Experimental Tests of a Descriptive Theory of Combined Auditee Risk Assessment

This research experimentally investigates how auditors make combined auditee risk judgments during the planning of the audit of an account balance in a client's financial statements. If auditors fail to assimilate risk factors according to normative criteria, inefficient or ineffective audits may result. First, we examine whether the predictions deduced from three normative models of auditee risk determination proposed in the auditing literature are descriptive of auditors' judgments. Second, a descriptive model of combined auditee risk assessment was induced from the data by the methods of psychological measurement. The results of the first analysis indicate that none of the normative models are descriptive of auditors' judgments. The results of the second analysis suggest that auditors' judgments of combined auditee risk are best explained by the range model, a configural-weight model, as compared to the alternative descriptive models tested. The results of the experiment suggest that auditors' judgments deviate significantly from normative criteria. Implications for the theory and practice of combined auditee risk assessment are discussed