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    The Impact of Roles of the Board on Auditors’ Risk A...
    research summary posted April 16, 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, 13.0 Governance, 13.01 Board/Audit Committee Composition 
    The Impact of Roles of the Board on Auditors’ Risk Assessments and Program Planning Decisions
    Practical Implications:

    The results of this study suggest that auditors do take into consideration board roles in their control risk assessments.  In addition, both dimensions of board structure are suggested to affect assigned audit hours. These findings provide additional insights into whether auditors are able to integrate adequately the board roles into their audit planning.  The results have implications for audit firms in better understanding how auditors incorporate the board roles into their risk assessments and audit planning.  Further, the results suggest that, in line with PCAOB AS 2, auditors rely on a more complex set of factors than simply the monitoring role of boards. 


    Cohen, J.C., G. Krishnamoorthy, and A.M. Wright. 2007.  The Impact of Roles of the Board on Auditors’ Risk Assessments and Program Planning Decisions.  Auditing: A Journal of Practice and Theory 26 (1): 91-112.

    corporate governance; board role; resource dependence; risk assessment; audit planning judgments.
    Purpose of the Study:

    The current study expands our knowledge of the impact of governance structure, by focusing on how two attributes of boards influence the auditors’ risk assessment and program planning decisions. Specifically, the authors examine the influence of resource dependence and agency board roles, both defined below.  

    • A resource dependence role is described as one where the board member has specific experience with either the company or industry that is advantageous to their ability to provide relevant guidance. 
    • An agency role is described as one that provides a strong management monitoring function.  The current study examines whether inherent and control risk assessments are lower when these roles are stronger.  

    Below are the primary objectives that the authors address in this study: 

    • Examine the extent to which resource dependence and agency board roles affect auditors’ inherent risk assessment, control risk assessment, and planned audit hours (used as a proxy for extent of audit testing).
    Design/Method/ Approach:

    The investigation used an experimental questionnaire to obtain data. The questionnaire solicited voluntary responses from audit partners and managers at two large Northeast offices of one Big 4 auditing firm, prior to 2004.  Participants read a case-based experiment concerning a high-tech company, where the board related facts were varied between higher and lower resource dependence and higher and lower agency roles.  The participants then answered questions related to inherent and control risks, resource allocations and personal information.

    • Evidence suggests that auditors do respond to the roles of the board.  Specifically, auditors increase their control risk assessment when the board structure reflects weaker agency or resource dependence.
    • Evidence suggests that auditors do not respond to roles of the board when making inherent risk assessments. Specifically, the strength or weakness of either board characteristic has no impact on auditors’ inherent risk assessment. 
    • When auditors were presented with a board where resource dependence and agency roles were both higher, they decreased the amount of planned audit hours recommended.  Overall then, the evidence suggests that when both resource dependence and agency roles were higher, the control risk assessment and audit effort (i.e., planned audit hours) were lower. In all other combinations of the two board structure characteristics (i.e., high resource dependence-low agency, low resource dependence high agency, and low resource dependence-low agency), planned audit hours were higher.
    Risk & Risk Management - Including Fraud Risk, Governance
    Assessing Risk of Material Misstatement, Board/Audit Committee Composition
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