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- Title
The effects of accounting comparability, income smoothing and engagement partners on audit risk.
- Authors
Kim, Yong‐Shik; Park, Sang‐Hun
- Abstract
This study investigates whether accounting comparability, income smoothing and engagement partners affect audit risk perceived by auditors. We find that both accounting comparability and income smoothing reduce perceived audit risk and that the interaction of these two variables incrementally reduces perceived audit risk. We also find that the interaction of accounting comparability and income smoothing incrementally reduces perceived audit risk when engagement partners exert more effort in auditing. The results imply that when clients exhibit both cross‐sectional and the time‐series informativeness of financial statements, auditors lower their perceived audit risk and reduce risk premium, which decreases deadweight cost to these clients. This is especially the case when engagement partners exert more effort in auditing. To the best of our knowledge, this is the first empirical study to test the interaction effect of accounting comparability, income smoothing and engagement partners on perceived audit risk.
- Subjects
AUDIT risk; AUDITING; FINANCIAL statements; INCOME accounting; RISK premiums; ACCOUNTING
- Publication
International Journal of Auditing, 2024, Vol 28, Issue 2, p270
- ISSN
1090-6738
- Publication type
Article
- DOI
10.1111/ijau.12330