The effects of fee pressure and client risk on audit seniors' time budget decisions

In the current competitive and litigious audit environment, auditors must a ppropriately balance cost control and effectiveness when planning audits. T his study experimentally examines the joint effects of fee pressure and cli ent risk on audit seniors' planning judgments and decisions. Consistent wit h predictions, seniors' budgeted audit hours and inherent risk assessments suggest that seniors are less responsive to increased risk in the presence of fee pressure. Fewer budgeted audit hours in the presence of fee pressure may improve short-term profitability but may not be in accordance with pro fessional standards and the firm's interest if audit effectiveness is compr omised. Further analyses suggest that, in the presence of increased client risk, seniors planned fewer audit procedures when fee pressure was present than when it was absent, with decreases most likely for less reliable audit procedures and low-risk audit areas. Finally, in the presence of increased client risk, seniors expected to work more hours than budgeted, regardless of the level of fee pressure.