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The Relative Effects of Elements of Internal Control on Auditors’ Evaluations of Internal Control

The Relative Effects of Elements of Internal Control on Auditors’ Evaluations of Internal Control Internal control evaluation is a critical component of the overall audit process, mandated by auditing standards worldwide. These standards divide internal control structures into a number of elements, summarised as the control environment, information systems, and control procedures. Significant research exists as to auditors’ evaluations of internal controls. However, little work appears to consider the elements’ inter‐actions and relative significance. This study attempts to gauge the relative importance external auditors assign to the three elements. 94 practicing auditors evaluated internal control structures in two fictitious companies, one with strong internal control elements throughout, the other with one of the three set at a lower reliability level. The results indicate auditors consider control environment the most important element of internal control. The effect of weakening this element was that auditors assessed all three elements and overall evaluation as less reliable. Varying the other two elements did not have such significant effects. The findings carry ramifications for the auditing profession, particularly in drafting auditing standards on risk assessment. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Pacific Accounting Review Emerald Publishing

The Relative Effects of Elements of Internal Control on Auditors’ Evaluations of Internal Control

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References (42)

Publisher
Emerald Publishing
Copyright
Copyright © 2006 Emerald Group Publishing Limited. All rights reserved.
ISSN
0114-0582
DOI
10.1108/01140580610732822
Publisher site
See Article on Publisher Site

Abstract

Internal control evaluation is a critical component of the overall audit process, mandated by auditing standards worldwide. These standards divide internal control structures into a number of elements, summarised as the control environment, information systems, and control procedures. Significant research exists as to auditors’ evaluations of internal controls. However, little work appears to consider the elements’ inter‐actions and relative significance. This study attempts to gauge the relative importance external auditors assign to the three elements. 94 practicing auditors evaluated internal control structures in two fictitious companies, one with strong internal control elements throughout, the other with one of the three set at a lower reliability level. The results indicate auditors consider control environment the most important element of internal control. The effect of weakening this element was that auditors assessed all three elements and overall evaluation as less reliable. Varying the other two elements did not have such significant effects. The findings carry ramifications for the auditing profession, particularly in drafting auditing standards on risk assessment.

Journal

Pacific Accounting ReviewEmerald Publishing

Published: Jul 1, 2006

Keywords: Auditing; Accounting regulation; Internal controls

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