Auditor Detected Errors and Related Client Traits - A Study of Inherent and Control Risks In A Sample of U.K. Audits

A study was conducted of client traits associated with errors in audit populations. Data provided by 6 national accounting firms in the UK were compiled through a research instrument completed by audit managers. Of the 75 instruments sent to the participating firms, 55 usable responses were received. For each audit, client information was obtained regarding 2 years' audits. A total of 647 errors were reported, 299 from the prior year's audits and 348 from the present year's audits. Regression analysis is employed to test the association between client traits and relative error size (monetary error divided by sales). A nonlinear relationship is observed between client traits and the size of detected errors. Return on assets and budget pressure represent inherent risk traits that are found to be related to the size and direction of errors. Personnel problems are often noted, but they are most commonly associated with the size rather than the direction of errors. Measures of control risk traits are rarely associated with errors.