Open Access Article

Title: Client risk calibration in PCAOB audits: an analytical procedures panel risk assignment protocol

Authors: Edward J. Lusk; Michael Halperin

Addresses: The State University of New York (SUNY) at Plattsburgh, 101 Broad St., Plattsburgh, NY 12901, USA; Department of Statistics, The Wharton School, University of Pennsylvania, 3730 Walnut St., Philadelphia, PA, 19104-6340, USA ' The Wharton School, University of Pennsylvania, 3420 Walnut St., Philadelphia, PA, 19104-6340, USA

Abstract: Analytical procedures are recommended by the AICPA to calibrate the risk level of the audit. In this paper, we detail an Analytical Procedures technique to aid in assigning an initial risk level to the audit client. Following the AICPA analytical procedures guide, we offer a panel analytical procedures model that uses a priori accrued firms to form benchmarking triage for the main effect: risk level. After testing for the expected fixed effects of the firm benchmarks and also for the explicit input variable power, we show that the panel risk assignment protocol (PRAP) only needs a set of high risk firms as the client benchmarking group. We offer six other sources of risk-related information that may inform the audit regarding client relative risk at the planning stage of the audit. Finally, the final scoring of the risk level is produced by a VBA-Excel decision support system that is available free as a download without restrictions on its use.

Keywords: longitudinal benchmarking; client risk profiling; PCAOB audits; Public Company Accounting Oversight Board; analytical procedures; audit risks; auditing; panel risk assignment protocol; audit clients; audit planning; decision support systems; DSS; USA; United States.

DOI: 10.1504/IJAUDIT.2016.078167

International Journal of Auditing Technology, 2016 Vol.3 No.1, pp.1 - 21

Received: 10 Sep 2015
Accepted: 21 Jan 2016

Published online: 05 Aug 2016 *