Re. Marden et al., CONTROL ENVIRONMENT CONDITION AND THE INTERACTION BETWEEN CONTROL RISK, ACCOUNT TYPE AND MANAGEMENTS ASSERTIONS, Auditing, 16(1), 1997, pp. 51-68
This study examines how changes in Control Environment (CE) condition
affect auditors' assessments of control risk for different types of Fi
nancial Institution accounts at the management assertion level. CE com
ponents are divided into ''tone-at-the-top'' and ''non-tone-at-the-top
'' groups and accounts are taken from each end of a subjective/objecti
ve continuum. The results indicate that there are significant control
risk, account type and assertion interactions across various levels of
CE conditions. Auditors are educated and trained in the skills requir
ed to audit financial statements, but they generally lack comparable f
ormal training in the psychological evaluation of the less objective,
non-financial attributes that comprise the CE (e.g., management's phil
osophy, attitude, integrity). This paper demonstrates that the assesse
d state of the control environment may have differential effects on co
ntrol risk depending on the industry, account type and management asse
rtion under investigation. These effects are particularly significant
for those accounts involving management's subjective estimates. Identi
fying high-risk conditions for each assertion and account is important
because it can direct auditors to the areas needing the most audit at
tention and provide more effective and efficient audits.