Audit Programs and Audit Risk: A Study of Japanese Practice

The current paradigm in audit practice for evidential planning is the Audit Risk Model. However, the notion of relevant risks has broadened with the adoption in recent years of holistic audit approaches encompassing business and process risks and an increased focus on fraud risks. This study examines whether audit planning is ‘risk adjusted’ using archival data from 235 clients from a well‐established audit firm in Japan. We address all four aspects of audit planning (nature, extent, timing and staffing) and examine a wider variety of client risks than prior archival studies in order to reflect the current holistic audit approaches of global auditing firms. The main results indicate that although audit planning is based on the level of and change in assessments of many audit risk variables, the associations between client risks and audit plans are rather modest. In this respect, our findings are consistent with those from prior research. We also find that client risks that comprise business risk and fraud risk affect audit planning to some extent. Finally, we report exploratory results suggesting a substitution effect between audit planning judgments in response to higher client risks such as increasing the extent of validity tests while decreasing the extent of confirmations.