The Effects of Specialization in Audit Workpaper Review on Review Efficiency and Reviewers' Confidence

Abstract

Accounting firms are currently re-engineering their audit processes with the aim of delivering a quality audit more efficiently. One area of potential efficiency gains is the sequential and hierarchical working paper review process. This study examines one approach for improving review efficiency: specialization. Auditing literature advises focusing each review level on specific kinds of errors (i.e., seniors on mechanical errors and managers on conceptual errors), rather than having seniors and managers perform successive all-encompassing reviews. To determine whether specialization at different levels of review improves reviewers' efficiency, this study has 35 managers and 39 seniors actually perform a review of a realistic set of workpapers. Seniors but not managers performing specialized reviews were more confident in their reviews. However, both seniors and managers performing specialized reviews required on average more time than those performing all-encompassing reviews. We attribute this result to specialization interfering with auditors' mental model of review. The results suggest specialization will not automatically improve review efficiency, and that accounting firms may need to carefully evaluate any proposed changes to their workpaper review process.