Risk assessments in Maltese external audit planning : an evaluation

Abstract

Purpose: The study aims to establish the extent to which Big Four, Medium Non-Big-Four and Small Non-Big-Four Audit Firms adjust their planned level of audit work to reflect the result obtained from their preliminary risk assessments. This is achieved by assessing the interrelationships among engagement-level, account-level and assertion-level risks. Moreover, the study examines the frequency with which audit firms modify their audit plans to be in keeping witht. the dynamic risk assessment facors Design: These objectives are achieved by examining quantitative data elicited from the working papers of 127 varied audit clients of 12 Big Four and Non-Big-Four Audit Firms. Semi-structured interviews were also held with two Partners and a n Audit Manager, each belonging to a different type of Audit Firm. Findings: The study revealed that, unlike Big Four and Medium Non-Big-Four Audit Firms, wherein moderate, statistical associations prevail between their risk assessments and audit plans, the planning dimensions of Small Non-Big-Four Firms are not principally risk-adjusted. This, therefore, indicates that Small Firm's audit plans are possibly driven by other salient factors, as the i availabilty of staff and the audit fees charged. Further analysis established that Small Audit Firms conduct a considerable amount of audit work even when clients' business risk assessments are low. Meanwhile, it has been noted that Big Four Firms are the most conscientious when it comes to ensuring that experienced personnel devote more time to audits where clients' business risks and fraud risks are deemed high. It has finally been concluded that, over the past decade, the plans and programs of Big Four and Medium Non-Big-Four Audit Firms have been mod alternative tests which are more esponsive to the clients' overall risk assessments, thereby making for more fficient and e re ffective audits. Value: It is hoped that this study's conclusions and recommendations will generate further developments in the area, particularly with respect to: providing more active support to Small Non-Big-Four Audit Firms; devoting ore attention to fraud risks; and doubling audit firms' efforts to work wiser ather than mr longer hours.