Risk-Based Auditing, Strategic Prompts, and Auditor Sensitivity to the Strategic Risk of Fraud
ACC650M Auditing Principles
January 30th, 2015
a. What is the issue being addressed in the paper?
This paper are focus on the risk-based auditing. As the paper mentioned that Risk-based auditing is a way to guide auditor to devote more audit resources to account that may take more misstated. On the contrary, fewer resources to those are focused on the less misstated. Kendall Bowlin expect to guide effective and efficient audits. In the other words, the inaccurate assess misstatement risk may result in misallocated of audit resources and undetected misstatement. In additional, Kendall ...view middle of the document...
Also the participants of auditors behave due to the conventional risk based auditing. The results of it is the misstatements in high risk account are less undetected than it in low risk account. When compared with the no-prompt condition, prompted auditors like to use more available resources. Hence, a general gain of using resources does not simply resulted by prompt strategic. Moreover, when both of auditor and client managers increased experience, they cumulatively expected that overriding low risk account more often than high risk account. As Kendall Bowlin said that “standard-setters and audit firms could potentially improve audit effectiveness by incorporating such as strategic prompts into auditing standards and other professional guidance…”
However, when the strategy of management attract auditors, they allocate more resources to low risk account whereas no changes in high risk account. As time pass, the undetected misstatement also occur in low risk account rather than any significant changes in high risk account. As a result, the effectiveness of audit seemingly improve, in fact the auditors have to be faced with the new potential risk.
c. why is this paper important to auditors, and what are the implications of this paper for the auditing profession?
This paper verify that the effect of management ability play an important role of risk based auditing. Manger and auditors must evolve to consider and mitigate the learning of audit techniques and manipulate the resulting exposures. When the auditor positioning the management’s behavior again, they can easily provides and obtain favorable positive result. For example, standard-setters can authorize that auditor to discuss about which accounts could be perceived by management, opportunity of manipulation, and how does it happen. The promotion can help auditors to create more strategies for resource allocation decisions. Also, the risk based auditing can be strengthened by the prompt.
d. Describe the research...