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  • Jennifer M Mueller-Phillips
    A Field Survey of Contemporary Brainstorming Practices
    research summary posted February 20, 2017 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards, 06.0 Risk and Risk Management, Including Fraud Risk, 06.01 Fraud Risk Assessment, 06.07 SAS No. 99 Brainstorming – process, 08.0 Auditing Procedures – Nature, Timing and Extent, 08.04 Auditors’ Professional Skepticism, 10.0 Engagement Management, 10.03 Interaction among Team Members in Auditing Section Research Summary Database > Auditing Section Research Summaries Space public
    Title:
    A Field Survey of Contemporary Brainstorming Practices
    Practical Implications:

    Understanding that auditors allocate greater resources to fraud brainstorming when engagement risk is significant fosters brainstorming of a superior caliber corresponds to stronger regulatory compliance.  Auditors report that engagement teams are holding fraud brainstorming sessions earlier in the audit, document more detailed risk assessments, plan more specific procedures, and retain more documentation.  These characteristics contribute to adequately addressing increased PCAOB regulatory scrutiny.  Additionally, brainstorming sessions are highly regarded when they occur in a face-to-face fashion and are attended by multiple levels of firm personnel—whether that is “core” or “non-core” professionals.  Fraud brainstorming sessions are executed less mechanically (as determined by PCAOB inspectors) by using fewer checklists and increase the amount of time auditors prepare for brainstorming sessions.  

    Citation:

    Dennis, S. A., and K. M. Johnstone. 2016. A Field Survey of Contemporary Brainstorming Practices. Accounting Horizons 30 (4): 449–472. 

    Keywords:
    audit planning; engagement risk; field survey; fraud brainstorming; professional skepticism
    Purpose of the Study:

    The purpose of this study is to further understand current fraud brainstorming practices minding regulatory climate and its impression of brainstorming practices.  The authors seek to understand the auditing profession’s existing framework to effectively brainstorm by evaluating audit team characteristics; attendance and communication; structure, timing, effort; and brainstorming quality.  Fraud brainstorming environment is considered with respect to client characteristics; particularly, inherent, fraud, and engagement risks, and if the client is publicly traded or privately held.  The authors refer to the characteristics as “partitions”.  The partitions allow the study to better examine how each characteristic effects the deployment of resources in response to risk levels and trading status. 

                The study poses further exploration into the implementation of Statement of Auditing Standards No. 99 and its effect on fraud brainstorming practices.  Particularly addressing the Public Company Accounting Oversight Board’s report suggesting auditing professionals were “mechanically” addressing fraud-related auditing standards.  SAS 99 sought to blend experienced audit professionals—those with greater client experience—with less-seasoned auditors to brainstorm how a fraud could occur specific to the client.  As part of the brainstorming framework, the study seeks to understand if senior-level auditors (partners and managers) and seniors and staff members, along with “non-core” professionals, cultivate meaningful brainstorming sessions. 

    Design/Method/ Approach:

    The authors collected field data from audits conducted between March 2013 and January 2014, per a survey of 77 audit engagements.  Information pertaining to the client, audit team, and brainstorming sessions were called upon in the survey.  The majority (93 percent) of observations were obtained by two Big 4 firms—7 percent from one non-Big 4 global firm.  Each engagement’s partner received instructions for the distribution of the survey to lead managers and lead seniors on the respective engagement while the partner withheld that the survey was for research purposes.  A total of 75 managers and 73 seniors participated.  

    Findings:
    • Surveyed auditors rarely interacted with engagements where fraud in financial reporting was identified.
    • When fraud risk and inherent risk are both elevated for a particular engagement, perceived professional skepticism is also elevated.
    • Risk-based resource deployment is consistent when considering high- versus low-risk clients—particularly, when inherent risk is elevated, audit team size is also greater.
    • Public clients cultivate larger audit teams where managers and seniors have more client experience.
    • With respect to contributions made at brainstorming sessions, the audit partner and manager make the greatest contributions along with forensic specialists and audit seniors.  Interestingly, when fraud brainstorming is more important with respect to the engagement, seniors make lower relative contributions. 
    • Media richness theory is robustly at work with respect to attendance patterns at brainstorming sessions.  Specifically, when engagement risk is elevated, staff and seniors are more likely to attend face-to-face. 
    • Fraud brainstorming sessions are most commonly open-discussion (86 percent) where the session is held during the planning stage of the engagement (87 percent).
    • Results propose that audit partners are open-minded to suggestions made during fraud brainstorming.
    • Fraud risk assessments appear to be independent from brainstorming tactics; however, when inherent risk is elevated and if the client is public versus private, audit teams exert more effort.  
    Category:
    Auditing Procedures - Nature - Timing and Extent, Engagement Management, Risk & Risk Management - Including Fraud Risk, Standard Setting
    Sub-category:
    Auditors’ Professional Skepticism, Changes in Audit Standards, Fraud Risk Assessment, Interaction among Team Members, SAS No. 99 Brainstorming – process
  • Jennifer M Mueller-Phillips
    Technology-Facilitated Contribution Behavior: An...
    research summary posted July 20, 2015 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.03 Interaction among Team Members, 10.04 Interactions with Client Management in Auditing Section Research Summary Database > Auditing Section Research Summaries Space public
    Title:
    Technology-Facilitated Contribution Behavior: An Experimental Investigation.
    Practical Implications:

    The results speak to the importance of recruiting competent professionals to the workforce and making specific requests for assistance that include required deliverables. As individuals build confidence in their expertise and understand exactly how to assist, they will be able to provide higher-quality responses to share knowledge. This study extends the literature by operationalizing and studying mediating mechanisms to motivation to contribute and contribution quality separately. This study extends this research in an experimental setting to analyze factors expected to affect the motivation to contribute and contribution quality. By incorporating a collaboration platform included in the Microsoft Office Suite (i.e., a single technology), the effect of technology was controlled in the research design.

    Citation:

    Du, H., Lehmann, C. M., & Willson, V. L. 2014. Technology-Facilitated Contribution Behavior: An Experimental Investigation. Behavioral Research In Accounting 26 (2): 97-130.

    Keywords:
    collaboration, contribution behavior, motivation to contribute, response quality
    Purpose of the Study:

    Contribution behavior is described as voluntarily providing assistance or sharing knowledge when a colleague makes a request for assistance. The importance of knowledge sharing, specifically in the form of contribution behavior is an area of interest to accounting professionals. An inability or unwillingness to share professional knowledge and expertise within an accounting firm can lead to lower-quality or less-efficient audits. The purpose of this study is to examine the motivation to contribute but also examines contribution quality. This study also evaluates the mediating mechanisms of knowledge about the individual requesting assistance, the expertise level of the contributor, and the specificity of the request in the motivation to contribute, as well as the contribution quality.

    Design/Method/ Approach:

    The theoretic research model is structured to focus on the three key elements in contribution behavior: awareness, searching and matching, and formulation and delivery. The experiment was designed using a collaboration application that is included in the Microsoft Office Suite. One hundred eighty-three graduate and undergraduate students enrolled in Accounting Information Systems classes (both graduate and undergraduate levels) and a graduate IT Auditing class at a large commuter university served as participants in this study. The evidence was gathered prior to April 2014.

    Findings:

    While knowledge about a requester motivates the individual to contribute and the individual’s prior positive experience with the requester enhances the motivation, the individual’s expertise level on domain knowledge and the specificity of request are not associated with motivation to contribute. However, with regard to contribution quality, domain knowledge and specificity of request are positively associated with higher contribution quality, making these mediating effects pronounced in contribution quality, but not in motivation to contribute.

    The results indicate that individuals are more motivated to respond to a request for assistance if they feel at ease with the requester. Their domain knowledge and the specificity of a request further improve the contribution quality. The implications of this study point to the importance of developing a collegial and interactive environment in which professionals are more likely to share knowledge to help each other. Creating opportunities for friendly and positive experiences with colleagues encourages employees to respond to requests for assistance. Accounting firms can foster an environment that promotes contribution behavior by developing cooperative and positive relationships among employees so that when someone needs help, there is a higher likelihood that there will be responses because of familiarity with the requesting colleagues. Moreover, the professional’s expertise level or domain knowledge and the specificity of the request are relevant. While not directly related to the motivation to assist the requester, expertise and specificity of the request are associated with the contribution quality.

    Category:
    Engagement Management
    Sub-category:
    Interaction among Team Members, Interactions with Client Management
  • Jennifer M Mueller-Phillips
    “When You Make Manager, We Put A Big Mountain In Front Of Y...
    research summary posted October 31, 2013 by Jennifer M Mueller-Phillips, tagged 05.0 Audit Team Composition, 05.04 Staff Hiring, Turnover and Morale, 10.0 Engagement Management, 10.03 Interaction among Team Members, 10.04 Interactions with Client Management in Auditing Section Research Summary Database > Auditing Section Research Summaries Space public
    Title:
    “When You Make Manager, We Put A Big Mountain In Front Of You”: An Ethnography Of Managers In A Big 4 Accounting Firm
    Practical Implications:

    This study points out the paradox that managers find themselves in as they struggle to manage relationships with staff, partners, and clients while simultaneously engaging in non-client productive activities in order to gain notoriety in the firm and impress the partners. The “mountain” referred to in the title of this article represents the different and unpredictable obstacles that managers must overcome in order to reach the other side of their career; partnership.

    For more information on this study, please contact Martin Kornberger.
     

    Citation:

    Kornberger, M., L. Justensen, and J. Mourtsen.2011. When you make manager, we put a big mountain in front of you: an ethnography of managers in a big 4 accounting firm. Accounting, Organizations and Society 36 (8): 514-533.

    Purpose of the Study:

    The “missing link” between trainee accountants and their senior employees, i.e. partners is the manager. This article suggests that becoming a manager is a rite of passage with two main effects:

    • Destabilization of the manager’s previous identity.
    • Shaping of the new identity as a manager through a set of new practices.

    The authors address the important, yet under-researched, role of the manager through an ethnographic analysis of their fundamental transition from junior trainees to potential partners in the context of a Big 4 Firm. This analysis outlines how managers in a complex network balance being an efficient client manager while also being a good team and time manager; additionally, how managers generate visibility to develop a “fame agenda” is addressed.

    Design/Method/ Approach:

    The authors collaborated with a Big 4 Firm to gather the data.  The data consisted of four sources of empirical materials. First, the Big 4 Firm’s website, newsletters, and other publicly accessible materials were analyzed along with confidential internal documents including employee satisfaction surveys, performance reports, change management surveys, exit surveys, and employment statistics. Second, the research team performed un-obtrusive on site observation including participating in meetings, planning sessions, client site visits, and other internal gatherings. Third, they conducted semi-structured interviews with 17 employees from different divisions of the organization and included partners, managers, and directors. Fourth, researchers shadowed 7 organizational members, managers and directors, for one working day each. The empirical research for this study was conducted between January 2005 and September 2006. However, a second round of interviews with senior executives was conducted from mid- 2009 until May 2010. An ethnographic approach was deemed the most appropriate method to allow researchers to focus on real data from many sources.

    Findings:
    • Managers must manage relationships with junior staff which involves acting as a mentor, a supervisor, a nurturer, and also as a person responsible for reviewing work and providing feedback.
    • Managing client relationships is another key role for a manager. This role involves adjusting behavior towards the client according to the hierarchical position of the client representative as well as handling relationships with global and local clients differently. Relationships with higher ranked representatives and with local clients are more nurtured because of the increased influence that these clients have when deciding to keep the Big 4 Firm as the auditor. Additionally, managers have to find a way to use clients as a vehicle for self-promotion.
    • Managers also have to be able to manage partner relationships. Managers must begin to show interests in different aspects of the firm to impress the partners who are ultimately responsible for the future of the managers. Managers must be able to handle the uncertainty that comes with a partner that can override any and all of a manager’s decisions.
    • However, one of the most important things that managers must be able to do has no technical relevance at all; it is to become visible to the firm. Managers must find time to get involved with firm initiatives in order to essentially gain popularity and increase their chances for promotion. This is referred to in the article as developing a “fame agenda”.
       
    Category:
    Audit Team Composition, Engagement Management
    Sub-category:
    Interaction among Team Members, Interactions with Client Management, Staff Hiring - Turnover & Morale
  • Jennifer M Mueller-Phillips
    Organizational Error Climate and Auditors’ Predispositions t...
    research summary posted October 3, 2013 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.03 Interaction among Team Members, 10.04 Interactions with Client Management, 11.0 Audit Quality and Quality Control in Auditing Section Research Summary Database > Auditing Section Research Summaries Space public
    Title:
    Organizational Error Climate and Auditors’ Predispositions toward Handling Errors
    Practical Implications:

    The results of this study imply that an appropriately structured error climate may serve as a “soft” management control tool for an audit organization by encouraging the development of predispositions toward functional error handling behaviors, and reducing the tendency of auditors to engage in dysfunctional error handling behaviors such as ignoring or concealing errors. This increase in functional auditor error management behaviors supports both high quality work results and client cooperativeness. Managers of audit organizations should actively participate in the organization’s error climate by establishing, communicating, and practicing a high error management method. The efforts in actively dealing with the organization’s error climate could be documented and presented to regulators and oversight bodies such as the PCAOB as an integral part of the audit organization’s internal quality control.


    For more information on this study, please contact Ulfert Gronewold.
     

    Citation:

    Donle, M., and U. Gronewold. 2011. Organizational error climate and auditors’ predispositions toward handling errors. Behavioral Research in Accounting 23 (2): 69-92.

    Keywords:
    organizational culture; handling errors; audit quality; predispositions
    Purpose of the Study:

    An auditor is required to comply with professional and ethical standards that mandate performing any engagement with professional competence and due care, that is, auditors must act carefully, thoroughly, and on a timely basis. Reasonably, one can infer that because of these professional standards, it is essential for auditors to able to openly address errors as they become aware of them. The authors chose to define “error” as any significant divergence that the auditor perceives between an actual state and what the auditor thinks would be the correct state, as defined by relevant goals and benchmarks. Additionally, the authors chose to focus this study on unintentional errors with respect to both the client and the auditor. Auditors need to effectively handle their own errors as well as the errors of their clients in order to assure audit quality. The way an auditor deals with a client’s error may affect that client’s cooperativeness which has an influence on the auditor’s ability to conduct the audit effectively and efficiently.

    The authors suggest that the audit organization’s error climate correlates with an auditor’s likelihood to address errors in an active and open way. Error climate is shaped by management’s tone at the top regarding its views and decisions towards the acceptability and handling of errors. An error climate that is high in error management would be beneficial for audit quality in both the long term and the short term by ensuring that errors are corrected in a timely basis and also enabling auditors to learn from errors in order to handle them or avoid them in the future.

    Moreover, high error management can suppress the temptation to conceal errors for fear of the repercussions which is quality threatening behavior in auditing. To explore the correlation between error climate and auditor’s predisposition toward dealing with both their own and their client’s errors, the authors developed an expectation that organizational error climate has a direct positive impact on auditors’ predispositions toward dealing with their own errors and detected client errors.
     

    Design/Method/ Approach:

    The data for this study was collected through a survey external, internal, and public sector auditors. The information was collected from October 2004 to May 2005 among auditors located in Germany.

    Findings:
    • High error management-oriented climates are beneficial for performance and work quality by affecting the predisposition of the members of the organization toward high error management behaviors.
    • There is a significant positive impact of organizational error climate on auditor’s predispositions towards handling their own errors.
    • The authors found no direct effect of error climate on the predisposition toward handling client errors. However, a positive and significant indirect effect was observed. The positive impact that a high error management-oriented climate has on auditor’s predisposition toward handling their own mistakes in turn affects how the auditor handles client which creates an indirect relationship between the audit organization error climate and client errors.
    • Auditors of organizations that handle errors with a high degree of error management have a higher propensity of also handling client errors with a high degree of error management.
    • Overall, an audit organization’s error climate influences auditors’ individual predisposition toward handling their own errors as well as their clients’ errors.
       
    Category:
    Audit Quality & Quality Control, Engagement Management
    Sub-category:
    Interaction among Team Members, Interactions with Client Management
  • Jennifer M Mueller-Phillips
    How Partners’ Views Influence Auditor Judgment
    research summary posted September 10, 2013 by Jennifer M Mueller-Phillips, tagged 04.0 Independence and Ethics, 04.09 Individual & Team Conduct - e.g., premature signoff, underreporting hours, 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind, 10.0 Engagement Management, 10.03 Interaction among Team Members in Auditing Section Research Summary Database > Auditing Section Research Summaries Space public
    Title:
    How Partners’ Views Influence Auditor Judgment
    Practical Implications:

    While the audit partner is ultimately responsible, an audit opinion relies upon the work and judgments of numerous auditors at different levels throughout the firm (NYSSCPA 2009). Therefore, it is important that audit teams have access to independent judgments of individual auditors throughout the audit process. However, the authors’ findings provide evidence that “knowledge of superiors’ views biases auditors’ reports of their prior independent judgments, potentially inhibiting discussion and resolution of contrary views.”

    Whether judgment subordination is intentional or attributable to unconscious biases is not clear from the study. However, it is clear that it is insufficient for an auditor simply to formulate an opinion prior to hearing that of a superior. Rather, auditors should formulate and document their opinions prior to consulting with superiors and colleagues.

     

    It is not clear from this study whether the behavior described is prevalent among audit managers. It is possible that experience mitigates the likelihood of auditors to rely upon superior’s opinions. In addition, the judgment task involved a conservative alternative; it is possible that the effect will diminish when the partner’s opinion represents a less conservative alternative. 

    Citation:

    Peytcheva, M. and P.R. Gillett. 2011. How Partners’ Views Influence Auditor Judgment. Auditing: A Journal of Practice & Theory 30 (4): 285-301.

    Keywords:
    Audit judgment, motivated reasoning, cognitive bias
    Purpose of the Study:

    Prior research suggests auditors are likely to concur with the opinion of superiors if they learn of a superior’s opinion before forming their own judgments. This study examines the malleability of auditor judgments to the opinion of a superior after-the-fact. When given the opportunity to formulate an initial independent judgment, do auditors report later that they concurred with an audit partner’s contrary opinion?

    Design/Method/ Approach:
    • Participants were practicing auditors (27% audit seniors and 73% associates) as well as senior-level auditing students.
    • The study employed an experiment in two parts with participants divided into two experimental groups and one control group.
    • In part one, a judgment task was presented to each participant (whether to capitalize or expense an asset) and each participant was required to make a judgment but to wait to record that judgment until later:
    • Before Group: the experimental group that received an audit partner’s opinion (to expense the item) before they made their initial judgment
    • After Group: the experimental group that received an audit partner’s opinion (to expense the item) after they made their initial judgment
    • Control Group: made their judgment without receiving a partner opinion at any stage
    • In part two, the participants were asked to record the individual judgments they remembered making in part one.
    Findings:

    The authors find that around 80% of both experimental groups (the ‘before’ group and the ‘after’ group) selected to expense the item, versus only around 30% of the control group. Even among the sample of practicing auditors the percentage selecting to expense was around 75% in both experimental groups compared to 25% in the control group. There is no significant difference between the before and after groups, but there is a significant difference between the experimental groups and the control group. Therefore, the authors find that the audit partner’s opinion affects individual auditor judgments in a similar manner whether or not the auditor forms an independent opinion prior to learning of the partner’s opinion.

     

     

    Category:
    Auditor Judgment, Engagement Management, Independence & Ethics
    Sub-category:
    Individual & team conduct (e.g. premature signoff - underreporting hours), Interaction among Team Members, Prior Dispositions/Biases/Auditor state of mind
  • The Auditing Section
    Managing Perceptions of Technical Competence: How Well Do...
    research summary posted May 4, 2012 by The Auditing Section, tagged 10.0 Engagement Management, 10.03 Interaction among Team Members, 11.0 Audit Quality and Quality Control, 11.01 Supervision and Review – Effectiveness in Auditing Section Research Summary Database > Auditing Section Research Summaries Space public
    Title:
    Managing Perceptions of Technical Competence: How Well Do Auditors Know How Others View Them?
    Practical Implications:

    The results of this study provide evidence as to how accurate auditors are at knowing how their colleagues’ perceive their technical competence, or metaperceptions.  Auditors care about how their colleagues, especially their superiors, perceive them, and they have incentives to manage their reputations.  In order for auditors to manage their reputations effectively, they need to have accurate metaperceptions of the impressions they create on others, especially their superiors.  The results of this study suggest that auditors are generally highly accurate at knowing how their colleagues, especially their subordinates, perceive their technical competence. 

    Citation:

    Tan, H. and K. Jamal. 2006. Managing Perceptions of Technical Competence: How Well Do Auditors Know How Others View Them? Contemporary Accounting Research 23 (3): 761-787.

    Keywords:
    Audit workpaper review; Metaperception; Reputation management
    Purpose of the Study:

    The authors examine factors that influence an auditor’s accuracy in knowing how others on the audit engagement team view their own technical competence (termed metaperception).  Auditors strategically try to manage their superiors’ impressions of them.  Auditors care about how their colleagues view them and have incentives to manage their reputations.  Thus, the authors contend that it is important to understand the accuracy of auditors’ metaperceptions.  

    The authors assess factors that influence the accuracy of an auditor’s metaperceptions. Factors include the rank of the auditor whose performance is being assessed, the rank of the auditor performing the assessment, and the complexity of the audit task being performed.   For example, the authors examine how well an audit senior knows how their audit manager and audit partner perceives their technical competence.  An auditor’s metaperception has a direct impact on their success in managing their reputation, which is important in their career for reasons such as performance evaluations and promotions.

    Design/Method/ Approach:

    The research evidence was collected in the mid-2000s time period.  The authors gathered natural audit teams from three Big 4 firms.  On average, the teams consisted of two partners, two managers, and two seniors who previously worked together on audit engagements.  All auditors on the team performed two audit-related tasks – one of lower complexity and one of higher complexity.  Then each auditor assessed each of the other team members’ performances on the tasks by indicating whether or not they thought the other team members’ answers were accurate.  Finally, each auditor predicted how the other team members would assess the auditor’s own performance on the tasks.  High metaperception accuracy was observed when an auditor accurately predicted their colleague’s assessment of their own performance on the task.

    Findings:
    • Auditors’ metaperceptions are generally quite high, particularly for predictor auditors who are managers and partners.  For example, partners were quite accurate at predicting how their managers and senior associates assessed their performance on the tasks.  Likewise, managers were quite accurate at predicting how their senior associates assessed their performance on the tasks. 
    • For higher-complexity tasks, auditors’ metaperceptions are more accurate for higher-rank auditors than for lower-rank auditors regardless of the target auditor.  To clarify, partners are more accurate in forming metaperceptions, whether they are estimating a perception of a senior or another partner. 
    • For lower-complex tasks, higher-rank auditors have more accurate metaperceptions, but only when estimating the perceptions of a partner
    • Overall, superiors generally have accurate metaperceptions of target subordinates.
    • Managers have fairly high metaperception accuracy of target partners across both low and high-complexity tasks.
    • Seniors have high metaperception accuracy of target partners and managers only on low-complexity tasks.
    Category:
    Engagement Management, Audit Quality & Quality Control
    Sub-category:
    Interaction among Team Members, Supervision & Review – Effectiveness
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  • The Auditing Section
    Accountability and auditors’ materiality judgments: The e...
    research summary posted May 3, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.01 Audit Scope and Materiality Judgments, 09.02 Documentation Specificity, 09.11 Auditor judgment in the workpaper review process, 10.0 Engagement Management, 10.02 Materiality and Scope Decisions, 10.03 Interaction among Team Members in Auditing Section Research Summary Database > Auditing Section Research Summaries Space public
    Title:
    Accountability and auditors’ materiality judgments: The effects of differential pressure strength on conservatism, variability, and effort.
    Practical Implications:

    Firms should consider the levels of accountability pressure and situations where they use them and consider how different levels of pressure may impact performance.  Higher levels of accountability pressure may increase effectiveness and increase the likelihood of finding material misstatements. 

    On the other hand, increased effectiveness and time spent due to higher levels of accountability pressure may cause inefficiencies and result in unnecessary effort.  Firms should evaluate the costs and benefits for their situations. 

    The authors note that this study only looks at the effect of accountability pressure from an unknown partner.  In the real world, auditors have accountability pressures from many levels such as other superiors, clients, regulators, and audit committees. 
    Further, the auditor may have assessed things differently if they knew the partner that was performing their review.

    Citation:

    DeZoort, T., P. Harrison, and M. Taylor. 2006.  Accountability and auditors’ materiality judgments: The effects of differential pressure strength on conservatism, variability, and effort.  Accounting, Organizations, and Society 31 (4-5):  373-390. 

    Keywords:
    Audit Judgment; Audit Materiality; accountability pressure; materiality judgment
    Purpose of the Study:

    The purpose of this study is to look at how four different levels of accountability pressure (i.e. how their decisions would be reviewed) affect auditor conservatism, variability, and effort in tasks related to materiality.

    Design/Method/ Approach:

     The authors performed a computerized experiment using a final sample of auditors from five public accounting firms.  Participants were managers, staff and senior associates.   Participants were asked to review client background information, financial information, and a proposed audit adjustment for the Allowance for Doubtful Accounts balance.  Participants were asked to provide a planning materiality amount for the engagement and a materiality judgment regarding the proposed audit adjustment.  The auditors were put into one of four levels of accountability pressure:

    • Anonymity –judgment decision and responses were anonymous
    • Review –audit partner review but no feedback provided
    • Justification – participants provide written justification, which was reviewed but no comments provided
    • Feedback –formal feedback from partner about performance provided  

    In addition, about half of the participants received a “planning materiality decision aid,” which provided a range of planning materiality values.

    Findings:
    • For higher levels of accountability pressure strength (i.e. justification and feedback) judgments regarding planning materiality and proposed audit adjustments were more conservative and less variable.  In addition, higher level participants spent more time on the tasks, provided longer explanations and included more qualitative factors than those in lower levels, which suggest a higher level of effort.
    • Planning materiality decision aids reduced planning materiality variation across the various pressure levels, particularly for those in the lower accountability pressure groups.  
    Category:
    Auditor Judgment, Engagement Management
    Sub-category:
    Audit Scope & Materiality Judgements, Documentation Specificity, Auditor judgment in the workpaper review process, Materiality & Scope Decisions, Interaction among Team Members
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  • The Auditing Section
    The effects of feedback type on auditor judgment performance...
    research summary posted May 3, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.11 Auditor judgment in the workpaper review process, 10.0 Engagement Management, 10.03 Interaction among Team Members in Auditing Section Research Summary Database > Auditing Section Research Summaries Space public
    Title:
    The effects of feedback type on auditor judgment performance for configural and non-configural tasks
    Practical Implications:

    The results of this study indicate management should consider the level of task complexity before determining the best form of feedback to provide a staff member.  For simple tasks, it may be effective to merely provide staff with the correct answer.  However, for more complex tasks, it would be beneficial to provide staff with an explanation of the decision-making process in addition to the correct answer for that task.  The study also suggests that it could be beneficial to provide staff with insight into their own decision making process for complex tasks, particularly when they have low-levels of self-insight.  Thus, the results can directly inform the protocol of a firm’s workpaper review process.  This feedback could ultimately improve auditors’ subsequent decisions in audit tasks, which would improve audit quality.

    Citation:

    Leung, P. W. and K. T. Trotman. 2005. The effects of feedback type on auditor judgment performance for configural and non-configural tasks. Accounting, Organizations and Society 30 (6): 537-553.

    Keywords:
    Feedback, auditor judgment, configural processing, risk assessment, risk and risk management, task complexity, self-insight, intertask learning
    Purpose of the Study:

    One of the fundamental aims of auditing research is to improve auditor judgment.  Many audit decisions require configural processing (which means that the auditor must recognize an underlying pattern in the information rather an assessing a situation as the sum of all of the individual pieces of information).    Prior research has shown that auditors have difficulty arriving at the optimal decision when configural processing is required, which provides an opportunity for significant improvements in judgment. 

    Psychology literature has shown the effect of different forms of feedback on performance of simple tasks, but only speculated on how these effects may be impacted by task complexity.  This study considers how different forms of feedback improve auditor judgments on both simple and complex (i.e., configural processing) tasks.  Specifically, it examines four types of feedback: 

    • Outcome feedback which provides information on the correctness (i.e. was it right or wrong) of each decision. 
    • Task properties feedback which provides information on how well the individuals understood the nature of the task at hand.
    • Cognitive feedback which provides information about an individuals’ own decision making processes they used to reach their final answer. 
    • Combined task properties and cognitive feedback, which would include both the above mentioned feedbacks.
    Design/Method/ Approach:

    The authors test these forms of feedback experimentally pre-2005 by asking auditors from a Big 5 firm in Hong Kong to review checklists from simulated audits and determine the likelihood of misstatement in accounts receivable. In some cases, the audit program contained substitutable procedures (i.e., the presence of one procedure compensated for the absence of another) which required the auditors to configurally process the information (i.e., to recognize the relationship between the two compensating procedures).  In other cases, each step in the audit program addressed a unique audit objective and the task required only simple judgment.  

    The study was conducted in 3 stages.  In the first stage, the auditors assessed the likelihood of misstatement for a series of accounts receivable balances and then provided the criteria they used for making their decisions (i.e., how much weight they placed on each procedure listed in the audit program).  In stage 2, they were provided with a specific form of feedback and then were asked to complete assessments of an additional series of accounts receivable balances.  In the final stage, they were asked to assess the likelihood of misstatement for a series of cash disbursement cycles.  

    Each auditor was provided with one of the following forms of feedback: 

    • Outcome feedback –am assessment of misstatement determined by the partner on the job. 
    • Task properties feedback –the weight each audit procedure was given in the partner’s decision process and its combined importance with other procedures. 

    Cognitive feedback – provided the participants with information on their own decision-making process.  Since each participant completed a series of decisions, it was possible to calculate the weight they placed on each of the audit steps as they made their decisions. 

    • Combined task properties and cognitive feedback – provided with the importance of each audit procedure in both the partner’s decisions and their own decisions.
    Findings:
    • Outcome feedback is useful for simple tasks. 
    • Task properties feedback (i.e., information about how the partner made his/her decision) is useful for both simple and complex tasks. 
    • Cognitive feedback is useful for complex tasks, particularly when auditors have a low level of self-insight (i.e., they have an incorrect belief about the weight they place on each audit procedure in their decision-making process). 
    • Combined task properties and cognitive feedback is useful for both simple and complex tasks.  However, there is no additional benefit from adding cognitive feedback to task properties feedback. 
    Category:
    Auditor Judgment, Engagement Management
    Sub-category:
    Auditor judgment in the workpaper review process, Interaction among Team Members
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  • The Auditing Section
    Globalization and the Coordinating of Work in Multinational...
    research summary posted May 3, 2012 by The Auditing Section, tagged 05.0 Audit Team Composition, 05.05 Diversity of Skill Sets e.g., Tenure and Experience, 05.09 Group Decision-Making, 10.0 Engagement Management, 10.03 Interaction among Team Members in Auditing Section Research Summary Database > Auditing Section Research Summaries Space public
    Title:
    Globalization and the Coordinating of Work in Multinational Audits
    Practical Implications:

    The results of this study are important for audit firms to consider when conducting multinational audits involving several different local offices. The results suggest that local offices of audit firms may modify inter-office instructions and firm audit methodologies to suit the needs of their local client, including adapting materiality levels. Additionally, results suggest that while some local offices see the worldwide audit team as their “client” other offices are focused on meeting the needs of their local client.

    Citation:

    Barrett, M., D.J. Cooper and K. Jamal. 2005. Globalization and the Coordinating of Work in Multinational Audits. Accounting, Organizations and Society 30 (1): 1-24.

    Keywords:
    International matters, audit team composition, globalization, international business enterprises, auditing, international relations, accounting, international affairs, and structuration theory (communication)
    Purpose of the Study:

    Many of the largest companies today are multinational, with operations in different countries. Because of this, auditors must be able to conduct their audits on a global scale, coordinating with auditors in other countries. This paper takes an in-depth look at how auditors coordinate across countries to perform an audit for a multinational company, and how effectively the auditors are able to communicate. The paper focuses on relationships between the local offices by looking at two key coordinating mechanisms: 

    • Inter-office instructions
    • The firm’s risk based audit methodology 

    The paper also looks at how the inter-office instructions are interpreted and how closely they are followed at different locations, also how any changes are communicated back to the coordinating office. The paper also discusses how different offices adapt the firm’s risk based audit methodology.

    Design/Method/ Approach:

    The authors observed the audit team conducting their audit from July 1996 to September 1997. The authors spent time in the offices of a Canadian audit firm, attended firm trainings, and spent time with the Canadian, U.S., and worldwide engagement teams at the client sites. Throughout this time period, the authors also conducted interviews with the auditors, as well as several senior financial officers and the chief internal auditor of the client.

    Findings:
    • The firm’s risk based audit methodology and inter-office instructions were designed globally, but adapted at the local level based on auditors’ experiences with the client, including changing materiality levels.
    • North American audit teams (Canada, U.S.) were able to suggest changes to the worldwide engagement team that affected the worldwide engagement team’s approach to business advisory services.
    • While the study was being conducted, the audit firm changed to a “review by interview” method, where managers and  patners reviewed the work of staff and seniors on the spot, by asking them direct questions rather than leaving review notes. Most of the staff interviewed seemed uncomfortable with this new review process.
    • The audit teams (particularly in the U.S. and Canada) focused on trying to identify consulting opportunities with the client w while conducting their audit. Staff interviewed seemed less confident in their ability to provide value-added consulting services to the client.
    • The local audit team in the U.S. viewed the worldwide audit team as their “client” and built their audit around satisfying their requests (via the inter-office instructions), while the local audit team in Canada viewed the local office of the company as their client, and adapted inter-office instructions to fit their local client.
    Category:
    Audit Team Composition, Engagement Management
    Sub-category:
    Diversity of Skill Sets (e.g. Tenure & Experience), Group Decision-Making, Interaction among Team Members
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