When Are Two Auditors Better Than One? Group Decision Making in Auditing

By Bedard, Jean C.; Maroney, James J. | The CPA Journal, February 2000 | Go to article overview

When Are Two Auditors Better Than One? Group Decision Making in Auditing


Bedard, Jean C., Maroney, James J., The CPA Journal


In today's competitive audit environment, CPA firms must continually monitor their practices to ensure that their professional employees are used as efficiently and effectively as possible. Accordingly, the appropriate staffing of audit teams is an important consideration.

Many audit judgments are made by the team, as well as individuals. The amount of group interaction is normally left to the discretion of the audit team leader and is more likely to be a function of personal preference than professional guidance. In fact, there is little if any professional guidance in auditing that helps firm executives determine what types of audit decisions might be made most effectively at a group level while providing recommendations on improving the group decision process.

When should group decision making be used?

Psychology research has found that group decision making generally results in performance gain over individual decision making. However, since audit firms face a highly competitive environment, further specific guidance is necessary to determine which audit tasks justify the additional time required by a group decision process.

While relatively few studies address auditing specifically, two recent ones provide some assistance in this area. A 1998 study found that groups of auditors were much better than individuals at identifying potential financial statement errors but were no better at evaluating those errors. Another study found that groups identified more issues relevant to the disclosure decision than individual auditors. However, there was no difference in the final decision outcome.

A common finding from both studies was that the primary benefit from group decision processes was in the generation of relevant information, not in the evaluation of that information. Furthermore, a 1972 model of interactive group decision making concludes that the failure of group decision making is not usually due to inability to identify a good solution, but rather it is due to failure to select that "good" solution.

Audit firm executives can benefit by using this research to identify those audit tasks that are most appropriate for group decision processes. Since the primary benefit is information generation, complex audit tasks that require the consideration of a manber of alternative ideas appear to be the types of tasks for which group decision processes might be most effective. For example, if unexpected fluctuations in financial statement balances are caused by a financial statement error, the failure to consider that explanation during analytical procedures can significantly reduce audit effectiveness. Thus, group meetings can be an effective and efficient way to generate potential explanations for unexpected fluctuations identified through audit analytical procedures.

Explanations can be generated at a group level and then evaluated at an individual level. While auditors often initially seek explanations from management for unusual fluctuations, a November 1997 Journal of Accountancy article discussed some of the pitfalls of this practice and suggests that auditors first develop independent explanations.

Research suggests that the following audit tasks would also be conducive to group decision processes:

Identification of inherent risk, fraud risk, and control risk factors during audit planning.

Identification of going concern issues and potential mitigating factors.

Identification of issues relevant to selection of the appropriate form of audit opinion.

Identification of issues relevant to footnote disclosures in the financial statements.

Management advisory or tax projects that require the generation of a number of alternative ideas.

All of the aforementioned tasks share one thing in common: For these tasks to be performed as effectively as possible, all relevant factors must be considered. Furthermore, for several of these tasks, failure to consider a relevant factor can impact other phases of the audit. …

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