Auditing Section Research Summaries Space

A Database of Auditing Research - Building Bridges with Practice

This is a public Custom Hive  public

research summary

    The business risk audit: Origins, obstacles and...
    research summary posted May 3, 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 
    The business risk audit: Origins, obstacles and opportunities
    Practical Implications:

    This article, combined with the balance of the articles in this journal edition, provides a comprehensive background on the history, practice, and current trends related to the business risk audit approach.  Specifically, this article provides a theoretical background on the growth of business risk audit approach, with special attention towards its potential strengths and limitations.  This discussion should be of interest to any auditor seeking to obtain additional theoretical perspectives in this growing area.


    Knechel, W.R. 2007.  The business risk audit: Origins, obstacles and opportunities. Accounting Organizations and Society 32(4-5): 383-408.

    Corporate governance; business risk audit; risk management; audit planning; audit risk model.
    Purpose of the Study:

    Recently there has been a move towards a business risk audit approach.  This edition of AOS provides a series of articles related to the history, current research and practices related to this emerging area.  In this paper, the author provides background for this approach; arguing that the process evolved organically in response to the commoditization of the audit during the 1980s.  The author examines this historical perspective with a special focus on examining whether the movement was a better way to examine audit risks or simply a tool for generating non-audit service opportunities, as some have challenged.

    Design/Method/ Approach:

    This thought article summarizes prior research in examining the business risk audit approach from a historical perspective.  This article is a thought piece; the author provides background theories and includes personal insights in examining the historical background on the business risk audit phenomenon. 


    Intertwined within the historical perspective of this approach, there are two consistent themes in this article: 1) an examination of risk management practices and their intersection with the audit practice; and 2) an examination of the charge that the value added function of the business risk approach led to an inappropriate drive to generate non-audit services.  The author outlines three primary sections: 

    1. Origins of the business risk audit: This section provides a historical review of auditing during the early 1990s, with particular attention focused on the commoditization of audit services and risk management practices culminating in the initial attempts towards a business risk methodology.  
    2. Phenomena of audit re-engineering: Building on the philosophy that business risk drives audit risk; the author provides a discussion on the growth of the business risk approach. Specifically, he discusses it as an attempt to rebuild a perceived loss of audit judgment, with an acknowledgement that more complex and global companies demand a more holistic audit approach.  This section also provides a brief technical summary of the business risk audit approach attributes.  
    3. Challenging audit rituals: The author defines the audit through its ritual process of purifying “disorderly” financial statements into “clean” (audited) ones.  Utilizing the concept of a ritual, “...a mechanism for controlling social interactions with others”, the author examines the impact of the philosophical change towards a business risk audit approach on various constituents, both internal and external.  Through this lens, the author examines possible reasons the initial business risk audit attempt may not have been effective. Additionally, he includes observations on what attributes might be maintained in audit methodology as the profession moves forward.
    Risk & Risk Management - Including Fraud Risk
    Assessing Risk of Material Misstatement
    home button