Can restructuring the risk assessment process during the planning phase of a group audit improve auditor performance?

Audits of reporting groups are increasingly common, yet inspection findings suggest that auditors do not always sufficiently respond to the risks of material misstatement on these engagements. In this study, we investigate whether a restructured risk assessment approach increases auditors' sensitivity to group audit risk factors. We find that auditors following a restructured approach in which each component's quantitative and qualitative risk factors are separately considered make more effective group audit planning decisions compared to auditors following a holistic approach in which quantitative and qualitative risks are jointly considered. In particular, auditors following the restructured approach are more likely to categorize qualitatively risky components as individually significant, plan to perform more substantive tests on these risky components (but a similar amount of total work for the group as a whole), and set lower materiality thresholds. Our findings should inform standard setters with their current revisions of group audit standards