The Relative Effects of Elements of Internal Control on Auditors’ Evaluations of Internal Control

O'Leary, Conor, Iselin, Errol, & Sharma, Divesh (2006) The Relative Effects of Elements of Internal Control on Auditors’ Evaluations of Internal Control. Pacific Accounting Review, 18(2), pp. 68-95.

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Internal control evaluation is a critical component of the overall audit process, mandated by auditing standards worldwide. These standards divide internal control structures into a number of elements, summarised as the control environment, information systems, and control procedures. Significant research exists as to auditors’ evaluations of internal controls. However, little work appears to consider the elements’ inter-actions and relative significance.

This study attempts to gauge the relative importance external auditors assign to the three elements. 94 practicing auditors evaluated internal control structures in two fictitious companies, one with strong internal control elements throughout, the other with one of the three set at a lower reliability level.

The results indicate auditors consider control environment the most important element of internal control. The effect of weakening this element was that auditors assessed all three elements and overall evaluation as less reliable. Varying the other two elements did not have such significant effects. The findings carry ramifications for the auditing profession, particularly in drafting auditing standards on risk assessment.

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ID Code: 7129
Item Type: Journal Article
Refereed: Yes
Keywords: Internal Control, Auditors, Evaluations, Elements of Internal Control
DOI: 10.1108/01140580610732822
ISSN: 0114-0582
Subjects: Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > ACCOUNTING AUDITING AND ACCOUNTABILITY (150100) > Auditing and Accountability (150102)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Copyright Owner: Copyright 2006 Emerald
Copyright Statement: Reproduced in accordance with the copyright policy of the publisher.
Deposited On: 26 Apr 2007 00:00
Last Modified: 29 Feb 2012 13:21

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