Error Detection by Industry‐Specialized Teams during Sequential Audit Review

To improve audit effectiveness, public accounting firms have organized their practices to include hierarchical review by teams organized along industry lines. We examine how industry specialized auditor teams detect errors, using a sophisticated experimental design. Our analysis of nominal teams created from seniors and managers working individually shows that seniors add value to the team by detecting more mechanical errors while managers detect more conceptual errors. Working within specialization, managers and seniors both contribute in a nonredundant way to the team’s overall effectiveness. We also find that the nominal teams outperform real teams in the detection of mechanical but not conceptual errors. These results only hold when the auditors work within in their industry specialization. Out of specialization the auditors are not effective at detecting errors, and real teams perform below the nominal team benchmark in the detection of both mechanical and conceptual errors.

[1]  Philip Yetton,et al.  The Effect Of The Review Process On Auditor Judgments , 1985 .

[2]  Amitava Chattopadhyay,et al.  Effects of Context and Part-Category Cues on Recall of Competing Brands , 1985 .

[3]  Robert J. Ramsay,et al.  Senior Manager Differences In Audit Workpaper Review Performance , 1994 .

[4]  Stephen J. Hoch,et al.  Availability and interference in predictive judgment. , 1984 .

[5]  Robert Libby,et al.  Availability And The Generation Of Hypotheses In Analytical Review , 1985 .

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

[7]  Mark H. Taylor.  The Effects of Industry Specialization on Auditors' Inherent Risk Assessments and Confidence Judgements* , 2000 .

[8]  G. Stasser,et al.  Expert role assignment and information sampling during collective recall and decision making. , 1995, Journal of personality and social psychology.

[9]  E. Michael Bamber,et al.  An Investigation of the Effects of Specialization in Audit Workpaper Review , 1997 .

[10]  Noel Harding,et al.  Hierarchical Differences in Audit Workpaper Review Performance , 1999 .

[11]  J. H. Davis,et al.  Some compelling intuitions about group consensus decisions, theoretical and empirical research, and interpersonal aggregation phenomena: Selected examples 1950-1990 , 1992 .

[12]  Karim Jamal,et al.  Effects of framing on auditor decisions , 1990 .

[13]  Donald W. Taylor,et al.  DOES GROUP PARTICIPATION WHEN USING BRAINSTORMING FACILITATE OR INHIBIT CREATIVE THINKING , 1958 .

[14]  Herbert Solomon,et al.  Two models of group behavior in the solution of eureka-type problems , 1955 .

[15]  Richard M. Tubbs,et al.  The effect of experience on the auditor's organization and amount of knowledge , 1988 .

[16]  G. Stasser,et al.  Discovery of hidden profiles by decision-making groups: Solving a problem versus making a judgment. , 1992 .

[17]  G. W. Hill.  Group versus individual performance: are n + 1 heads better than one?" psychological bulletin , 1982 .

[18]  Ira Solomon,et al.  What Do Industry-Specialist Auditors Know? , 1999 .

[19]  R D Sorkin,et al.  Signal-detection analysis of group decision making. , 2001, Psychological review.

[20]  Karen L. Middleton,et al.  Are N+1 heads better than one?: The case of mutual fund managers , 2002 .

[21]  E. Bamber,et al.  Expert Judgment in the Audit Team: A Source Reliability Approach , 1983 .