English

Anderson John,Fleming Damon

doi:10.5897/jat2016.0223

Abstract

The use of decision aids could potentially improve auditor’s decision making by assuring that the correct hypothesis is available for the auditor to consider when employing analytical procedures.  Previous research has shown that auditors have limited ability to generate error explanations on their own.  The purpose of this study is to synthesize the literature for the development of decision aids for generating explanations for analytical procedures, and validate an important finding of the literature, in light of criticism that a previously found effect may be due to a potential flaw in the experimental design.  As predicted by interference theory and availability theory, the results confirm that the proportion of error vs. non-error explanations in the design of the decision aid can significantly impact the auditor’s assessment of the likelihood that the cause of a ratio fluctuation is due to error or irregularity, with implications on audit effectiveness. Key words: Analytical procedures, decision aid, audit judgment.

Highlights

Auditing standards (Public Company Accounting Oversight Board (PCAOB), 2010; American Institute of Certified Public Accountants (AICPA), 1988) require that auditors apply analytical procedures in the conduct of an audit
The purpose of analytical procedures decision aids is to assist the auditor in determining the possible error explanations that may be associated with unusual fluctuations in relationships of account information with financial indicators, economic indicators, or operating indicators
H2 predicts auditors using a decision aid biased with nonerror explanations will not assess a higher probability that the cause of the significant ratio fluctuation is due to nonerror, compared to auditors not using a decision aid

Summary

Introduction

The purpose of analytical procedures decision aids is to assist the auditor in determining the possible error explanations that may be associated with unusual fluctuations in relationships of account information with financial indicators, economic indicators, or operating indicators. Previous research has utilized a diagnostic model to explain how auditors examine unusual fluctuations in analytical procedures (Libby, 1985; Libby and Frederick, 1990; Heiman, 1990; Koonce, 1993). In this diagnostic model, auditors’ generate hypotheses to explain the unusual fluctuations. There has been limited research in the use of decision aids to assist auditors in the generation of analytical procedures

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Conclusion