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    How a Systems Perspective Improves Knowledge Acquisition and...
    research summary posted September 19, 2013 by Jennifer M Mueller-Phillips, tagged 08.0 Auditing Procedures – Nature, Timing and Extent, 08.01 Substantive Analytical Review – Effectiveness, 11.0 Audit Quality and Quality Control, 11.05 Training and General Experience 
    How a Systems Perspective Improves Knowledge Acquisition and Performance in Analytical Procedures
    Practical Implications:

    This experiment provides evidence that training in a systems perspective could help auditors analyze complex relationships between accounting data. This could be used to set appropriate analytics expectations and, more importantly, provide a credible way to determine whether management’s representations are well-grounded or not.  This method also appears to require less mental effort to implement, since it moves the complicated relationship structure out of memory and onto a model.  Given the added complexity of many estimates in today’s companies, systematic methods of processing information like a systems perspective may help to simplify the analysis of the estimates.

    For more information on this study, please contact Billy Brewster.


    Brewster, B. E.  2011.  How a systems perspective improves knowledge acquisition and performance in analytical procedures.  The Accounting Review 86 (3), 915-943.

    analytical procedures; knowledge organization; learning; mental models
    Purpose of the Study:

    Understanding complicated relationships with multiple links between information is difficult, as people have limited memory to keep all the relationships straight.  This problem is evident in setting analytics expectations, as there are many reasons why accounting numbers change from year to year (and the reasons are often related to each other in varying, nonlinear ways).  In order to avoid a “reductionist” perspective where pieces of information are considered in isolation and linearly, auditors may be able to construct a better mental model of the situation by using a “systems perspective”.  This involves considering how all the parts of a system are related as well as their behavior from how they interact.  Using a systems perspective (compared to a reductionist perspective) is predicted to be more accurate, more efficient, better able to detect management representations that are inconsistent with the evidence, and better able to integrate new information into their expectations accurately.

    Design/Method/ Approach:

    In an experiment conducted prior to 2008, undergraduate accounting students (juniors/seniors) are given training in evaluating stocks and flows (systems perspective) or business risks (reductionist perspective).  They then learn about an audit client and its industry which has a particularly complicated relationship between multiple factors over time and the resulting product price.  Using the technique they were taught, they then graph the product price over time.  The students are then provided management’s estimate of the price and evaluate its credibility.  Finally, the participants learn new information about the industry and are asked to factor it into their price evaluation.

    • When compared to a computer simulation of how the product price should change over time, participants who used a systems perspective were closer to the simulation than those using a reductionist perspective
    • Those using a systems perspective did not need to exert as much mental effort to perform their evaluations
    • Using a systems perspective made it more likely to identify inconsistent management representations of the product price
    • When encountering new information, a systems perspective allows participants to incorporate the information more appropriately than a reductionist perspective
    Audit Quality & Quality Control, Auditing Procedures - Nature - Timing and Extent
    Substantive Analytical Review – Effectiveness, Sustainability ServicesTraining & General Experience