The Impact of Strategic-Positioning Information on Auditor Judgments about Business-Process Performance

Abstract

Strategic-systems auditing (SSA) approaches require auditors to perform analyses of their clients at two levels (i.e., strategic and business-process levels) when conducting audits (e.g., Bell et al. 2002; Lemon et al. 2000). One advantage of using SSA approaches is that through these analyses, auditors gain a complex systems understanding of the client. This understanding enhances decision making in part by recognizing that small actions can have big effects that increase overall business risk (Jacobson 2001; Richmond 2000). This study examines how the two levels of analysis in SSA impact auditor judgments regarding small changes in a business process that can have big (risk-increasing) effects. Specifically, we predict that when strategic-positioning information (contained within the strategic-level analysis) indicates a client is typical of others in its industry, information at the business-process level regarding a small problem in a business process will be weighted less than when the strategic-positioning information indicates the client is atypical. Results support this contention. This behavior may have implications for the effectiveness of SSA approaches under certain conditions.

Accounting Comparability, Audit Effort, and Audit Outcomes

“…Integrating risk assessment into materiality attestation can improve audit effectiveness by helping auditors better understand clients’ business strategies and processes that drive business outcome (e.g., Ballou et al. ; Peecher et al. ).…”

A Model and Literature Review of Professional Skepticism in Auditing

“…Many studies have examined auditor risk assessments (for a review see Allen et al 2006), and some recent studies have examined risk analysis in the context of ''strategic systems'' audit approaches (Bell et al 1997;Eilifsen et al 2001;Bell et al 2005) that place more emphasis on an organization's business strategy when assessing risks and developing expectations (e.g., Ballou et al 2004;Choy and King 2005;O'Donnell and Schultz 2005). In general, risk-assessment studies provide evidence that auditors possess knowledge that enables them to modify assessed risk in response to client characteristics such as management integrity, competence and turnover, firm characteristics such as financial health and internal control quality, and to evidence quality, though as discussed in the sixth section some studies indicate that auditors in particular circumstances might adjust their risk assessments too little or too much.…”

“…However, reviewers who are sensitive to the potential for preparers biasing their work are better able to counteract that bias (Tan and Trotman 2003). Reviewers make allowances when reviewee's workpapers obviously emphasize information consistent with reviewee conclusions (Tan and Yip-Ow 2001), and reviewers are likely to more critically evaluate workpapers when they believe there is high risk of reviewee error or user reliance on the financial statements (Rich 2004).…”

“…For example, regarding auditor knowledge, a paradox is that increased knowledge via experience and specialization provides many benefits, but also leaves auditors vulnerable to a few predictable types of error that can compromise PS (e.g., developing knowledge of the high frequency of non-error explanations; filling in missing parts of the evidential puzzle with evidence indicating non-errors). Similarly, ''top-down'' audit approaches that focus the auditor on client strategy can encourage the auditor to overlook evidence in some situations (Ballou et al 2004). Future research could consider how to augment professional judgment with training (e.g., conveying salient error frequencies), decision aids or consultation arrangements to avoid these problems.…”

Pengaruh Faktor-Faktor Personal Terhadap Skeptisisme Profesional Auditor

“…Pengalaman tersebut berpengaruh terhadap skeptisisme profesional auditor, karena pengetahuan tentang penyebab kesalahan dan frekuensi kesalahan akan membuat auditor bereaksi pada pos-pos yang berisiko tinggi, serta menjadikan auditor lebih waspada terhadap potensi timbulnya kesalahan yang sama pada audit berikutnya. Ballou et al (2004) menyatakan bahwa auditor lebih mungkin mengenali dampak item yang meningkatkan risiko pada ukuran kinerja proses bisnis ketika posisi strategis perusahaan berada dalam areaarea yang tidak berkaitan dengan jejak-jejak norma industri dibandingkan jika posisi strategis tersebut sejalan dengan normanorma industri.…”