Constructing the Audit Risk Assessment by the Audit Team Leader When Planning: Using Fuzzy Theory

Luis Porcuna-Enguix, Elisabeth Bustos-Contell, José Serrano-Madrid and Gregorio Labatut-Serer
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Luis Porcuna-Enguix: Departament of Economics and Social Sciences, CEGEA (Centre for Research in Business Management), Universitat Politècnica de València, 46022 Valencia, Spain
Elisabeth Bustos-Contell: Department of Accounting, Universitat de València, 46010 Valencia, Spain
José Serrano-Madrid: Department of Financial Economics and Accounting, Universidad de Murcia, 30003 Murcia, Spain
Gregorio Labatut-Serer: Department of Accounting, Universitat de València, 46010 Valencia, Spain

Mathematics, 2021, vol. 9, issue 23, 1-22

Abstract: The aim of this study is to construct the assessment of the expected audit risk by the audit team leader (ATL) during the planification phase of the audit. The ATL plays an important role within the audit, and even more so regarding small and medium-sized (SME) audit firms. The audit risk assessment is critical as relying more (less) on internal controls implemented by the client leads to performing less (more) substantive audit procedures. This is determined by the ATL based on their professional judgement and previous experience. The use of fuzzy theory has powerful potential into the audit arena, as the audit risk assessment (outcome) is critically related to the auditors’ judgement and perception. We argue that ATL characteristics are core conditions in determining the audit risk assessment when planning. Using hand-collected and private data from Spanish SME audit firms, we find that a comprehensive set of conditions must be given for perceived high audit risk. The results indicate that female and inexperienced ATLs planning the audit of indebted firms with high proportions of capital assets, less profitability, and with a larger board sizes, as they are expected to have bad internal control. The same conditions are met when expecting errors, as well as shorter audit tenures. Finally, conditions such as the ATL’s experience gains importance in expecting irregularities. This paper extends our understanding of the role of ATL characteristics on the audit risk assessment when planning and raising awareness on studying SME audit firm behavior.

Keywords: audit team leader; audit risk assessment; small- and medium-sized audit firms; planification; fuzzy theory (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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