Research Summary 11: Corporate Governance and Management Control Philosophy

Strength of management oversight affected auditors’ preplanning and planning decisions.
BY JEFFREY COHEN AND DENNIS HANNO

  

uditors need to understand a client’s corporate governance structure and management control philosophy and how these factors affect their preplanning (for example, client acceptance, business risk) and planning judgments (such as extent and timing of testing).

In this study, we asked 96 practicing auditors to evaluate a hypothetical case in which a client’s corporate governance and management control philosophy was either strong or weak. We adapted the case from COSO’s evaluation tools. As expected, the governance structure and management control philosophy affected both preplanning and planning judgments. For example, auditors were more likely to accept a potential client and to reduce substantive testing when those elements were strong. While our results were consistent with professional guidance, auditors did not rely more on interim testing, contrary to our expectations, when governance was strong. Overall, the results indicated that auditors were sensitive to a company’s corporate governance and management control philosophy.

For the full text, see Auditing: A Journal of Practice & Theory, Fall 2000, vol. 19, no. 2.

JEFFREY COHEN, CMA, PhD, is associate professor, Boston College, Carroll School of Management, Chestnut Hill, Massachusetts. His e-mail address is cohen@bc.edu . DENNIS HANNO, CPA, PhD, is associate professor of accounting, University of Massachusetts at Amherst.

This series is based on work published in Auditing: A Journal of Practice & Theory. The intent is to bridge the gap between researchers and practitioners by offering concise practice summaries of cutting-edge research in the field of auditing.

SPONSORED REPORT

Cybersecurity threats proliferating for midsize and smaller businesses

This report details how SMBs can properly protect private information from breaches, design and implement a cybersecurity policy, and create safeguards for training and education.

QUIZ

News quiz: Senate health care bill in the spotlight

Reports related to the Republican bill to repeal many provisions of the PPACA, other tax issues, and the giant AICPA ENGAGE Conference offered a diverse reading list for June. See how much you know about recent news with this short quiz.