The Effect of Risk of Misstatement and Workload Pressure on the Choice of Workpaper Review Format

30 Pages Posted: 20 Jul 2007

See all articles by Christopher P. Agoglia

Christopher P. Agoglia

University of Massachusetts at Amherst

Joseph F. Brazel

North Carolina State University - Poole College of Management - Department of Accounting

Richard C. Hatfield

University of Alabama

Scott B. Jackson

University of South Carolina

Date Written: July 2007

Abstract

The advent of electronic communication and electronic workpapers at audit firms has provided workpaper reviewers with options of how to interact with their audit team. Concurrently, other review formats have developed that rely more on in-person communication (e.g., review-by-interview). Prior research indicates that in-person discussion during review results in qualitatively different workpapers and judgments than when the reviewer interacts with the workpaper preparer electronically. As reviewers typically have discretion over how to conduct their reviews, the choice of review format can be viewed as a controllable audit input. Thus, the reviewer's choice of review format could impact the quality of the audit review team's work. Our study extends the audit review process literature by examining reviewers' choice of the form of their reviews and by considering factors that influence that choice. Specifically, we examine the effect of misstatement risk and workload pressure on this choice. We find that misstatement risk and workload pressure affect reviewers' review mode choices, with both those facing low risk and those under high pressure more likely to perform their reviews electronically. Further, risk and workload pressure interact to affect reviewers' likelihood of choosing to review electronically. Results indicate that misstatement risk moderates the effect of workload pressure such that, when risk is high, the effect of workload pressure is reduced. Our findings provide insight to firms and regulators regarding the impact of misstatement risk and workload pressure on how audit workpaper reviewers conduct their reviews. These issues are particularly relevant in light of recent changes in the regulatory environment that both emphasize the auditor's role in detecting fraud/misstatements and exacerbate traditional workload pressures during busy times of the year.

Keywords: review process, electronic communication, face-to-face interaction, workload pressure, workload compression, misstatement risk

JEL Classification: D81, M40, M49

Suggested Citation

Agoglia, Christopher P. and Brazel, Joseph F. and Hatfield, Richard C. and Jackson, Scott B., The Effect of Risk of Misstatement and Workload Pressure on the Choice of Workpaper Review Format (July 2007). Available at SSRN: https://ssrn.com/abstract=1001469 or http://dx.doi.org/10.2139/ssrn.1001469

Christopher P. Agoglia (Contact Author)

University of Massachusetts at Amherst ( email )

Department of Accounting & Information Systems
121 Presidents Drive
Amherst, MA 01003-4910
United States
413 545-5582 (Phone)
413 545-3858 (Fax)

Joseph F. Brazel

North Carolina State University - Poole College of Management - Department of Accounting ( email )

Campus Box 8113
Nelson Hall
Raleigh, NC 27695
United States
919-513-1772 (Phone)

Richard C. Hatfield

University of Alabama ( email )

101 Paul W. Bryant Dr.
Box 870382
Tuscaloosa, AL 35487
United States
205 348-2901 (Phone)

Scott B. Jackson

University of South Carolina ( email )

School of Accounting
Moore School of Business
Columbia, SC 29208
United States
(803) 777-3100 (Phone)

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