Do Client Firms’ IT Implementation Increase Audit Risks?

• In Event: Short Presentations: AIS Valuation

Abstract

The advances in information technology have changed the way firms conduct business in using electronic commerce strategies, preparing financial reports and having their financial statements audited. Therefore, client firms’ IT implementation could have effects on audit risk. On one hand, the IT complexity creates challenges for auditors in auditing the effectiveness of internal control and detecting misstatements caused by error and fraud. On the other hand, IT decreases audit risk by improving operation and internal control effectiveness which may decrease inherent and internal control risk. Therefore, the relationship between clients’ IT asset portfolios and audit risk remains an empirical question. Using proprietary IT assets data of US firms during 2000 to 2009, we find that IT asset portfolios are positively related to audit fees and abnormal audit fees and negatively related to the probability of issuance of a going-concern audit opinion. Meanwhile, we find that audit tenure moderates the above relationship due to the learning effect.

Authors

• Joseph H. Zhang, The University of Memphis

• Zabihollah Rezaee, The University of Memphis

• Shipeng Han, The University of Memphis

• Ling Xue, The University of North Carolina at Greensboro