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research summary posted February 17, 2016 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.05 Assessing Risk of Material Misstatement, 08.0 Auditing Procedures – Nature, Timing and Extent, 08.04 Auditors’ Professional Skepticism, 09.0 Auditor Judgment, 09.02 Documentation Specificity, 11.0 Audit Quality and Quality Control, 11.09 Evaluation of Evidence in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:Construal instructions and professional skepticism in evaluating complex estimates.Practical Implications:The findings of this study have important implications for practice. Given the concern from the PCAOB regarding auditors’ lack of professional skepticism, this paper finds a mechanism to increase and improve the level of professional skepticism. In addition, the technique the author finds (providing high-level construal instructions) to auditors is “simple to use, inexpensive, and can easily be tailored for a firm’s specific needs or language”.
Citation:Rasso, J.T. 2015. Construal instructions and professional skepticism in evaluating complex estimates. Accounting, Organizations and Society 46: 44-55.
- research summary posted January 19, 2016 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards, 09.0 Auditor Judgment, 09.02 Documentation Specificity in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:The Impact of Audit Evidence Documentation on Jurors’ Negligence Verdicts and Damage Awards.Practical Implications:
This study suggests that audit workpaper documentation decisions can significantly influence juror negligence verdicts and damage awards in cases where the auditor faces litigation. This is a particularly important finding for audit firms as this is an aspect of the litigation process that the auditor can directly control prior to facing litigation by considering how jurors might perceive this information when designing documentation procedures.
Citation:Backof, A. G. 2015. The Impact of Audit Evidence Documentation on Jurors’ Negligence Verdicts and Damage Awards. The Accounting Review 90 (6): 2177-2204.
- research summary posted February 24, 2015 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.04 Management Integrity, 09.0 Auditor Judgment, 09.02 Documentation Specificity in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:The Effects of Auditors’ Accessibility to “Tone at the Top” Knowledge on Audit JudgmentsPractical Implications:
The results of the study identify two points where decision aids are likely to be successful in improving audit quality—when developing a mental representation of the “tone at the top” and/or when establishing a preliminary assessment of control environment effectiveness. Although developing an understanding of the client’s “tone at the top” requires retrieval of positive evidence supportive of “tone at the top” effectiveness, the process of doing so may undermine auditors’ efforts at incorporating negative evidence into their mental representations. Structuring decision aids, working papers, and reviews to ensure that the relatively abundant positive “tone at the top” information does not suppress the negative information would alleviate a favorable bias in the auditors’ “tone at the top” mental representations. This is critical given that “tone at the top” mental representations permeate subsequent audit decision making.
For more information on this study, please contact Regan Schmidt.
Citation:Schmidt, R.N. 2014. The effects of auditors’ accessibility to “tone at the top” knowledge on audit judgments. Behavioral Research in Accounting 26 (2): 73-96.
- research summary posted February 16, 2015 by Jennifer M Mueller-Phillips, tagged 07.0 Internal Control, 07.02 Assessing Material Weaknesses, 09.0 Auditor Judgment, 09.02 Documentation Specificity in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:Audit Partner Evaluation of Compensating Controls: A Focus on Design Effectiveness and Extent of Auditor TestingPractical Implications:
The results of this study are important for audit firms to consider when audit partners are evaluating the level of precision in a compensating control. The evidence indicates that the partner’s knowledge of the existence of a material weakness unrelated to a compensating control being evaluated results in partners preferring a more precise compensating control and requiring more audit testing. Furthermore, this has implications for the efficiency of the audits as control-related decisions are potentially being influenced by inappropriate factors.
For more information on this study, please contact Audrey Gramling, Ed O’Donnell, or Scott D. Vandervelde.
Citation:Gramling, A., E. O’Donnell, and S.D. Vandervelde. 2010. Audit Partner Evaluation of Compensating Controls: A Focus on Design Effectiveness and Extent of Auditor Testing. Auditing: A Journal of Practice & Theory 29 (2): 175-187.
- research summary posted May 26, 2014 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.05 Assessing Risk of Material Misstatement, 09.0 Auditor Judgment, 09.02 Documentation Specificity, 09.10 Prior Dispositions/Biases/Auditor state of mind in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:The Interplay of Interpersonal Affect and Source Reliability on Auditors' Inventory JudgmentsPractical Implications:
- A negative emotional feeling toward a lower competence client contact can result in more conservative judgments and the documentation of more items indicative of increased risk. This would likely result in inefficiencies due to increased testing because risk is perceived to be higher than it would be in an unbiased setting.
- A positive affective reaction toward a lower competence client led to similar inventory obsolescence ratings and the documentation of more items indicative of decreased obsolescence than a higher competence source. This would likely result in lowered audit effectiveness due to decreased testing because risk is perceived to be lower than it would be in unbiased setting. Additionally, it would be hard for reviewers to remedy this error because the work papers would also have a bias toward lower risk evidence items.
Citation:Bhattacharjee S., K.K. Moreno, T. Riley. 2012. The Interplay of Interpersonal Affect and Source Reliability in Auditors’ Inventory Judgments. Contemporary Accounting Research 29 (4): 1087-1108.
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- research summary posted September 19, 2013 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.05 Assessing Risk of Material Misstatement, 09.0 Auditor Judgment, 09.02 Documentation Specificity, 09.12 Impact of potential post-audit review - e.g., PCAOB, internal firm inspections in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:Documentation Requirements and Quantified versus Qualitative Audit Risk AssessmentsPractical Implications:
This study should be of interest to both regulators and audit firms. In the future, standard setters should consider how natural human behavior may result in unintended consequences. By considering psychology, standard setters may be able to write the standards in a way to minimize those potential consequences or at least be aware of the risks.
This study should also be of interest to audit firms because current auditing standards are neutral with respect to whether audit documentation of risk assessments are performed quantitatively or qualitatively. This implies that either option is adequate and treats the potential costs as minor. As risk assessments that are more lenient in nature tend to lead to fewer audit procedures and less substantive evidence, the costs may be more than inconsequential.
For more information on this study, please contact M. David Piercey.
Citation:Piercey, M. D. 2011. Documentation Requirements and Quantified versus Qualitative Audit Risk Assessments. Auditing: A Journal of Practice & Theory 30 (4):223-248.
research summary last edited May 25, 2012 by The Auditing Section, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.01 Fraud Risk Assessment, 06.08 SAS No. 99 Brainstorming – effectiveness, 09.0 Auditor Judgment, 09.02 Documentation Specificity in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:The Influence of Documentation Specificity and on Auditors’ Fraud risk Assessments and Evidence Evaluation DecisionsPractical Implications:This study provides important insights into the fraud assessment process. The most common method of risk assessment is to create summary fraud risk memos. However, the PCAOB recommends that auditors make documentation more specific in their assessments of fraud risk. This study suggests that when auditors receive specific documentation of fraud risks, alone, their fraud related judgments improve. However, the study provides evidence that when a more specific fraud risk memo is prepared and auditors are also reminded about the possibility of fraud (i.e., primed) that assessments of fraud actually decline. This is a significant finding considering that it is common in practice for auditors to be reminded about the possibilities of fraud, as a way to increase auditors’ awareness of fraud risk.
Citation:Hammersley, J.S., E.M. Bamber, and T.D. Carpenter. 2010. The influence of documentation specificity and priming on auditors’ fraud risk assessments and evidence evaluation decisions. The Accounting Review 85 (2): 547-571.
Home:- research summary last edited May 25, 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 in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:The Effect of Alternative Types of Review on Auditors’ Procedures and PerformancePractical 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.
Home: - research summary last edited May 25, 2012 by The Auditing Section, tagged 07.0 Internal Control, 07.02 Assessing Material Weaknesses, 09.0 Auditor Judgment, 09.02 Documentation Specificity in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:The Effect of Documentation Structure and Task-Specific Experience on Auditors’ Ability to Identify Control WeaknessesPractical Implications:
The authors find that experienced component reviewers react differently to their preparers’ assessments/documentation than their counterparts in the supporting or balanced documentation conditions. Implicit results of the study also indicate that audit firms should consider how workpaper documentation is structured when assessing control weaknesses.
Citation:Agoglia, C. P., Beaudoin, C., and Tsakumis, G. T. 2009. The Effect of Documentation Structure and Task-Specific Experience on Auditors’ Ability to Identify Control Weaknesses. Behavioral Research in Accounting 21(1): 1-17.
Home: - research summary last edited May 25, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.02 Documentation Specificity, 11.0 Audit Quality and Quality Control, 11.09 Evaluation of Evidence in Auditing Section Research Summary Database > Auditing Section Research Summaries Space publicTitle:Audit Documentation Methods: A Path Model of Cognitive ProcessingPractical Implications:
The results of this study are important for audit firms to consider when evaluating documentation protocol. The results suggest that the preparation of detailed workpapers resulted in better pattern recognition and also a greater identification of exceptions. Both of these would increase audit effectiveness. Even though detailed workpapers are associated with greater detection rates and pattern recognition, the auditors did not perform as well on memory tests. Therefore, audit teams may enhance the memory of auditors by encouraging team members to examine evidence a greater number of times. The results also indicated that self-review of documentation could also increase pattern recognition, which would have a beneficial impact on audit effectiveness.
Citation:Payne, E. A. and R. J. Ramsay. 2008. Audit Documentation Methods: A Path Model of Cognitive Processing, Memory, and Performance. Auditing: A Journal of Practice and Theory 27 (1): 151-168
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