Academic journal article Auditing: A Journal of Practice & Theory

The Audit Review Process and Sensitivity to Information Source Objectivity

Academic journal article Auditing: A Journal of Practice & Theory

The Audit Review Process and Sensitivity to Information Source Objectivity

Article excerpt


Auditing standards require auditors to consider the reliability of the evidence they use in making judgments. One aspect of that reliability is the objectivity of the information source. More objective sources (e.g., third parties) provide higher quality information than less objective ones (e.g., client personnel), so auditors should be sensitive to the source of the information they receive. In this study, we examine the effect of the role that auditors perform on their sensitivity to information source objectivity. Specifically, we test whether sensitivity varies depending on whether the auditor is the preparer of the workpaper or the reviewer of the workpaper in the task of evaluating the adequacy of an allowance for doubtful accounts. It is hypothesized that processing differences between the two roles will cause reviewers to be more sensitive than preparers to the objectivity of the information source. In an experiment, auditors were assigned to either a preparer or reviewer role in an accounts receivable task. After calculating or reviewing the allowance for uncollectible accounts, the auditors were given new information (from either a client source or an independent credit agency) and asked to reconsider their original decision. Results indicate that reviewers were sensitive to the source of the information, while preparers were not. These findings suggest that reviewers may use different cognitive processes than preparers and that the review process serves an important function beyond that of simply a second opinion.

Key Words: Information source objectivity, Audit review process.

Data Availability: Contact the authors regarding data availability.


In a typical audit engagement, initial decision makers (i.e., preparers)judge the validity of financial statement assertions and reviewers subsequently assess the adequacy of the audit procedures performed. One important purpose of this hierarchical structure in an audit team is to assure the quality of an audit. Although some studies have addressed reviewer effectiveness (Trotman 1985; Trotman and Yetton 1985; Libby and Trotman 1993), relatively little is known about the value of the review process relative to the significant costs incurred by auditing firms' partners and managers engaged in that process (Rich et al. 1997).

Another issue in the study of audit decision making is that of the source of information that auditors consider when making their judgments. Information that auditors use varies as to the competence and objectivity of its source. Competence deals with the technical ability of the individual providing the information and objectivity can be defined as the likelihood that an individual will report the information truthfully. Examinations of the former dimension have generally found that auditors rely more on information provided by a more competent source than they do on that provided by a less competent one (Anderson et al. 1994).

Information source objectivity has been studied by varying the independence of the individual providing the information. For example, Hirst (1994) described the information source as either a member of the independent auditor's firm or the client's chief financial officer. Auditing standards state that when evidential matter can be obtained from independent sources outside an entity, it provides greater assurance of reliability for the purposes of an independent audit than that secured solely within the entity (AICPA 1980, AU 326.). Therefore, auditors should consider the objectivity of the information on which their judgments are based. Studies of the objectivity of the individual providing the information have documented both sensitivity to the source's objectivity (Hirst 1994) and insensitivity to it (Joyce and Biddle 1981).

The major premise of the current study is that sensitivity to information about source objectivity differs between the functions of preparer and reviewer of the audit working papers. …

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