Coping with identified budgetary time constraints: Auditors' industry specialization and risk assessments

In this study, I investigate the effect of auditors' industry specialization and risk assessments on the types and extent of strategies used by auditors to cope with budgetary time constraints that are identified in the earlier stages of an audit. I posit that auditors' knowledge of the client's industry will affect their risk assessments and that auditors' knowledge of the client's industry and risk assessments will affect the types and extent of coping strategies employed by auditors.;Thirty-six industry-matched auditors (firm-designated bank audit specialists) and 62 industry-mismatched auditors (firm-designated audit specialists in industries other than the bank industry) complete either a higher-risk audit case or a lower-risk audit case set in the bank industry. Higher and lower risk levels are achieved by manipulating the background and financial information provided in the audit case. The participants are asked to assess the risk of the bank loans being significantly misstated. The participants are further provided with a preliminary audit budget and audit procedures for the bank loans and instructed to finalize the audit budget and audit procedures in light of an anticipated budgetary constraint.;The results of the study suggest that industry specialization affects auditors' risk assessments. Specifically, industry-matched auditors make better discerning risk assessments than do industry-mismatched auditors. Industry-matched auditors also use more appropriate coping strategies and revise the audit plan and budget more appropriately than do industry-mismatched auditors. Auditors' industry specialization separately and jointly with auditors' risk assessments influence the types and extent of coping strategy that auditors used to mitigate identified budgetary constraints. Industry-matched auditors' coping strategies and budgetary constraint mitigation are generally more sensitive to their risk assessments than are industry-mismatched auditors' coping strategies and budgetary constraint mitigation. The quality, types and extent of coping strategies employed by auditors in mitigating identified budgetary constraints are likely to affect the time stress experienced and behaviors exhibited by auditors later on in an audit.