Application of the Business Risk Audit Model: A Field Study

Author:

Eilifsen Aasmund1,Knechel W. Robert2,Wallage Philip3

Affiliation:

1. Norwegian School of Economics and Business Administration.

2. University of Florida.

3. University of Amsterdam.

Abstract

After confronting unprecedented challenges in the last decade, accounting firms have undertaken extensive effort to improve the basic financial statement audit and to expand external assurance beyond the traditional audit. The re-examination of audit methods has produced a new emphasis on assessing business and process risks in the conduct of an audit. This paper describes the fundamental changes in the audit process and examines their impact in an actual engagement. We first identify outcomes that we expect to observe in an audit based on the business risk model and then study an actual engagement to gather preliminary evidence about our expectations. The engagement used in this study is the 1997 audit of the Czech bank Cˇeskoslovenska´ Obchodni´ Banka (CˇSOB). Important observations about the new audit process included changes to the audit team structure, changes in administration and timing of the engagement, changes in the risks addressed during the audit and the evidence gathered, increased assurance to the client, and increased opportunities for value-added services. Although the generalization of results from a field study is constrained, this study identifies expectations and effects that can be examined in future larger sample studies.

Publisher

American Accounting Association

Subject

Accounting

Reference7 articles.

1. American Institute of Certified Public Accountants (AICPA). 1994. Improving Business Reporting-A Customer Focus: Report of the AICPA Special Committee on Financial Reporting (Jenkins Committee). New York, NY: AICPA.

2. - 1996. Report of the AICPA Special Committee on Assurance Services (Elliott Committee). New York, NY: AICPA.

3. Bell, T. B., F. O. Marrs, I. Solomon, and H. Thomas. 1997. Auditing Organizations Through a Strategic-Systems Lens: The KPMG Business Measurement Process. Montvale, NJ: KPMG Peat Marwick.

4. Resource Allocation Decisions in Audit Engagements

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