Academic journal article Auditing: A Journal of Practice & Theory

The Role of Problem Representation Shifts in Auditor Decision Processes in Analytical Procedures

Academic journal article Auditing: A Journal of Practice & Theory

The Role of Problem Representation Shifts in Auditor Decision Processes in Analytical Procedures

Article excerpt


In audit analytical procedures, research has shown that auditors have difficulty proposing possible explanations for financial statement discrepancies (Bedard end Biggs 1991a). One source of this difficulty is that auditors may represent analytical procedures problems incorrectly; that is, their mental image of the problem does not contain the underlying cause of the discrepancies. Because shifting initial representations of problems is difficult, auditor decision processes are affected. The purpose of this study is to investigate how problem representation shifts can lead auditors to better insight into possible explanations of discrepancies, and thus improve auditor decision processes in analytical procedures. To accomplish this purpose, verbal protocol data from Bedard and Biggs (1991a) were used to develop a series of problem representations and prompts for the analytical procedures task used in that study. The prompts were given to activate relevant knowledge structures in memory and encourage successive shifts toward the correct representation. Think-aloud verbal protocols were collected from 12 senior auditors with three to five years' experience to provide evidence of problem representation shifts and decision processes.

The results indicate that: (1) all subjects initially formulated an unproductive problem representation; (2) only one subject shifted to a productive problem representation and solved the case without prompts; and (3) even with prompts two subjects were unable to solve the case. These findings suggest that shifting to a productive problem representation was critical in achieving effective decision processes and identifying the seeded error in this analytical procedures task. Auditors who developed a thorough understanding of the financial relationships in the case prior to proposing potential solutions were better able to shift problem representations and solve the case. In addition, two processes related to an explanation inherited from client management, "wheel spinning" and truncated hypothesis generation, inhibited problem representation shifts.

Key Words: Analytical procedures, Auditor decision processes, Problem representation, Verbal protocols.

Data Availability: Data used in this study are available from the authors upon request.

When approaching a new situation or problem, people develop a mental image or representation of the problem that guides their thinking. Research in psychology suggests that this representation can affect problem solving, because it shapes the decision processes used to develop problem solutions. One finding of potential relevance for auditing is that performance can be inhibited by difficulty in adapting an initial representation of a problem (e.g., Newell and Simon 1972; Tversky and Kahneman 1981; Kaplan and Simon 1990). This finding is important because recent auditing studies have linked performance and problem representations (e.g., Plumlee 1985; Christ 1993). Despite the importance of problem representations, little is known about how auditors initially formulate and adapt problem representations while performing audit tasks (Bedard and Chi 1993).

The potential importance of formulating and adapting problem representations is suggested in the findings of two recent studies by Bedard and Biggs (1991a, 1991b). In those studies, many experienced auditors were unable to correctly solve the analytical procedures problem. This finding is puzzling because those auditors appeared to have the requisite knowledge, but seemed unable to access it to solve the task. One possible explanation for their inability to access knowledge is that their initial representation of the problem was unproductive, and they were unable to shift to a productive representation (i.e., one containing knowledge relevant to a correct solution). To investigate this explanation, the current research uses verbal protocol data from Bedard and Biggs (1991a) to identify a series of possible problem representations for the task. …

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