The Effects Of Individual Differences And Industry Stability On Auditors' Perceived Risk Assessments

Abstract

The U. S. Public Oversight Board’s Panel on Audit Effectiveness suggests that both audit effectiveness and efficiency may benefit from greater consideration being given to auditors’ risk assessments. The association between several independent variables (e.g., tolerance-for-ambiguity, field dependence/independence, and industry stability) and auditors’ perceived risk assessments is examined in an experimental setting. Six hypotheses suggested from a review of the literature are tested. The results indicate that industry stability and (to a lesser extent) tolerance-for-ambiguity (TFA) each have a main effect on auditors’ perceived risk assessments. Further, these two variables are found to have a moderately significant interactive effect on such assessments. The level of industry stability (stable or unstable) is found to affect the risk assessments of low-TFA subjects more than high-TFA subjects. Implications of these results for the audit process are provided.