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    Gathering Evidence through Enquiry: A Process Improvement...
    research summary posted September 19, 2013 by Jennifer M Mueller-Phillips, tagged 08.0 Auditing Procedures – Nature, Timing and Extent, 11.0 Audit Quality and Quality Control, 11.03 Management/Staff Interaction 
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    Title:
    Gathering Evidence through Enquiry: A Process Improvement Focus
    Practical Implications:

    Given the results, the study provides evidence that there may need to be some additional guidance or tools used by auditors to stimulate the planning of client inquiries in order enhance the reliability of audit evidence obtained from client inquiry.  Auditors may benefit from having some high-level guidelines and framework to prepare and plan for meetings where they will be inquiring of management.  There would be benefits to providing a loose framework of items to consider before making an inquiry of management. This could increase the reliability of the inquiries as a form of evidence.  If the information obtained through inquiry is more reliable, the judgments and decisions that an auditor makes based on the inquiries may achieve a higher level of audit quality.

    For more information on this study, please contact Guoping Liu.
     

    Citation:

    Liu, Guoping. 2012. Gathering Evidence through Enquiry:  A Process Improvement Focus.   Behavior Research in Accounting 24 (2): 153-175.

    Keywords:
    Audit enquiry, cognitive planning, decision aids, experiment
    Purpose of the Study:

    As the accounting guidance continues to implement standards that require client management to make even more estimates in their financial statements, auditors have to rely on inquiries of client management as means of obtaining of audit evidence.  The critical aspect of this notion is how to make information obtained from management inquiries a more reliable form of audit evidence.  In order to make the evidence more reliable, it is important to determine what improvements in the inquiry process need to be made. 

    Audit inquiries are a key aspect of seeking information regarding the company’s financial and non-financial information.  Inquiries could include obtaining information regarding significant fluctuations in financial information, changes in the business, assumptions made in estimates, the rationale behind complex business transaction as well as other aspects about a client.

    The authors develop two types of decision aids and examine how these aids impact the inquiry process in which auditors engage with management.  The author believes that these decision aids may help improve how auditors plan for inquiries of client management as opposed to explicitly indicating how the inquiry process should occur.   The two types of decision aids are:

     

    • Theory-based decision aid:    This is based on psychology-based theory that someone who plans for the inquiry procedure by creating a mental simulation of its conversation with management will be better prepared to successfully completes the inquiry process.  Cognitive planning could ultimately improve the task performance (but not by prescribing specific behavior) by providing only simple task instructions to assist in planning for an inquiry. 
    • Practice-based decision aid:  This is based on the CICA 360 model that focuses on providing a basis for developing a practice-aid for the planning of client management inquiry,  This model focuses on the reliability of the evidence obtained through the inquiry including the reliability of the interviewee, the effectiveness of the interviewer, the quality of the information, the credibility of the findings noted, and how the information is integrated and synthesized by the auditor into the audit evidence.  The author develops a list of matters to consider in preparing for the client management inquiry.  Using a practice-based planning tool, the auditors will improve how auditors plan for the inquiries as compared to performing a checklist of required steps in carrying the inquiry task.


     

    Design/Method/ Approach:

    The participants consisted of 150 Master-level students (from two Canadian universities) who have approximately 6-24 months of audit experience.  The experiment was a 1x3 between-subject research design.  The participants were divided into one of three groups:  base, cognitive planning and practice aid groups.  The base group was provided the background information and then given the instruction to describe how they would perform the inquiry of management.  The cognitive planning group was given more instruction than the base group and was instructed to consider the information the auditor would like to obtain, how to obtain such information during the inquiry, and sequence of steps to carry out the inquiry.  The group is then asked to describe how they would perform the inquiry of management.  The practice group was given the practice-aid that listed the matters to consider in planning the inquiry in detail

    Findings:
    • Comparing the results of the cognitive planning group to the base group, the author finds that the cognitive planning group planned to pose more questions of a larger and more diverse group of the client.  This group also planned to extend their audit procedures beyond inquiry to corroborate the information obtained from management during the inquiry. 
    • When comparing the results of the cognitive planning group to the practice aid group, the results are similar with regard to their planned questions and number of interviewees; however, there was less focus on corroboration outside of inquiring of management
       
    Category:
    Audit Quality & Quality Control, Auditing Procedures - Nature - Timing and Extent
    Sub-category:
    Management/Staff Interaction