| || || Risk|
| || || Individual auditor's risk propensity and assessment of internal control risk|
Author: Taylor, Charlotte
Institution: University of the South Pacific.
Subject: Auditing, Risk
Call No.: Pac HF 5667 .T39 2013
Copyright:10-20% of this thesis may be copied without the authors written permission
Abstract: The disparities of results between Ashton (1974) study and Joyce (1976) study in internal control assessment have led to a plethora of studies in an attempt to reconcile or investigate the reasons. Auditors are faced with expectations from the client, client‘s management, and regulatory bodies as well as from any third parties who relies on the auditing financial annual report. In addition, they also face pressure from audit partners to maintain a cost-effective audit. All these factors can cause an auditor to engage in dysfunctional behaviour. One aspect of dysfunctional behaviour is risk propensity. Risk propensity refers to a person‘s attitude towards risk. This study investigates whether an individual auditor‘s risk propensity has an effect on the assessment of internal control risk. Thus, the research question is: Whether an individual auditor‘s risk propensity has an impact on audit risk judgment? A pilot study was conducted on final year audit students after which an experimental study was conducted on thirty five auditor seniors from the ―Big Three‖ firms. A regression analyses was carried out on the data collected from the research instruments; Choice Dilemma Questionnaire (Kogan and Wallach 1964) and Internal Control Assessment (Joyce 1976). The findings indicated that an individual auditor‘s risk propensity does have an effect on the assessment of internal control risk. This study improves the understanding of auditor‘s cognitive abilities and may explain why there is a disparity in the assessment of internal control risk among auditors. This study is important because it highlights the need for audit firms to be aware of the risk profiles of audit seniors. As risk seeking auditors would be profit minded and limit audit procedures thus exposing audit firms to legal and liability commitments. In addition, regulators need to be mindful that calling for professional judgment in a profession that has a number of external and internal party expectations would place auditors under intense pressure, and if no stringent measures are put in place, dysfunctional behaviour may not be mitigated.