Audit Risk: An Investigation Into Workload Compression And Materiality Towards Audit

ABSTRACT

This research investigates the effects of applying materiality under workload compression

demands, on the quality of audited financial statements. Carrying out interviews and

distributing questionnaires to the audit staff, research found that application of materiality

under workload compression conditions is literal and audits are of lower quality when

compared to audits performed under non-workload compression conditions. Evidence was

also found indicating that workload compression promotes auditors to engage in reduced

audit quality acts. Thus, auditors do not adjust audit stubbornness with respect to identified

misstatements in workload compressed firms. The research is of major contribution as it

represents one of the few attempts to investigate the effects of workload compression and

materiality application from a pragmatic perspective and besides using junior auditors as

subjects, audit seniors were also included in the same manner of approach as well as

interviewing managers. Since eventual review process (quality control checks) to an audit

take place at the later stages of the audit after working papers and other necessary

documentation are reviewed by senior auditors and managers, this study provides evidence

that workload compression affects audit quality across all levels of the audit firm staff. The

findings of this study draw attention for the need of espousing regulations that would evenly

spread auditors’ workloads year wide. For example, innovative policies might be set in order

to limit the number of firms with a December fiscal year-end date or increase the proportion

of procedures that auditors are sanctioned to perform before regarding and accepting account

balances as immaterial. This could be implemented in an attempt to harmonize discharge of

professional judgment in the determination of materiality thresholds.