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    The Effects of Audit Review Format on Review Team Judgments
    research summary posted April 23, 2012 by The Auditing Section, last edited May 25, 2012, 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 
    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.

    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.

    documentation; review process; judgment quality; electronic review; face-to-face review.
    Purpose of the Study:

    The increasing use of electronic workpapers enables reviewers to review workpapers electronically (i.e., remotely, communicating via email), rather than face-to-face (i.e., reviewing on-site with the opportunity to discuss review notes and ask/answer questions in person).  Recent accounting research finds that review mode can affect the judgments of auditors preparing workpapers.  In this study, Agoglia et al. investigate the extent to which review mode (electronic or face-to-face) affects the quality of documentation in the workpapers and the mechanism behind this relationship.  In addition, the authors investigate whether reviewers are able to discern and compensate for these documentation quality issues.

    Design/Method/ Approach:

    Agoglia et al. collect their evidence via an experiment in which auditors act as mock preparers or reviewers of workpapers.  Participants prepare preliminary going-concern evaluation workpapers for a hypothetical client.  Specifically, they are required to document evidence for a preliminary going concern conclusion.  Preparers are randomly assigned to one of two conditions: face-to-face review or electronic review.  Preparers in each condition are informed that their work will be reviewed face-to-face or electronically, depending on the condition.  

    Reviewers are randomly assigned to preparers and informed that they will review the workpapers either face-to-face or electronically, depending on the preparer’s condition.  The reviewers are required to leave notes and assess quality, reliability, and completeness of the working papers, as well as any additional work still required to be done.  The reviewers’ judgments are then compared with those of experts (audit partners) who receive the same materials as the preparers.  The experimental data was collected in the early 2000’s.

    • The judgments of the face-to-face workpaper reviewers are, on average, essentially the same as those of the experts (audit partners), indicating they are of relatively high quality.  Conversely, the judgments of the electronic workpaper reviewers are significantly different, on average, than those of the experts (i.e., of lower quality).
    • The experts consider the evidence documentation provided by the electronic review group to be of lower quality than the documentation provided by the face-to-face preparers.  However, reviewers do not appear to recognize this issue.  Specifically, the authors find that the documentation quality assessment gap (reviewer minus expert mean assessment of documentation quality) is significant for the electronic review group, while it is insignificant for the face-to-face group – indicating that while experts and reviewers have similarly high perceptions of documentation quality of the face-to-face preparers, reviewers perceive workpapers of electronic review preparers to be of higher quality than do experts. The authors show that the documentation quality assessment gap negatively affects electronic reviewers’ judgment quality. In other words, it is electronic reviewers’ inability to assess the lower quality of the workpaper documentation that is the mechanism behind their lower reviewer judgment quality.            
    • Electronic reviewers rely on the preparer’s workpapers and would require additional work to the same  extent as the face-to-face reviewers.  Further, electronic reviewers take about the same time to review and give about the same number of review notes as the face-to-face reviewers.  This finding is best viewed in light of the finding in prior research showing that reviewers believe electronic reviews are less effective.  However, electronic reviewers do not appear to be compensating for the lower quality of workpapers prepared in anticipation of electronic review.
    Auditor Judgment, Audit Quality & Quality Control
    Auditor judgment in the workpaper review process, Supervision & Review – Effectiveness, Working Paper Review – Conduct - Biases & Predispositions
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