The Effect of Partner Preferences on the Development of Risk-Adjusted Program Plans

Professional standards require auditors to tailor audit testing to the level of assessed risks. The purpose of this experimental study is to explore the impact of a partner preference on the extent to which program plans are risk-adjusted. Partner preferences for either efficiency or a “balanced” approach (consideration of both effectiveness and efficiency) were manipulated. Sixty-one auditors completed a case where they were asked to perform program planning for the revenue cycle. The results show that there was a significant interaction between auditors’ risk assessments and partner preferences. When there was an incentive for efficiency as prompted by the partner, even though auditors recognized higher risks compared to the prior year, they did not correspondingly alter audit program plans. In contrast, a balanced partner preference led to higher risk assessments and a greater number of tests and hours than for the efficiency condition.