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  • Jennifer M Mueller-Phillips
    Training Auditors to Perform Analytical Procedures Using...
    research summary posted February 24, 2015 by Jennifer M Mueller-Phillips, tagged 08.0 Auditing Procedures – Nature, Timing and Extent, 08.01 Substantive Analytical Review – Effectiveness, 09.0 Auditor Judgment, 09.03 Adequacy of Evidence 
    Title:
    Training Auditors to Perform Analytical Procedures Using Metacognitive Skills
    Practical Implications:

    This research furthers the understanding of auditors’ judgment performance in four important ways. We show that

    • Effective training in metacognitive skills increases auditors’ diagnostic reasoning by enabling them to control and direct their thinking.
    • Training in both divergent and convergent thinking provides significantly better results than only learning to think divergently. Because the former are better able to piece together all necessary facts.
    • The key to performance improvement due to training in both divergent and convergent thinking is a reduction in a psychological mechanism called “consistency checking.” Auditors trained to use both tend to avoid premature elimination of explanations, instead subjecting explanations they generate to subsequent, explicit evaluation. An important implication of this is that for auditors who try to do both kinds of thinking simultaneously rather than sequentially the best explanation for a problem might not be generated or might be prematurely discarded.
    • In the same amount of time that participants in the other training conditions took to arrive at their inferior answers, auditors trained to use both divergent and convergent thinking chose one of the correct solutions more often, generated better explanations, and eliminated more potentially time-wasting invalid explanations.

    For more information on this study, please contact David Plumlee.

    Citation:

    Plumlee, R. D., B. Rixom, and A. Rosman. 2015. Training auditors to perform analytical procedures using metacognitive skills. The Accounting Review 90 (1): 351-369.

  • Jennifer M Mueller-Phillips
    Triangulation of audit evidence in fraud risk assessments
    research summary posted June 21, 2013 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.01 Fraud Risk Assessment, 09.0 Auditor Judgment, 09.03 Adequacy of Evidence, 11.0 Audit Quality and Quality Control, 11.09 Evaluation of Evidence 
    Title:
    Triangulation of audit evidence in fraud risk assessments
    Practical Implications:

    Given the level of regulatory scrutiny surrounding auditor judgment and skepticism of audit evidence, the results indicate that when assessing the risk of fraud, there is a lack of reliance on third party evidence, particularly when management provides a compelling story with its internal evidence.  The results of this study are important in enhancing awareness for auditors to use and corroborate both internal and external audit evidence for purposes of assessing and supporting the level of risk of the audit client.  In addition, in a broader context, the same could be said regarding the evaluation of evidence for purposes of procedures throughout the various stages of the audit process.

    Citation:

    Trotman, K.T., and W.F. Wright. 2012. Triangulation of audit evidence in fraud risk assessments. Accounting, Organization and Society 37: 41-53. 

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  • Jennifer M Mueller-Phillips
    Turnaround Initiatives and Auditors’ Going-Concern J...
    research summary posted November 17, 2014 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 12.0 Accountants’ Reports and Reporting, 12.01 Going Concern Decisions 
    Title:
    Turnaround Initiatives and Auditors’ Going-Concern Judgment: Memory for Audit Evidence
    Practical Implications:

    The results on the relations between management turnaround initiatives and going-concern decision-making show that auditors consider client turnaround initiatives when making going-concern decisions. Specifically, client operating turnaround initiatives (such as cost cutting) have a negative indirect effect on auditors’ going-concern judgment through a decrease in attention to subsequent positive client financial information. This suggest that short-term operating management turnaround initiatives may serve as an “early warning signal” of client distress for auditors which causes them to focus less on positive financial client information in subsequent analysis. 

    For more information on this study, please contact Liesbeth Bruynseels.

    Citation:

    Bruynseels, L., W. R. Knechel and M. Willekens. 2013 Turnaround Initiatives and Auditors' Going-Concern Judgment: Memory for Audit Evidence. Auditing: A Journal of Practice & Theory 32(3): 105-121

  • The Auditing Section
    Why Do Auditor’s Over-Rely on Weak Analytical Procedures? T...
    research summary posted April 13, 2012 by The Auditing Section, tagged 08.0 Auditing Procedures – Nature, Timing and Extent, 08.01 Substantive Analytical Review – Effectiveness, 09.0 Auditor Judgment, 09.03 Adequacy of Evidence 
    Title:
    Why Do Auditor’s Over-Rely on Weak Analytical Procedures? The Role of Outcome and Precision
    Practical Implications:

    Analytical procedures are used frequently and increasingly are relied upon as substantive evidence. Based on this study, auditors are insensitive to the impreciseness of the analytical procedure when the results are favorable and may be a cause for over-reliance on weak evidence.  Performing a stronger, more precise analytical procedure caused participants in the favorable outcome situation to become more aware of the weakness of the initial procedure and re-evaluate their evidence strength rating. Further, evidence suggests that having auditors consider the possible weaknesses of an analytical procedure prior to performing the procedure will cause them to rate the strength of the evidence from a weak analytical procedure lower. Overall, this suggests a need to better train auditors in performing and interpreting analytical procedures.

    In a discussion of Glover et al.’s paper, McDaniel asks whether the findings may indicate that auditors in the unfavorable outcome (i.e. there is a material difference) are under-relying on the evidence rather than that auditors in the favorable outcome (no material difference) are over-relying on the evidence. Glover et al. respond that the over-relying of the evidence is of concern to regulators and the alternative does not explain all of the results.  McDaniel also notes that the case study was of a company in the financial industry but that the participants were not required to have any financial industry experience. Glover et al. note that the interest income item is the issue which is not specific to the industry or complicated.  McDaniel also notes concerns about a potential “anchoring” effect as the participants performed their analytical procedures based on prior year working paper results.  In response, Glover et al. discuss this feature of an audit. 

    Citation:

    Glover, S. M., D. F. Prawitt, and T. J. Wilks. 2005.  Why Do Auditor’s Over-Rely on Weak Analytical Procedures?  The Role of Outcome and Precision.  Auditing: A Journal of Practice & Theory 24 (Supplement):  197-220.  

    McDaniel, L. 2005.  DISCUSSION OF Why Do Auditor’s Over-Rely on Weak Analytical Procedures?  The Role of Outcome and Precision.  Auditing: A Journal of Practice & Theory 24 (Supplement):  221-228. 

    Glover, S. M., D. F. Prawlitt, and T. J. Wilks. 2005. REPLY TO DISCUSSION OF Why Do Auditor’s Over-Rely on Weak Analytical Procedures?  The Role of Outcome and Precision.  Auditing: A Journal of Practice & Theory 24 (Supplement):  229-232.

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  • The Auditing Section
    “Order Effects” Revisited: The Importance of Chronology
    research summary posted April 13, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.04 Going Concern Decisions 
    Title:
    “Order Effects” Revisited: The Importance of Chronology
    Practical Implications:

    The results of this study are important for auditors to consider when making going concern assessments as well as other audit judgments.  Specifically, auditors should consider the importance of establishing the chronological order of audit evidence to avoid presentation order effects inappropriately influencing their judgments

    Citation:

    Favere-Marchesi, M. 2006. “Order Effects” Revisited: The Importance of Chronology. Auditing: A Journal of Practice and Theory
    25 (1): 69-83.

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