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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.

This paper has two goals. The first is to develop a formal approach for examining how the auditor's memory store interacts with current audit evidence to determine judgment. The failure of less systematic efforts to examine these issues suggests the need for more formality and structure. The second goal is to use the approach to predict and demonstrate the judgmental effect of a specific knowledge difference in an abstract setting. The conflicting and inconclusive results of prior studies indicate the nontrivial nature of this task, even in an abstract setting. This study should be viewed as the first in a sequence of research, which will move from the artificial toward the realistic, leading to demonstrations of how knowledge differences allow experts to perform important auditing tasks that novices cannot. As a result, this initial study, by itself, is not designed to allow direct implications for audit practice to be drawn. [ABSTRACT FROM AUTHOR]

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]

Current IFRS requires significant disaggregation of income statement numbers while such disaggregation is voluntary and much less common under U.S. GAAP. We examine whether voluntary disaggregation of income statement numbers increases the reliability of income statement subtotals because auditors permit less misstatement in the disaggregated numbers. In our experiment, experienced auditors require correction of smaller errors in disaggregated numbers. Auditors also believe that greater disaggregation will increase SEC scrutiny of uncorrected financial statement errors in the disaggregated numbers. However, the effects are substantially reduced if the disaggregated numbers are presented in the notes. Furthermore, there is significant disagreement among participants on whether disaggregated numbers are relevant materiality benchmarks, and on what current auditing guidance requires. These results suggest a potential deficiency in current audit guidance, which traditionally has been aimed at promoting consensus in practice among auditors. The results also suggest an unintended positive consequence of voluntary disaggregation for the reliability of income statement subtotals. Possible effects of management behavior and required disaggregation resulting from U.S. adoption of IFRS or the recommendations of the joint FASB/IASB financial statement presentation project are also discussed. [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]

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]

The article presents the author's opinions on an article by Karl E. Weick, published in the April 1, 1983 issue of the periodical "Accounting Review," which argued that stress is an important accompaniment of corporate accounting practices. That article by Weick was titled: "Stress in Accounting Systems." According to Weick, accountants and auditors work under tremendous stress. The first important feature of the stress concept is that its consequences are specified in terms of observable performance metrics. In the short term, the consequences of stress relate primarily to cognitive performance. There is also a sequence of physiological and psychological consequences, which in the long term can produce serious health problems. An important feature of the stress concept is that, as Weick has aptly demonstrated, accounting is closely involved with many of the antecedents of stress. Given the well-defined antecedents and consequences of stress, it is possible to specify explicit remedies which may be implemented if the benefits of the remedies outweigh their costs.