assessed as having high levels of integrity had lower preliminary assessments. However, error in previous years is a better indicator of how risk is assessed and how audits are planned. This evidence suggests that when the client trustworthiness is doubted, the auditors will seek outside information about the financial statements instead of detailed examination of client supplied evidence. Another suggestion is that auditors seek much more persuasive evidence than is indicated by revised audit risk assessments. The result of the examination of the direct link between risk management integrity and the discovery of misstatement suggests that management integrity is associated with the uncovering of misstatement in the current year. Variation in management integrity assessment appears to be related to both audit planning and audit outcomes in a systematic way. However, although, cases of low management integrity are often eliminated during the client acceptance phase, clients with a spectrum of management integrity are still taken on. Therefore, the audit process needs to be able to handle a range of levels of management trustworthiness. Practical Implications One of the positive things from this research paper is that the researchers did the examination based on field setting and audit working papers rather than questionnaire like most prior researchers did. This means the quality of the response would be better as it is based on the real evidence rather than opinions of auditors which were probably scaled or ranked by the researchers before. Scaling, ranking, or vying some choices in the questionnaire would limit the real opinions of the auditors. Furthermore, the authors also put industry and public indicators or variables into their formulas. This means the authors realist that they need to consider other factors which may affect the risk of the audited company, the management integrity, or the culture of the company. Limitations The research was done based on random data from four big accounting firms. There is no further explanation of how random the sample being chosen; whether the researches differentiate the data based on the clients industry or merely random. Moreover, it is questionable whether 54 random samples can really represent hundreds or even thousands of clients. We assume that the clients of the big accounting firms would be big companies as well regarding to the audit fee. Therefore, the results might be different if the data was taken from smaller audit/ accounting Tells or smaller audited companies. I en Iterance newer does not mean the correlation between MI and audit planning, PETE, and misstatements detection will be positive; instead, it merely means that the indicator number of the correlation might change. Moreover, the authors pointed out that the clients of Big 4 audit firms ere dominantly technology oriented, which means an industry with a higher than normal rate of fraud. Therefore, the procedures may differ from those used in other industries. Because of the nature of the data, the authors were unable to identify individual auditors and to communicate the types of Board of directors were involved or what management and ownership relationships exited in the firms being audited. However, it should be noted that despite the results are generally acceptable in the real world, yet an exception might happen when the auditor has similar interest with he management or other parts of the audited company, meaning that the independence of the auditors would be questioned.