Assessing control risk: Effects of procedural differences on auditor consensus;

              Assessing Control Risk: Effects of Procedural Differences on Auditor Consensus*
Jane E. Morton
William L. Felix, Jr.
University of Arizona
ABSTRACT
In 1988, Statement on Auditing Standards Number 55, "Consideration of the Internal Control Structure in a Financial Statement Audit", was issued by the AICPA as a replacement standard for AU Section 320, "The Auditor's Study and Evaluation of Internal Control", in an attempt to improve auditors' con-trol risk assessments. This paper describes the conceptual differences be-tween the old and new standards with respect to control risk assessment. In addition, results are presented for an experiment in which practicing audi-tors are asked to assess control risk following one of two risk assessment pro-cedures based on the two approaches suggested by the old and new standards. These tentative results, based on small sample sizes, do not indicate a clear "winner" in terms of consensus, however it appears that a procedural effect is present.
1. Introduction
Early in 1990, the auditor's responsibility for the evaluation and testing of a client's internal control structure was altered when Statement on Audit-ing Standards No. 55 (SAS 55), "Consideration of the Internal Control Struc-ture in a Financial Statement Audit", became effective. According to Temkin and Winters [1988, pp. 98], "It's objective is to enhance audit effectiveness by improving audit planning and sharpening the auditor's assessments of con-trol risk."
The new standard however, is not simply an attempt at integration of the old AU Section 320, "The Auditor's Study and Evaluation of Internal Control", and Statement on Auditing Standards No. 47 (SAS 47), "Audit Risk and Ma-teriality in Conducting an Audit." Significant changes also appear to have been made in the basic concepts underlying the old standards.1 Consequently, a
The authors would like to acknowledge the helpful comments of Bill Waller.
1The conceptual changes in SAS 55, described in the next section of this paper, resulted in a number of changes to other professional standards (including SAS 47.) Throughout the paper, we use AICPA Professional Standards, Volume 1 (June, 1987) to reflect pre-SAS 55 standards. We refer to these as the "old standards".
109