Audit risk and audit programmes: archival evidence from four Dutch audit firms

The audit risk model has become an extremely important element in audit practice. The basic intuition behind the model is that changes in risk should affect the work of the auditor. However, little systematic empirical evidence has been published on the assessment of audit risk and its effect on audit work. This study, using documentation from actual audits and follow-up interviews, provides such evidence. Assessments of audit risk and audit programme details have been obtained from eight clients of four Dutch audit firms. Audit risk assessments are obtained for two risk categories: (1) audit risk factors, such as the degree of client management turnover or the quality of the client's internal audit department; and (2) audit risk model variables (inherent or control risk), related to the account or assertion being audited. The results indicate that there is substantial variation in audit risk factors between clients and among the audit risk factors per client. To a lesser extent these findings hold for the risk model variables. The study also indicates that to some degree there is risk variation over time. Variability of risk factor assess-ments over time is higher than variability of risk model variable assessments over time. Audit programmes differ substantially between clients and, to a lesser extent, over time. Interestingly, the only two engagements with a change in the audit programme were the clients with most risk factor changes. The study also identifies factors other than risk, such as a change in the audit team, that influence audit programme planning. The observation in Dutch audit practice of variation in both risk assessments and audit programmes highlights the opportunity to design risk-adjusted audits, which are both efficient and effective. In addition, this observation encourages the carrying out of further research to fine-tune our models concerning which factors are most important within the audit risk model and to the audit planning process.