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This article presents findings of the authors study designed to determine whether results of prior studies of the determinants of audit expertise generalize to measures of actual performance. The authors provide an overview of previous studies of the determinants of audit expertise. The study showed that at the staff level, auditors with superior performance evaluations were distinguished by their technical knowledge while seniors with superior performance evaluations were distinguished by both technical knowledge and problem-solving abilities. The study also indicated that significant learning of tacit managerial knowledge occurs between the experienced staff and senior levels. The authors conclude that the results of the study have practical implications for the education and selection of entry-level auditors, as well as performance evaluation and retention/promotion decisions.

The article presents an exploration into the influence of professional experience in the structuring and the content of auditor decisions. Organizational practices concerning the higher trust put in more senior auditors are examined, seeking to identify correlative data on ability and knowledge differences of individual analysts. The authors' hypothesize a model through cognitive psychology, wherein experienced auditors are more capable of recognizing common statement errors due to increased exposure and therefore posses a stronger grasp of interpretive judgment towards the data presented.

In this experiment, a group of experienced auditors performed a diagnostic task related to one of their customary procedures—the detection of material financial statement errors through preliminary analytical review. Although the analytical review task used here abstracted from many of the complexities of an actual audit environment, it provided an opportunity to test three theoretical propositions concerning the knowledge structures of experienced auditors. These concerned how perceived frequency and recency of experience affected the accessibility in memory of potential financial statement errors, and how auditors organize financial statement errors in memory. Models of memory suggest that auditors should develop error prototypes and perceptions of their frequencies firsthand from personal experience, secondhand from the experiences of associates, and through formal training sessions where case materials emphasize certain types of accounting errors (see Waller and Felix [forthcoming]). Presumably, standardized audit procedures are also aimed primarily at more likely (and important) errors. The results of this experiment suggest that perceived error frequencies play a major role in the accessibility of error hypotheses in analytical review in that such error frequencies were closely associated with the frequency with which individual error hypotheses were generated. These results can be attributed to the relationship between frequency of experience and the strength, of associations in memory, and the fact that prototypes of frequency experienced errors are associated with more retrieval properties. [ABSTRACT FROM AUTHOR]

The article highlights the financial paper by authors Richard M. Frankel, Marilyn F. Johnson and Karen K. Nelson. In their paper a data is set to test several propositions, including one suggested by the U.S. authority Securities and Exchange Commission (SEC) about the relation between nonaudit fees paid by a registrant to its auditor and the registrant's earnings quality. This article discusses comments from participants at the accounting review conference on quality of earnings to evaluate approaches given by Frankel, Johnson and Nelson from both conceptual and operational perspectives. The article organizes discussion around a predictive validity model that shows conceptual relations between independent and dependent variables, as well as their operational measures and treatment of other causal factors. The article uses this model to describe and evaluate authors' approach, which blends complex behavioral and contractual relations with aggregate observable fee, accounting and market price data. The article also encourages others to conduct additional research to address the important questions raised by Frankel, Johnson and Nelson and the SEC.

ABSTRACT: This paper reports two experiments in which Big 5 audit managers estimate reported (audited) earnings conditional on analysts' consensus forecast, auditing standards, and auditor discovery of a quantitatively immaterial earnings overstatement. We find that auditors judge overstatement correction less likely if it would cause a missed forecast, even for objectively measured misstatements. This behavior is consistent with SEC Chairman Levitt's concerns about opportunistic corrections to manage earnings to forecasts. Also, SAS No. 89's mandated representations and communications do not increase corrections that would cause a missed forecast, indicating that the Auditing Standards Board has limited ability to reduce opportunistic corrections through such regulations. [ABSTRACT FROM AUTHOR]

Examines the effectiveness of two types of decision aids designed to alleviate the effects of one type of task-knowledge mismatch on auditors' judgments. Organization of audit planning tasks; Content and organization of auditors' knowledge; Specific processing problems caused by mismatch between task organization and knowledge organization.

Presents the results of an experiment which focuses on the mismatch between auditors' tendency to structure their knowledge of financial statement errors with audit objective. Audit tasks' requirement of auditors' assessment of objectives; Effects of knowledge structures' mismatch with task structures.

ABSTRACT: The ability of Einhorn's [1972] "expert measurement and mechanical combination" to eliminate bias and increase consensus in control reliance decisions was examined. This method uses the human to measure cue values end then combines these component judgments with a mathematical model to form global control reliance decisions. Its aim Is to eliminate error Induced when the human aggregates Information into a global judgment. Two groups of senior auditors evaluated a series of cases by either making global control reliance decisions or making component judgments of the strength of the individual controls end compliance tests. Component judgments of the latter group were combined mechanically into an overall Judgment. The mechanically combined component judgments were, on average, more like those provided by a group of firm experts and ware more consensual than the global judgments. These results are compared to those of prior studies which examined similar aids. [ABSTRACT FROM AUTHOR]

ABSTRACT: The audit risk model was used to generate hypotheses concerning the effect that internal control evaluation exerts on audit planning decisions. Specifically, directional predictions concerning the contingent nature of the effects of the susceptibility of accounting processes to error, the strength of the internal control design, and the strength of the related compliance tests were developed. These hypotheses were then compared to the behavior exhibited by a group of experienced auditors who completed a highly realistic series of case studies. The auditors' decisions were consistent with the predictions developed from the audit risk model. In addition, the paper introduces a modification of the standard policy-capturing method that allows the use of complex realistic case materials in a powerful, internally valid experimental design which decreases problems with experimental demand. It also provides initial evidence on experts' perceptions of the effectiveness of different approaches to compliance testing and further evidence on auditor consensus in a more structured audit environment. [ABSTRACT FROM AUTHOR]