Abstract ABSTRACT: The audit risk model was used to generate hypotheses concerning the effect that internal control evaluation exerts on audit planning decisions. Specifically, directional predictions concerning the contingent nature of the effects of the susceptibility of accounting processes to error, the strength of the internal control design, and the strength of the related compliance tests were developed. These hypotheses were then compared to the behavior exhibited by a group of experienced auditors who completed a highly realistic series of case studies. The auditors' decisions were consistent with the predictions developed from the audit risk model. In addition, the paper introduces a modification of the standard policy-capturing method that allows the use of complex realistic case materials in a powerful, internally valid experimental design which decreases problems with experimental demand. It also provides initial evidence on experts' perceptions of the effectiveness of different approaches to compliance testing and further evidence on auditor consensus in a more structured audit environment.
Libby et al. (1985) studied this question.