The effects of auditor type, auditor experience level, and audit firm structure on audit evidence decisions: An empirical examination under cases of both high and low fraud risk

Recent studies conducted by KPMG Peat Marwick and the Association of Certified Fraud Examiners indicate that fraudulent financial reporting has become one of the fastest growing financial crimes in our country. Reacting to pressure from the SEC and others, the Auditing Standards Board of the AICPA issued a new standard (SAS No. 82) in 1997 to clarify auditor responsibilities with regard to fraud detection and also set forth performance standards providing guidance on how to assess fraud risk.; Since the detection of fraudulent financial reports is largely dependent on audit evidence decisions, this study seeks to determine whether the results of a fraud risk assessment are likely to significantly impact the nature, extent, and timing of audit procedures performed. In addition, the study examines whether auditor type (external vs. internal), auditor experience level, and audit firm structure may play a role in explaining part of the variability in audit decision-making.; The sample of 192 internal and external auditors responded to a series of questions from one of two versions of a case study which incorporates different aspects of past cases utilized by Knapp (1995) and Zimbelman and Hoffman (1997). The data was summarized and analyzed using a combination of factor analysis, ANCOVA, and t-tests. The results indicate that audit evidence decisions are significantly affected by the auditor assessment of fraud risk at the planning stage and thus support the main hypothesis in the study. There were also some significant differences found in the audit procedure responses of the internal and external auditor groups. There was no support, however, for the hypotheses testing whether audit structure and audit experience account for some of these differences.; This study contributes to the body of literature through its inclusion of (1) internal auditors in the sample group, (2) the degree of audit structure as a variable to potentially explain variations in audit evidence decisions, (3) a variable measuring the effect of prior exposure to management fraud, and (4) audit procedures related to both timing and staffing issues.