This paper reports the results of a verbal protocol study designed to assess how variation in inherent‐risk factors affects auditors' decision processes throughout audit planning, including the tasks of risk assessment, generation of hypotheses, and development and justification of audit programs. The audit risk model prescribes that audit program plans should be designed to respond to client risk factors. Auditors should be able to identify potential errors that may occur given the risks present and design program plans to test for the presence of these errors. Client inherent‐risk factors were varied between subjects to create high‐ and low‐risk conditions and a seeded error enabled assessment of effectiveness in hypothesis generation and audit test planning.

We find that client risk factors have pervasive effects throughout planning, affecting the concentration on error hypotheses, audit program effectiveness, and justification for audit tests. However, risk factors were not associated with differences in extent of testing or with justification of extent decisions. Our findings also suggest that recognition of risk factors may provide a stimulus to auditors with less experience to improve performance in the planning process. These results highlight the importance of identifying and communicating client risk factors to all audit team members in the planning stage.

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