Effects of strategic audit planning on audit performance: mediator role of audit judgment and quality of pubic auditors in Thailand.

Author:Sinchuen, Chananda

    Thailand was one of several countries mostly suffering from the Asian Financial Crisis that began in July 1997, together with the increased fears of worldwide economic meltdown (financial contagion). The crisis had major significant macro-level effects, including acute reductions in values of currencies, stock market, and other asset prices. Therefore, many businesses collapsed or faced bankruptcy (Weisbrot, 2007). All organizations desire to survive in this crisis that affects their manager do fraudulent activities such as changing the accounting policy in order to create financial statement which efficiency of firm performance. Many firms will use different strategies (Ghosh and Olsen, 2009), designs of accounting management control systems (Chenhall, 2003) and potential to maintain the attribute (Cheng and Kesner, 1997) that is, major influences on the development of new audit procedures overtime have been pressure to enhance audit performance, the rarely considered explicitly to higher auditor's reputation (Brocheler et al., 2004) that consists of two components: audit efficiency and audit effectiveness. Audit efficiency is the ability to meet the budget and operationlized it as the percentage deviation between actual and budgeted hours (Apostolou et al., 1993). Audit effectiveness, the auditors should increase in auditor's sensitivity to fraud (Deshmukh et al., 1997). Accordingly, Gray (2003) suggested that timely, accurate, and complete cost reporting is essential to project management. However, the growing number of owners, developers, and even contractors who have overcome these notions and utilized construction auditing are enjoying a competitive advantage and performance.

    Nowadays, the performance of external auditing becomes a crucial role because stakeholders' demand for greater protection from financial-statement fraud (Peecher et al. 2007). Additionally, auditors' responsibilities must provide the information creditability and quality including accuracy, reliability, completeness, timeliness and relevance for stakeholder. And the information should reflect the "true and fair". Then, in June 2007, The Public Company Accounting Oversight Board's (PCAOB) auditing was responsible in performing the auditing procedures during an audit engagement. However, the auditing standard provides the auditor to use high-level direction for final audit's responsibility, not only to technical training and knowledge, but also to discussion about planning and control of audit engagement (PCAOB, 2007).

    The auditing planning should guide auditors to perform the auditing procedure a variety of tasks to arrive at an audit opinion suitable for financial statements (Bonner and Pennington, 1991; Abdolmohammadi, 1999; Nelson Mark and Tan Hun-Tong, 2005), risk assessment, fraud risk analysis (PCAOB, 2007; Bonchi et al., 1999). Especially, the activity in the area of fraud detection of auditors is related to risk assessments, including the audit-risk model and related audit planning decisions, Houston et al. (1999) find that the audit risk model explains of auditors' audit planning decisions. Additionally, the material mis-statements occur where there is a significant risk for auditors; hence the audit plan should indicate an increased level of professional skepticism (Brody et al., 1998). Therefore, auditor should use strategic systems to improve audit judgment for meeting society's needs and demands for high-quality audits (Peecher et al. 2007). Professional auditors have responded by implementing major changes in their strategy audit planning by attempting to develop their capabilities, skill and knowledge of strategic of audit planning for appropriately posit for audit engagement. Lin and Fraser (2003) and Imhoff (2003) indicated that the auditors increased use of analytical procedure (APs) at the planning and testing stage of the audit with the expectation for effective and efficient audit performance.

    The purpose of this study is to investigate the influence of the strategic audit planning on audit performance through the mediating effect of audit judgment and quality. And also, it examines two moderating effects: environment uncertainty and time pressure influence on the relationships. This study will help determine adopting strategic audit planning measures which are worth the effort of audit judgment and quality. It will also help identify what relationships seem to be significant, providing guidance to auditors in what appropriate practices that may be worthwhile to adopt.

    The remainder of the paper is organized as follows: The second section provides the literature review and links to the hypothesis development, while the third addresses the research methodology. The fourth section presents the empirical results and our reasonable discussion. The study's contributions and suggestions for future research are presented in fifth section. The conclusions are provided in the last section.


    The strategic audit planning is important major driving forces of audit judgment and quality of audit (Humphrey and Moizer, 1990; AndersonGough et al., 1998; Kosmala MacLullich, 2003). The component of strategic audit planning that we define in this study is internal control system evaluation, business risk assessment, fraud risk analysis, and technology intensity. Correspondingly, in the previous literature, strategic audit planning obviously plays significant roles in explaining audit judgment and quality. In time, all components of strategic audit planning are hypothesized definitely and possibly to have positive relationships with audit judgment and quality. Therefore, the research model in this study presents the strategy audit planning, audit judgment and quality, and audit performance relationships as shown in Figure 1.

    2.1 Strategic Audit Planning

    Audit planning is a difficult task because it has two conflicting issues: maximizing audit benefits, and minimizing audit cost. Maximizing audit benefits is defined as auditors to be selected ways that detect fraud or error. Minimizing audit cost refers to subjects selected a way that resources needed to succeed (Bonchi et al. 1999). The audit planning is designed to enable the auditors to perform and business risk assessment and develop a specific audit program and scope to test in the audit processes. As shown in Figure 1, the four components of strategic audit planning are internal control system evaluation, business risk assessment, fraud risk analysis, and technology intensity.

    Internal control system evaluation The Public Company Accounting Oversight Board (PCAOB) requires independent auditor to attest and report on client internal controls. Ritchie and Khorwatt (2007) defined internal control system evaluation as it focuses on the depth understanding and gives precedence to assess client's internal control systems.

    Business risk assessment has numerous definitions: such as Eilifsen et al. (2001) defined audit risk with reference to financial statement error, to business risk defined. They also defined risk as an entity that will fail to meet its objectives. Consistent with Chesbrough and Rosenbloom (2002); Curtis and Turley (2006) defined audit risk more formally later; for now, audit risk can be thought of as the possibility that the auditor will issue an inappropriate opinion when the financial statements contain one or more material misstatements (i.e., departures from generally accepted accounting principles). Dimensions of Audit risk are as follows: Inherent risk, control risk, and detection risk.

    Fraud risk analysis Curtis and Turley (2007) and Lee et al. (2003) defined as the assessment of firm's activities which are potential to make fraudulent behavior. Therefore, auditor should indepth understanding of a business, its environment and the business processes in order to detect management fraud and business failure risks.

    Technology intensity refers to the auditor employing the appropriate advance technology in audit process. Because auditing process change reflects the change in technological audit practices, which will be recognize as (1) the centrality of legitimation processes and (2) the co-construction of audit technology and the audit filed (Robson et al., 2007). Therefore, auditors should employ system that supports audit process or implement it to enhance efficient and effective audits (Robson et al., 2007; Dowling and Leech, 2007).


    Auditor judgment changes over time and it is not a similar uniform among firms (Robert and Randal, 2005). Therefore, auditor should concentrate on audit planning judgment. Especially, client's internal control system will affect audit judgments more in dynamic environments and when internal control assessments are elicited explicitly (Kaplan, 1985). In addition, the auditors should gain a deep understanding of the client's accounting and internal control system in order to use professional judgment to plan and to improve an audit process, especially, to prevent or detect material mis-statements in the financial statements (Ritchie and Khorwatt , 2007). Furthermore, auditors focus on business risk assessment, reduce levels of testing, especially in relation to significant judgments and estimates (Curtis and Turley, 2007) However, the scope of the planning and risk assessment processes are changed by the innovation. Business risk assessment is possible to enhance audit effectiveness (Curtis and Turley, 2007). Especially, firms that have riskier (fraud risk) must hire auditors that have higher quality of judgments (Lee et al., 2003). Consequently, auditors should use audit technology such as Audit support systems. More importantly, auditor should apply key technology to enhance efficient and effective audits for decision aids (Dowling and Leech, 2007).

    Additionally, Doyle et al., (2007) indicated that firms with material weaknesses in...

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