Hypothesis revision strategies in conducting analytical procedures

Article Abstract:

A study was conducted to ascertain the manner by which auditors assess potential hypotheses when performing a substantive test through analytical procedures. Subjects were 26 managers, 16 staff members, seven seniors and six supervisors from a major accounting firm, who were presented with the results of analytical procedures reporting unanticipated material deterioration in the gross margin ratio and five likely reasons behind the decrease determined by an audit staff. After identifying the probabilities that each of the five likely causes was the real cause, the subjects were supplied more audit evidence about the fluctuation and their possible explanations, after which they updated their original assessment of likelihoods. When given evidence regarding a target hypothesis, the auditors tended to alter the likelihood of the target hypothesis but not to rectify those of the rival hypotheses.

Financial analysis, Hypothesis, Hypothesis (Logic)

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The effect of audit documentation on data collection

Article Abstract:

Auditors study a client's internal control system before making a preliminary review. The reliability of the internal control system influences the planning, implementation, and evaluation of an audit by the auditor. The three methods of documenting internal accounting controls include: internal control questionnaires (ICQs), flow charts, and narrative memoranda. The results of a lab experiment involving the collection of data by 55 auditors indicates that the type and amount of data collected during the preliminary review is impacted by the documentation mode and experience of the auditor. The use of an internal control questionnaire leads to the collection of more data. In addition, more experienced auditors collected more data when using flowcharts and ICQs than did less experienced auditors indicating that data collection correlates with the mode of documentation but not experience.

Documentation

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The effect of hypothesis framing, prior expectations and cue diagnosticity on auditors' information choice

Article Abstract:

Audit judgement literature recognizes the importance of hypothesis in framing the information searches of auditors. Psychological studies show a tendency for auditors to adopt confirmatory strategies and seek evidence to confirm their hypotheses. Research was conducted into auditors' information choice to determine whether sequential judgements are more indicative of confirmatory strategies. The research indicates that the confirmatory bias of auditors is towards failure rather than viable items and that the extent of the bias is impacted by the initial hypothesis of the auditor. Those subjects that received indication of failure chose more failure information cues. The number of failure to viable causes is comparatively less for subjects that were given cue diagnosticity information than those who were not.

Psychological aspects, Decision-making, Decision making, Auditors, Choice (Psychology)

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