How a Systems Perspective Improves Knowledge Acquisition and Performance in Analytical Procedures

ABSTRACT: Auditors are required to understand dynamic business environments as part of the performance of analytical procedures. Prior evidence, though, suggests that auditors have difficulty understanding such environments. This study reports an experimental investigation of techniques that help auditors to identify incorrect management representations by developing expectations that are both accurate and adaptive to changing business conditions. My predictions suggest that analyzing a dynamic client environment through a systems perspective enhances information-processing ability, which then improves both evidence discrimination and the assimilation of new audit evidence. Results reveal that participants taking a holistic systems-based view of a client environment develop more coherently organized mental models that increase their likelihood of identifying management representations that are inconsistent with industry evidence. Furthermore, these participants more efficiently use their information-proce...

[1]  M. W. Nelson,et al.  Experimental Research in Financial Accounting , 2001 .

[2]  Susan M. Barnett,et al.  Developing Childhood Proclivities into Adult Competencies: The Overlooked Multiplier Effect , 2003 .

[3]  Christine E. Earley.  The Differential Use of Information by Experienced and Novice Auditors in the Performance of Ill‐Structured Audit Tasks* , 2002 .

[4]  Ira Solomon,et al.  It's all about audit quality: Perspectives on strategic-systems auditing , 2007 .

[5]  M. Buehner,et al.  Accountants' Usage of Causal Business Models in the Presence of Benchmark Data: A Note* , 2007 .

[6]  John D. Sterman,et al.  System Dynamics: Systems Thinking and Modeling for a Complex World , 2002 .

[7]  John D. Sterman,et al.  Bathtub dynamics: initial results of a systems thinking inventory , 2000 .

[8]  R. Engle,et al.  Executive Attention, Working Memory Capacity, and a Two-Factor Theory of Cognitive Control. , 2003 .

[9]  M. W. Nelson,et al.  Audit category knowledge as a precondition to learning from experience , 1997 .

[10]  L. Sanna.  Mental Simulation, Affect, and Personality , 2000 .

[11]  Jane Kennedy,et al.  Debiasing the curse of knowledge in audit judgment , 1995 .

[12]  W. Knechel.  The business risk audit: Origins, obstacles and opportunities , 2007 .

[13]  Sudip Bhattacharjee,et al.  The Effectiveness of Alternative Training Techniques on Analytical Procedures Performance , 2007 .

[14]  Ronald R. King,et al.  An Experimental Investigation of Approaches to Audit Decision Making: An Evaluation Using Systems‐Mediated Mental Models* , 2001 .

[15]  A. Tversky,et al.  The simulation heuristic , 1982 .

[16]  M. W. Nelson,et al.  Judgment and Decision Making Research in Auditing: A Task, Person, and Interpersonal Interaction Perspective , 2005 .

[17]  Bruce Hannon,et al.  Modeling Dynamic Biological Systems , 1999, Modeling Dynamic Systems.

[18]  W. Robert Knechel,et al.  Auditing: Assurance and Risk , 2000 .

[19]  F. Strack,et al.  The Semantics of Anchoring , 2001 .

[20]  Christine E. Earley.  Knowledge Acquisition in Auditing: Training Novice Auditors to Recognize Cue Relationships in Real Estate Valuation , 2001 .

[21]  A. Faye Borthick,et al.  Accelerating the acquisition of knowledge structure to improve performance in internal control reviews , 2006 .

[22]  F. Paas,et al.  Cognitive Load Measurement as a Means to Advance Cognitive Load Theory , 2003 .

[23]  Daniel Friedman,et al.  Experimental Methods: A Primer for Economists , 1994 .

[24]  D. Eric Hirst,et al.  Audit Analytical Procedures: A Field Investigation* , 1996 .

[25]  Paul L. Walker,et al.  The effects of instruction and experience on the acquisition of auditing knowledge , 1994 .

[26]  D. Day,et al.  Development of a Short form for the Raven Advanced Progressive Matrices Test , 1994 .

[27]  A. Baddeley.  Human Memory: Theory and Practice, Revised Edition , 1990 .

[28]  Gary Klein,et al.  Sources of Power: How People Make Decisions , 2017 .

[29]  Timothy B. Bell,et al.  Auditing organizations through a strategic-systems lens : the KPMG Business Measurement Process , 1997 .

[30]  J. Sterman,et al.  Effects of feedback complexity on dynamic decision making , 1995 .

[31]  R. Mooney,et al.  Schema acquisition from a single example , 1992 .

[32]  F. Paas,et al.  Cognitive Architecture and Instructional Design , 1998 .

[33]  Andrew R. A. Conway,et al.  Working memory capacity and its relation to general intelligence , 2003, Trends in Cognitive Sciences.

[34]  Robert J. Sternberg,et al.  Cognitive conceptions of expertise , 1997 .

[35]  G. Rickheit,et al.  1 Mental Models: Some answers, some questions, some suggestions , 1999 .

[36]  J. Sterman.  Misperceptions of feedback in dynamic decision making , 1989 .

[37]  W. Brewer,et al.  The nature and functions of schemas. , 1984 .

[38]  Reducing Management's Influence on Auditors' Judgments: An Experimental Investigation of SOX 404 Assessments , 2008 .

[39]  Ira Solomon,et al.  The 21st century public company audit : conceptual elements of KPMG's global audit methodology , 2005 .

[40]  Sharon K Tindall-Ford,et al.  When two sensory modes are better than one , 1997 .

[41]  N. Epley,et al.  The Anchoring-and-Adjustment Heuristic , 2006, Psychological science.

[42]  R. Glaser,et al.  Expertise in a complex skill: Diagnosing x-ray pictures. , 1988 .

[43]  I. Solomon,et al.  Theory and Experimentation in Studies of Audit Judgments and Decisions: Avoiding Common Research Traps , 2001 .

[44]  Robert Libby,et al.  Judgment and decision-making research in accounting and auditing: The role of knowledge and memory in audit judgment , 1995 .

[45]  Barry Richmond,et al.  Systems thinking/system dynamics: Let's just get on with it , 1994 .

[46]  Emer Curtis,et al.  The business risk audit – A longitudinal case study of an audit engagement , 2007 .

[47]  M A Just,et al.  From the SelectedWorks of Marcel Adam Just 1990 What one intelligence test measures : A theoretical account of the processing in the Raven Progressive Matrices Test , 2016 .

[48]  Vernon L. Smith,et al.  Theory, Experiment and Economics , 1989 .

[49]  Ed O'Donnell,et al.  The Halo Effect in Business Risk Audits: Can Strategic Risk Assessment Bias Auditor Judgment about Accounting Details? , 2005 .

[50]  John Sweller,et al.  Efficiency in Learning: Evidence-Based Guidelines to Manage Cognitive Load , 2005 .