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The influence of client control environment attributes on evaluation of internal control: An empirical investigation of auditor judgment
Abstract
Independent auditors attest to the accuracy of financial statements prepared by various organizations. The auditors' examination of financial statements is heavily influenced by reliance placed on the internal control structure of the entity. Internal control evaluation is an important component of the audit process and involves complex judgments on behalf of independent auditors. A recent auditing pronouncement, Statement of Auditing Standards Number 55 (1988), specified guidelines designed to assist auditors in improving their evaluation of internal control. This standard requires auditors to explicitly consider the influence of control environment of a client when evaluating the internal control structure. The purpose of this dissertation is to investigate the influence of control environment attributes specified in SAS 55 on the independent auditors' evaluation of the internal control structure. The study utilized an experimental methodology, in which practicing auditors from four Big Six public accounting firms were assigned the task of evaluating the internal control structure of a hypothetical client. The case instrument contained internal control checklists where control environment attributes were manipulated as positive or negative. The subjects' responses were statistically analyzed using the Brunswik's lens model to determine how factors in a client's control environment affect the internal control reliability judgment of practicing auditors. In addition, the study also examined differences in judgment between auditors, differentiated by levels of experience, rank in organization and affiliation with public accounting firm. The results from the study indicate that control environment attributes are considered important by practicing auditors, and that not all attributes are assigned equal weights. The auditors' judgments with respect to control environment evaluations across various levels of experience were significantly different. However, no significant difference was detected when the auditors were grouped according to their ranks. The results also did not support the hypothesis that auditors from different public accounting firms would evaluate internal control environments differently. The dissertation includes a discussion of the implications of these findings, and potential for future research.
Subject Area
Accounting
Recommended Citation
Basu, Progyan, "The influence of client control environment attributes on evaluation of internal control: An empirical investigation of auditor judgment" (1992). ETD collection for University of Nebraska-Lincoln. AAI9308165.
https://digitalcommons.unl.edu/dissertations/AAI9308165