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  • Jennifer M Mueller-Phillips
    The Effect of Early Career Experience on Auditors'...
    research summary posted October 16, 2015 by Jennifer M Mueller-Phillips, tagged 05.0 Audit Team Composition, 05.05 Diversity of Skill Sets e.g., Tenure and Experience, 09.0 Auditor Judgment 
    Title:
    The Effect of Early Career Experience on Auditors' Assessments of Error Explanations in Analytical Review.
    Practical Implications:

    The results of this study have other implications for audit researchers. The results of this study suggest that staff-level auditors may be appropriate surrogates for senior-level auditors for certain tasks, under certain conditions. This has implications for researchers because staff-level auditors may be more accessible to researchers than senior-level auditors due to being less time constrained and being more connected to universities due to being recent graduates or being enrolled in a fifth-year Master’s program concurrent with their being staff-level auditors. Also, this study extends research on the role of individuals’ subjective experience while self-generating alternative explanations on their likelihood assessments.

    Citation:

    Yen, A. C. 2012. The Effect of Early Career Experience on Auditors' Assessments of Error Explanations in Analytical Review. Behavioral Research in Accounting 24 (2): 211-229.

    Keywords:
    analytical review, audit experience, counterfactual reasoning
    Purpose of the Study:

    This paper examines the analytical review judgments of staff-level auditors. The performance of analytical review procedures has traditionally been associated with senior-level auditors. However, changes in the audit environment (e.g., increased team auditing, a shift away from compliance testing to increased analytical procedures, and more work pushed down to lower-level staff) over the last ten to fifteen years may have led to staff-level auditors being exposed to the analytical review process, and more specifically, financial statement error knowledge, earlier in their careers. Thus, an assessment of staff-level auditors’ performance on analytical review procedures is necessary, both to increase the understanding of the learning curve as it relates to analytical review procedures and to provide evidence on the readiness of staff-level auditors to perform these traditionally more senior-level procedures. To examine this research question, the author conducts an experiment based on Heiman (1988, 1990). 

    Design/Method/ Approach:

    Forty-six staff-level auditors and forty-one graduate accounting students with no full-time audit experience participated in the experiment and were paid a flat wage of ten dollars plus the chance of winning a drawing for a number of restaurant gift certificates. The graduate accounting students were recruited from two accounting classes at an urban university in the northeastern United States. The staff-level auditors were recruited from professional contacts of the author. The evidence was gathered prior to March 2012.

    Findings:

    The author finds that both staff-level and student participants overestimate (underestimate) the likelihood of specified (unspecified) causes, and that providing either group with alternative explanations reduces their likelihood assessments for an original specified cause. On the other hand, when participants are asked to self-generate alternative explanations, the likelihood assessments for staff-level auditors and students are different. Students’ likelihood assessments increase after being asked to self-generate alternative explanations. The pattern of results for the students in this study is consistent with the pattern observed for the students in Heiman (1988). For staff-level auditors, their assessments are reduced after being asked to self-generate alternative explanations, if they self-generate at least two alternatives. The pattern of results for staff-level auditors in this study is similar to the pattern observed for senior-level auditors in Heiman (1990). Overall, these results show that staff-level auditors perform more like Heiman’s (1990) senior-level auditors than like students on this analytical review task.

    Category:
    Audit Team Composition, Auditor Judgment
    Sub-category:
    Diversity of Skill Sets (e.g. Tenure & Experience)
  • Jennifer M Mueller-Phillips
    The Effect of Information Choice on Auditors’ Judgments a...
    research summary posted October 12, 2016 by Jennifer M Mueller-Phillips, tagged 05.0 Audit Team Composition, 05.05 Diversity of Skill Sets e.g., Tenure and Experience, 06.0 Risk and Risk Management, Including Fraud Risk, 06.09 Litigation Risk, 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind, 11.0 Audit Quality and Quality Control, 11.09 Evaluation of Evidence 
    Title:
    The Effect of Information Choice on Auditors’ Judgments and Confidence
    Practical Implications:

     Implications for the practicing audit community are developed from the findings that less experienced auditors are susceptible to the information choice effect. In situations where litigation risk is low (high) and the auditor has less experience, auditors place greater (lower) significance on information given to them by an external party than information they sought out themselves. More experienced auditors are not subject to the information choice effect. Additionally, more experienced auditors are confident in judgments based on information sought themselves, even in a setting with elevated litigation risk. The results of this study may interest audit clients providing information to auditors, auditors reviewing the work of less (more) experienced colleagues, auditors performing a critical self-review, and regulators reviewing the work of auditors.

    Citation:

     Smith, S. D., W. B. Tayler, and D. F. Prawitt. 2016. The Effect of Information Choice on Auditors' Judgments and Confidence. Accounting Horizons 30 (3): 393–408.

    Keywords:
    information choice, litigation risk, confidence, experience, judgment impact
    Purpose of the Study:

    During the course of an audit, auditors choose what information they need to search for; however, they obtain both sought and unsought information.  These auditors must then use the information obtained to make judgements and decisions that ultimately lead to an audit opinion.  Thus, the weight auditors place on the information obtained when making judgements and the auditors’ confidence in those judgements has important implications for audit quality.  The authors of this paper investigate whether it matters if information is gotten by the auditor or given to the auditor.  Understanding that the way in which information is received affects information processing, the authors examine how the auditors’ receipt of additional sought or unsought information impacts the auditors’ judgment and confidence in that judgement given judgements with different levels of importance (e.g., high vs. low litigation risk) and auditors with different levels of experience (e.g., high vs. low).

    Design/Method/ Approach:

    Evidence was obtained during the 2010’s through an experiment using 136 auditors as participants.  Participants read a case and evaluated the likelihood of obsolescence in inventory.  The researchers manipulated the (1) choice to acquire relevant information (i.e., given a choice or not given a choice) and (2) litigation risk levels (i.e., high or low).  Furthermore, they measured auditor experience, and classified participants as more or less experienced based on number of years in public accounting.

    Findings:
    • In the high litigation setting, sought information is weighed more heavily than unsought information.  This result appears to be driven by auditor experience.  Specifically, when auditor experience is low and litigation risk is high, sought information is weighed more heavily than unsought information.
    • In the low litigation setting, sought information is weighed less heavily than unsought information.  This result appears to be driven by auditor experience.  Specifically, when auditor experience is low and litigation risk is low, information is weighed less heavily than unsought information.
    • Auditor confidence in their judgment of inventory obsolescence was greater when they chose to obtain additional information than when they were just given the additional information.  This result appears to be driven by auditor experience.  Specifically, more experienced auditors had greater confidence after obtaining sought information than unsought information.  This results also appears to depend on the litigation level.  In the high litigation setting, more experienced auditors had greater confidence after obtaining sought information than unsought information.
    Category:
    Audit Quality & Quality Control, Audit Team Composition, Auditor Judgment, Risk & Risk Management - Including Fraud Risk
    Sub-category:
    Diversity of Skill Sets (e.g. Tenure & Experience), Evaluation of Evidence, Litigation Risk, Prior Dispositions/Biases/Auditor state of mind

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