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An investigation of auditor judgments of the effect of preliminary analytical procedures on the extent of substantive testing

Article Abstract:

A major type of substantive testing procedure performed during the audit examination are analytical procedures. The use of analytical procedures (APs) in the preliminary stages of the audit examination is required for both United States (U.S.) and international audits. Despite this requirement, neither international (International Auditing Guideline 12 and Australian Statement of Auditing Practice 17) nor U.S. (Statement on Auditing Standards No. 56) auditing standards provide guidance concerning the use of preliminary APs for specific account balances or in specific circumstances. This research represents a descriptive examination of auditor judgments concerning the use of preliminary APs in the audit engagement. Our results indicate that auditors believe that performing preliminary APs generally results in a significant reduction in the need for substantive tests of details; however, the reduction in substantive testing varied according to which APs were performed. The high levels of judgment consensus noted in this research indicate that, while specific guidance for preliminary APs has not been provided by U.S. auditing standards, it appears that firms examined in this study have developed structured approaches with respect to the use of preliminary APs. Finally, the higher level of consensus noted for the judgments of senior accountants and staff accountants compared to those of audit managers may reflect either the structured nature of the task examined in this study or the greater degree of senior and staff accountant familiarity with the use of preliminary APs. (Reprinted by permission of the publisher.)

Administrative procedure

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The 150-hour rule

Article Abstract:

The effect of the 150-hour rule on the audit market was examined using Dye's model, which includes both auditor's education and audit efforts as joint inputs for producing audit quality. Under the 150-hour rule, it was found that audit fees are higher, the pre-rule auditors are better off and audit clients are at a disadvantage. Moreover, more pre-rule auditors prefer to enter the audit market, while some less wealthy post-rule auditors choose not to. Results also showed that the rule can lower the average audit quality in the market.

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Impact of the timing of receipt of an inherited explanation on auditors' analytical procedures judgments

Article Abstract:

Research studies on auditors' analytical procedures are extended to assess their effect on auditors' performance and hypothesis generation timing.

United States, Methods, Evaluation, Analytical hierarchy process

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