Limitations in the audit risk model, such as those by Cushing and Loebbecke [1983] are acknowledged. These limitations include the aggregation problem, the lack of independence between variables, the ex post nature of audit risk, and the fact that the model focuses on only one decision - the audit approach.
Although not countervailed, some of these limitations are addressed in ABREMA, at least to some extent, by, for example, suggesting that audit risk be evaluated not just at the financial statement level, but also at the account balance and class of transaction level (which addresses the aggregation problem); that emphasis be given to the evaluation of the overall risk of material misstatement (IR x CR) rather than individual evaluations of inherent and control risk (lack of independence problem) [fn]; that audit risk only be considered from an ex ante view point (ex post problem); and that audit risk and/or its components should be (re)evaluated during each of the audit stages (singularity of focus).
In addition, and consistent with guidelines issued by the professional bodies, audit risk components are considered in this model as discrete, rather than continuous, variables.
Thus, viewers are advised that although attempts have been made to overcome some of the limitations of the audit risk model, these limitations should nevertheless be borne in mind when evaluating the validity of ABREMA.
The second limitation relates to the apparent failure of ABREMA to consider the iterative nature of the decision making process.
Ashton & Ashton [1988] state that audit judgement is "a continuous, incremental process which is conditional upon information that arrives sequentially and which results in cycles of choices, actions, and feedback that promotes learning". This view supports that of Gibbins [1984] who states that audit "judgement is a continuous process of receiving information (including feedback from previous actions) choosing to act or not to act, receiving further information, choosing to act or not to act. etc.." and that "as a normal routine, judgment proceeds incrementally rather than by gathering full information and integrating it all before choosing a response".
ABREMA, and in particular the tabular representation of the model, infers that auditors gather all necessary evidence before evaluating the evidence, rather than the incremental and continuous process described above. However, the underlying decision making activities depicted in the written description of the model are not inconsistent with an incremental, continuous process. The reason that the tabular representation does not present this approach is to keep the representation simple. Viewers should be aware, therefore, that although the tabular representation of the model may, in fact, give the impression that the iterative nature of information processing and decision making has been ignored, the written material is consistent with such an approach.
The third limitation relates to the application of the concepts of audit stages to practical auditing. The fact that the five audit stages in ABREMA are consecutive, and in particular that the control testing stage precedes the substantive testing stage, implies that auditors perform all work in relation to testing the effectiveness of controls before gathering evidence as to the substantiveness of account balances.
In practice, evidence relating to the effectiveness of controls over an account balance may be gathered at the same time as the evidence relating to the substantiveness of the account balance (the so called "dual purpose test"). The failure of the model to so depict audit practice is intentional and is done in order to emphasize that the nature, timing and extent of substantive procedures is dependent, to a large extent, on the results of any related tests of controls.
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