This study uses working paper data from 60 clients of a U.S. Big 4 auditing firm to directly examine the influence of auditor‐assessed management integrity on auditor's assessments of risk of material misstatement, audit planning, and audit outcomes. We hypothesize that management integrity is related to preliminary risk assessments, and to the persuasiveness, timing, and extent of planned audit procedures. We also hypothesize that the management integrity assessment influences the auditor's evaluation of source credibility of management provided evidence beyond its influence via risk assessments (Beaulieu 2001). Finally, we expect the auditor's management integrity assessment to be associated with the discovery of client misstatements.
When we add management integrity to empirical models motivated by Mock and Wright (1993, 1999), we find support for our hypotheses. However, all but two hypothesized associations disappear when we add an indicator variable for prior‐year errors. We continue to find that management integrity impacts the persuasiveness of evidence sought beyond what is suggested by the auditor's risk assessment. Interestingly, even after controlling for prior‐year errors, we find an inverse association between the auditor's assessment of management integrity and the likelihood of detecting misstatements, suggesting the management integrity assessment aids the auditor in ultimately discovering errors. The results support the importance of assessing management integrity in planning the audit and discovering misstatements.