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    Nationality and Differences in Auditor Risk Assessment: A...
    research summary posted May 4, 2012 by The Auditing Section, last edited May 25, 2012, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.05 Assessing Risk of Material Misstatement 
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    Title:
    Nationality and Differences in Auditor Risk Assessment: A Research Note with Experimental Evidence
    Practical Implications:

    The results of this study provide some insight into how identical audit methodologies can still result in differing interpretations of account level risk of material misstatement in different countries. Auditors should consider the possibility that other auditors from the same firm in different countries may interpret the results of analytical procedures differently. However, auditors should take some comfort in the results showing that overall assessment of the risk of material misstatement did not differ between auditors in the US, UK, and France.

    Citation:

    O’Donnell, E. and J. Prather-Kinsey. 2010. Nationality and Differences in Auditor Risk Assessment: A Research Note with Experimental Evidence. Accounting, Organizations and Society 35 (5): 558-564.

    Keywords:
    International matters, auditor judgment, auditors, research, risk assessment, auditing procedures, accounting fraud, auditors’ reports, financial statements
    Purpose of the Study:

    Consistency in audits across countries is important, particularly for international audit firms and audits of multinational companies. The worldwide audit methodologies of the international audit firms seek to promote consistency across countries. However, there are differences in the way auditors of different nationalities process information. In particular, prior studies have shown that people focus on similar or dissimilar attributes more based on their nationality. This study explores how auditors working for the same firm in the United Kingdom, France, and the United States interpret the results of analytical procedures differently when assessing risk and determining audit procedures to perform over multiple financial statement accounts.

    Design/Method/ Approach:

    The authors collected their evidence at firm training sessions in the US, UK, and France from audit seniors employed by one international audit firm. Participants were given two years of information on sales and related operating expenses and asked to perform analytical procedures. Participants were then asked to provide misstatement risk for inventory, sales, cost of sales, and store expenses, as well as to provide an overall assessment of the risk of material misstatement.

    Findings:
    • Auditors assessed risk of material misstatement in the cost of goods sold account differently across nationalities, with US and UK auditors assessing the risk of misstatement as higher than French auditors.
    • Overall assessments of the risk of material misstatement did not differ significantly between auditors in the US, UK, and France.
    Category:
    Risk & Risk Management - Including Fraud Risk
    Sub-category:
    Assessing Risk of Material Misstatement
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