Faculty Publications

Is Adopting the Risk-based Approach Another Dimension of Auditor Industry Specialization? Evidence from a Partial Mediation Analysis in Integrated Audit Settings

Document Type

Article

Keywords

audit effectiveness and efficiency, auditor industry specialization, checklist-based approach, integrated audit, partial mediation analysis, Risk-based approach

Journal/Book/Conference Title

Review of Pacific Basin Financial Markets and Policies

Volume

28

Issue

3

Abstract

This research extends auditor industry specialization literature into the settings of an integrated audit of control audit-arm (CA) and financial audit-arm (FA) by creating an aggregate, four-dimensional specialization construct that encompasses the four established dimensions (industry knowledge, economies of scale, auditor size, and tenure). Four-dimensional specialists vary in their approach to performing direct effects (testing controls; testing accounts) and indirect effects (tracing risks interactively between audit-arms) and achieve varied equilibriums. Empirical analyses support that CA’s direct effect, CA’s indirect effect, FA’s direct effect, and FA’s indirect effect contribute 45-15-35-5 (44-24-26-6) percent, respectively, to the baseline-effectiveness (full-effectiveness) equilibrium. The 15-to-24 (35-to-26) percent increase (decrease) in CA’s indirect effect (FA’s direct effect) suggests that the four-dimensional specialists in the full-effectiveness equilibrium leverage risk tracing (eliminate substantive procedures) concurrently by nine percent. Accordingly, adopting the risk-based approach constitutes the fifth dimension that discerns the “specialists” who cannot achieve full effectiveness, let alone efficiency.

Department

Department of Management

Original Publication Date

9-9-2025

DOI of published version

10.1142/S0219091524500334

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