What is it about?
Audit partners who knew of an unrelated material weakness required testing of a greater percentage of the revenue subject to the compensating control, and preferred a higher level of precision in the compensating control, than partners who were told that there were no other material weaknesses. Differences in inherent risk did not significantly influence partners' (1) assessment of the control design effectiveness, or (2) the extent of evidence necessary for testing the operating effectiveness of that compensating control.
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Why is it important?
This study has both audit efficiency and effectiveness implications. Given that the results indicate that partners’ knowledge of an existing unrelated material weakness leads to an increase in testing of a compensating control, this could lead to over auditing. Also, given that inherent risk did not impact the level of testing of a compensating control, this could lead to under auditing
Perspectives
From an audit client perspective, clients could incur additional control costs and build inefficiencies into their ICFR, if auditors require a higher level of precision in a compensating control than might be necessary.
Audrey A Gramling
Oklahoma State University System
Read the Original
This page is a summary of: Audit Partner Evaluation of Compensating Controls: A Focus on Design Effectiveness and Extent of Auditor Testing, Auditing A Journal of Practice & Theory, November 2010, American Accounting Association,
DOI: 10.2308/aud.2010.29.2.175.
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