Auditing Section Research Summaries Space

A Database of Auditing Research - Building Bridges with Practice

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  • Jennifer M Mueller-Phillips
    The Audit of Fair Values and Other Estimates: The Effects of...
    research summary posted November 10, 2014 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.09 Impact of Consultation on Judgments, 09.11 Auditor judgment in the workpaper review process 
    Title:
    The Audit of Fair Values and Other Estimates: The Effects of Underlying Environmental, Task, and Auditor-Specific Factors
    Practical Implications:

    The paper gives practitioners, policy makers, and researchers a framework for considering audit of FVOEs. In considering environmental, task, and auditor-specific factors that individually and interactively affect auditors’ judgments, one may better analyze observed practice deficiencies and contribute to practitioners’ and regulators’ understanding of their likely causes and potential remedies.

    The framework is also valuable in identifying and evaluating the merit of future research topics. Central to the goal of developing research that will improve audits of FVOEs is the deliberate consideration of important interactions among the environmental, task, and person-specific factors involved in the development and audit of FVOEs. Identifying the important interactions among these factors allows researchers to better design studies that evaluate ways to improve the quality of audited FVOEs. Conducting practice-relevant research within the three-factor framework will help researchers, practitioners, and regulators better communicate their perspectives on issues surrounding audits of FVOEs.

    For more information on this study, please contact Gregory E. Sierra.

    Citation:

    Bratten, B., L. M. Gaynor, L. McDaniel, N. R. Montague & G. E. Sierra. 2013. The audit of fair values and other estimates: The effects of underlying environmental, task, and auditor-specific factors. Auditing: A Journal of Practice and Theory 32(Supplement 1): 7-44.

  • Jennifer M Mueller-Phillips
    The Auditors’ Approach to Subsequent Events: Insights from t...
    research summary posted February 19, 2015 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.11 Auditor judgment in the workpaper review process, 11.0 Audit Quality and Quality Control, 11.09 Evaluation of Evidence 
    Title:
    The Auditors’ Approach to Subsequent Events: Insights from the Academic Literature
    Practical Implications:

    A concern noted by the authors is the inherent complexity associated with the search for and evaluation of SEs arising from the seemingly boundless universe of potential SEs and the continuous nature of the search. Auditors’ SE procedures may be more effective if the universe of SE possibilities was better understood. One way to understand this universe is to identify undiscovered or incorrectly resolved SEs. Doing this might make these issues more salient to auditors and mitigate judgment biases in the search and evaluation of SEs. Further, auditors would be better equipped to consider potential SEs earlier in the audit if the consideration of potential SEs were incorporated into the risk assessment process during audit planning. This ensures that SE risks are given more detailed attention in the audit program.

    For more information on this study, please contact Janne Chung.

    Citation:

    Chung, J. O. Y., C. Cullinan, M. Frank, J. Long, J. Mueller, and D. O’Reilly. 2013. The Auditors’ Approach to Subsequent Events: Insights from the Academic Literature. Auditing: A Journal of Practice and Theory 32 (Supplement 1): 167-207.

  • The Auditing Section
    The Effect of a Justification Memo and Hypothesis Set...
    research summary posted May 7, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.11 Auditor judgment in the workpaper review process, 11.0 Audit Quality and Quality Control, 11.06 Working Paper Review – Conduct, Biases and Predispositions 
    Title:
    The Effect of a Justification Memo and Hypothesis Set Quality on the Review Process
    Practical Implications:

    The results of this study indicate that the justification memo, while functional for the preparer, may impair a reviewer’s effectiveness due to the impact on information processing. Due to the positive impact on preparer’s efforts, the memos should not be eliminated but firms should be aware of the impact on reviewer effectiveness. Firms could train reviewers to evaluate audit evidence prior to looking at a justification memo. Firms may also try to control the types of justification memos used. For instance, prior research shows that balanced memos may have fewer negative impacts on the review process.  Lastly, making reviewers aware of this unconscious bias may be a successful way of ensuring reviewer’s effectiveness is not impacted by the memo.

    Citation:

    Asare, S. K. and Wright, A. M. 2008. The Effect of a Justification Memo and Hypothesis Set Quality on the Review Process. Behavioral
    Research in Accounting
    20(1): 1-12.

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  • The Auditing Section
    The Effect of Alternative Types of Review on Auditors’ P...
    research summary posted May 2, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.02 Documentation Specificity, 09.11 Auditor judgment in the workpaper review process, 11.0 Audit Quality and Quality Control, 11.06 Working Paper Review – Conduct, Biases and Predispositions 
    Title:
    The Effect of Alternative Types of Review on Auditors’ Procedures and Performance
    Practical Implications:

    The results of this study are important for audit firms to consider when designing their audit review process.  Though the initial reason for using interactive review was to increase efficiency and enhance training, the results of this study show that the use of interactive review can potentially increase audit effectiveness.  The anticipation of an interactive review enhanced auditors’ efforts toward more cognitively demanding, conclusion-oriented audit procedures.  At the same time, the type of review anticipated had no effect on the performance of the mechanical steps in the audit program (both groups performed well in the mechanical, documentation-oriented audit steps).

    Citation:

    Payne, E. A., R. J. Ramsay, and E. M. Bamber. 2010.  The Effect of Alternative Types of Review on Auditors’ Procedures and Performance.  Auditing: A Journal of Practice & Theory 29 (1): 207-220.

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  • The Auditing Section
    The Effects of a Supervisor’s Active Intervention in S...
    research summary posted May 7, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind, 09.11 Auditor judgment in the workpaper review process, 11.0 Audit Quality and Quality Control, 11.01 Supervision and Review – Effectiveness 
    Title:
    The Effects of a Supervisor’s Active Intervention in Subordinates’ Judgments, Directional Goals, and Perceived Technical Knowledge Advantage on Audit Team Judgments
    Practical Implications:

    This study suggest that supervisors can not only influence their subordinates’ judgment by intervening in subordinates’ judgment process(es), but can also increase their own biases by intervening. In doing so, their increased biases impact the final decisions regarding the audit testwork. Findings suggest that auditors are not aware of this increase in supervisors’ biases, and, thus are not consciously taking steps to mitigate this effect (e.g., avoiding early interventions). Authors suggest training or policy changes that could lower the risk of additional bias. This could be done by making auditors aware of consequences of intervening in subordinates’ judgments. Policies and/or planning could take additional steps to reduce the amount of superiors’ early interventions as much as possible.

    Citation:

    Peecher, M. E., Piercey, M. D., Rich, J. S., and R. M. Tubbs. 2010. The Effects of a Supervisor’s Active Intervention in Subordinates’ Judgments, Directional Goals, and Perceived Technical Knowledge Advantage on Audit Team Judgments. The Accounting Review 85 (5):  1763-1786. 

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  • The Auditing Section
    The Effects of Audit Review Format on Review Team Judgments
    research summary posted April 23, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.11 Auditor judgment in the workpaper review process, 11.0 Audit Quality and Quality Control, 11.01 Supervision and Review – Effectiveness, 11.06 Working Paper Review – Conduct, Biases and Predispositions 
    Title:
    The Effects of Audit Review Format on Review Team Judgments
    Practical Implications:

    The results of this study are important for audit firms to consider when planning how workpaper reviews will be performed, when setting preparers’ review expectations and when reviewing electronic workpapers.  Though the paper does not discuss these implications explicitly, the findings point to the following potential implications auditors may consider:

    • Anticipation of face-to-face review by preparers tends to result in workpapers of higher quality.
    • Face-to-face reviews tend to be of higher quality than electronic reviews.
    • Workpapers prepared in anticipation of an electronic review tend to be lower in quality than the workpapers prepared in anticipation of a face-to-face review.  Thus, electronic reviewers may consider decreasing their reliance on such workpapers, spending more time reviewing the workpapers, providing more review notes, and/or increasing the amount of rework they require from the preparers.
    Citation:

    Agoglia, C.P., R. C. Hatfield, and J. F. Brazel. 2009. The Effects of Audit Review Format on Review Team Judgments. Auditing: A Journal of Practice and Theory 28(1):95-111.

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  • The Auditing Section
    The Effects of Client and Preparer Risk Factors on Workpaper...
    research summary posted May 9, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.11 Auditor judgment in the workpaper review process, 11.0 Audit Quality and Quality Control, 11.06 Working Paper Review – Conduct, Biases and Predispositions 
    Title:
    The Effects of Client and Preparer Risk Factors on Workpaper Review Effectiveness
    Practical Implications:

    The results suggest that although preparer risk is not a driver of review effort, it nevertheless can affect accuracy when client risk is high. The results of this study are useful for understanding how client risk and preparer risk interact to influence workpaper review effort and accuracy. Overall, it appears that reviewers expect highly competent preparers to identify and correct errors. Accordingly, reviewers tend to rely on the work of a competent preparer and allow low preparer risk to compensate for high client risk. The authors note that although this is an efficient strategy, it can adversely affect the reviewer’s effectiveness by reducing the accuracy with which they identify errors.

    Citation:

    Asare, S. K., C. M. Haynes and J. G. Jenkins. 2007. The Effects of Client and Preparer Risk Factors on Workpaper Review Effectiveness. Behavioral Research in Accounting 19 (1): 1-17.

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  • The Auditing Section
    The effects of feedback type on auditor judgment performance...
    research summary posted May 3, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.11 Auditor judgment in the workpaper review process, 10.0 Engagement Management, 10.03 Interaction among Team Members 
    Title:
    The effects of feedback type on auditor judgment performance for configural and non-configural tasks
    Practical Implications:

    The results of this study indicate management should consider the level of task complexity before determining the best form of feedback to provide a staff member.  For simple tasks, it may be effective to merely provide staff with the correct answer.  However, for more complex tasks, it would be beneficial to provide staff with an explanation of the decision-making process in addition to the correct answer for that task.  The study also suggests that it could be beneficial to provide staff with insight into their own decision making process for complex tasks, particularly when they have low-levels of self-insight.  Thus, the results can directly inform the protocol of a firm’s workpaper review process.  This feedback could ultimately improve auditors’ subsequent decisions in audit tasks, which would improve audit quality.

    Citation:

    Leung, P. W. and K. T. Trotman. 2005. The effects of feedback type on auditor judgment performance for configural and non-configural tasks. Accounting, Organizations and Society 30 (6): 537-553.

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