Auditing A Journal of Practice & Theory · 1999 · 174 citations · 11 references
BusinessAccountancyAccountingAuditingBudgetingRisk AnalysisAudit PlanningAudit Risk ManagementAuditing TheoryExternal AuditingInternal AuditingRisk-based AuditingAudit Budget PlanningAudit Effectiveness MeasurementAudit Planning RiskAudit Response To RiskAudit Risk AssessmentBudgetary Cost ControlInternal Audit EffectivenessRisk-based Audit Planning
Auditors must balance cost control and effectiveness in a competitive, litigious audit environment. The study experimentally investigates how fee pressure and client risk jointly influence audit seniors' planning judgments and decisions. Under fee pressure, audit seniors budget fewer hours and are less responsive to client risk, planning fewer procedures—especially less reliable ones—yet expect to work more hours than budgeted when client risk is high, potentially compromising audit effectiveness for short‑term profitability.
In the current competitive and litigious audit environment, auditors must appropriately balance cost control and effectiveness when planning audits. This study experimentally examines the joint effects of fee pressure and client risk on audit seniors' planning judgments and decisions. Consistent with predictions, seniors' budgeted audit hours and inherent risk assessments suggest that seniors are less responsive to increased risk in the presence of fee pressure. Fewer budgeted audit hours in the presence of fee pressure may improve short-term profitability but may not be in accordance with professional standards and the firm's interest if audit effectiveness is compromised. Further analyses suggest that, in the presence of increased client risk, seniors planned fewer audit procedures when fee pressure was present than when it was absent, with decreases most likely for less reliable audit procedures and low-risk audit areas. Finally, in the presence of increased client risk, seniors expected to work more hours than budgeted, regardless of the level of fee pressure.
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