What question did this study set out to answer?

This research aims to examine how decomposition affects auditors' assessments of allowable risk in substantive testing.

June 15, 2026

Decomposition and Assessments of Audit Risk.

Key Points

This research aims to examine how decomposition affects auditors' assessments of allowable risk in substantive testing.
Conducted an experimental test comparing different assessment approaches for planned substantive tests.
Evaluated auditor assessments using direct, holistic, and decomposition methods.
Analyzed assessments based on outcomes from various combinations of intuitive and algorithmic approaches.
The experimental results supported the hypothesis that decomposition/intuitive combination assessments differ from decomposition/algorithmic assessments.
No significant difference was found between direct, holistic assessments and those made using a decomposition approach.
Concerns were raised about auditors' internal consistency in risk assessments and the appropriateness of using SAS No. 39 as a framework.

Abstract

Abstract The purpose of this paper is to investigate empirically the effects of decomposition on auditors' assessments of the allowable risk of incorrect acceptance for planned substantive tests of details (TD) within the framework of the audit risk model in SAS No. 39. It is hypothesized that (1) the assessments of TD made by auditors using a direct, holistic approach will be different than the assessments of TD made by auditors using a decomposition approach and (2) assessments of TD using a decomposition/intuitive combination approach will be different than assessments of TD using a decomposition/algorithmic combination approach. An experimental test supported the second hypothesis but not the first. Based on the experimental results, some questions are raised concerning the internal consistency of auditors' risk assessments and the appropriateness of the model in SAS No. 39 as a framework for decomposing and articulating audit risks.

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