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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 
    “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


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

    going concern, chronology, temporal order, presentation order, order effects, trend effect
    Purpose of the Study:

    Going-concern assessments are an important part of the audit process because inaccurate going-concern assessments may have severe economic consequences for both auditors and clients.  However, prior research shows that the presentation order of audit evidence unduly influences auditors’ going concern assessments leading to larger differences of opinion among auditors reviewing the same evidence, albeit in a different order.  This is important because audit evidence is not always uncovered in chronological order. No prior research study has attempted to separate the presentation order of evidence from the chronological order of evidence.  This paper addresses these concerns by investigating whether the chronological trends in the evidence (trend effects) overcome influences of the order of presentation (order effects).

    Design/Method/ Approach:

    The research evidence was collected prior to March 2004.  The author uses a sample of audit partners and senior managers from the six largest audit firms in the United States to complete a simulated task involving a going concern assessment for a manufacturer and marketer of teleconference hardware and software.  Participants made going concern assessments after reading background material and after reviewing each of four pieces of positive and negative audit evidence related to the going concern decision.  The author varied the presentation order of the negative and positive evidence as well as the chronological order of the evidence such that in some cases the presentation and chronological order matched in others a mismatch occurred.  The author also utilized two presentation orders with undated evidence.

    • The author finds that auditors display the same recency effects when presented with undated evidence as when presented with evidence in chronological order, suggesting that auditors infer chronological order from the order of presentation.  
    • When the presentation order of evidence is inconsistent with the chronological order, chronological trend effects substantially reduce presentation order effects.  This implies that auditors appropriately place more weight on chronological trends in a client’s viability than on mere presentation order of evidence.
    Auditor Judgment
    Going Concern Decisions, Going Concern Decisions
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