The effect of experience on audit decision making processes and decision quality

The research examines the effect of experience on audit decision making processes and decision quality. A comparison of the performance of expert auditors, novice auditors and final year undergraduate accounting students in assessing the identification and significance of errors and irregularities in internal control and audit planning judgements was undertaken. In addition, this research examined the effect of experience on the consensus among auditors and on the consistency of auditor's judgement, as well as the relationship between the decisions made and the perceived magnitude of risk of possible errors and irregularities considered by the auditor in the early stage of the decision process. A relatively comprehensive audit case with detailed background information and extensive internal control questionnaires was devised as a mechanism for monitoring auditors' performance and for testing the research hypotheses. The task performed by participants was a relatively realistic and unstructured task that requires auditors to employ the knowledge that they have developed through experience. The subjects were asked to perform two sets of tasks. The first set required them to list the possible errors and irregularities that may have occurred because of the particular internal control weaknesses, and to rate them on a ten-point scale. This rating facilitates the examination of the relationship between the auditors' perceived magnitude of potential risk and their audit planning decisions. The second set of tasks required subjects to make two planning decisions: (1) the planned degree of reliance on internal controls and (2) the planned extent of substantive testing. Eighty three practising auditors (40 experts and 43 novices) from eleven auditing firms participated in the research. Also, data were collected from a group of forty final year undergraduate accounting students at the end of an auditing course. The undergraduate students were included as a control group to see whether students are reasonable surrogates for the real-world novice auditors. In the final phase of data collection, the errors and irregularities collected in the first phase were evaluated, to determine their quality, by a group of thirteen auditors who (a) are considered by their offices as highly skilled auditors, (b) are primarily responsible for audit and (c) did not complete the questionnaire in the first phase of data collection.