The influence of culture on auditors' evaluation of internal control and assessment of control risk

Generally Accepted Auditing Standards (GAAS) require auditors to evaluate internal control and assess control risk when performing an audit. Among the factors to be considered are the control environment, control activities, management's attitudes toward internal control, and culture. Research on how, or whether, culture influences auditors' evaluation of internal control and assessment of control risk is lacking in the literature. The purpose of this study is to serve as a first step in determining whether culture influences auditors' evaluation of internal control and assessment of control risk and if so, how. An analysis of variance (ANOVA) was performed on a non-random sample of 200 CPAs in the U.S. to determine whether there are differences in auditors' evaluation of internal control and assessment of control risk in different cultures. Using Hofstede's cultural dimensions (individualism, power distance, uncertainty avoidance and masculinity), the results of the study indicate that auditors evaluate internal control and assess control risk significantly different for companies that operate in countries that are on opposite ends of the cultural continuum as measured by Hofstede's dimensions. The results of the test suggest that for internal control there is a “culture risk” at work that can be defined as the risk that an entity's internal control may be less (more) effective, with a higher (lower) degree of control risk, purely as a function of the culture in which the entity operates. Auditors assess control risk higher for companies operating in countries with a low individualism score, a high power distance score, and a low uncertainty avoidance score. They also evaluate total internal control as less effective in countries with a low individualism score, a high power distance score, a low masculinity score and a low uncertainty avoidance score. Areas for future research are suggested.