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

Posted: 4 May 1999

See all articles by James Lloyd Bierstaker

James Lloyd Bierstaker

Villanova University - School of Business

Jean C. Bedard

Bentley University - Department of Accountancy

Stanley F. Biggs

University of Connecticut - Department of Accounting

Abstract

In audit analytical procedures, research has shown that auditors have difficulty proposing possible explanations for financial statement discrepancies (Bedard and 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 to 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, to processes related to an explanation inherited from client management, "wheel spinning" and truncated hypothesis generation, inhibited problem representation shifts.

JEL Classification: M40, M49

Suggested Citation

Bierstaker, James Lloyd and Bedard, Jean C. and Biggs, Stanley F., The Role of Problem Representation Shifts in Auditor Decision Processes in Analytical Procedures. Auditing: A Journal of Practice & Theory, Vol 18, No 1, Spring 1999. Available at SSRN: https://ssrn.com/abstract=163212

James Lloyd Bierstaker (Contact Author)

Villanova University - School of Business ( email )

800 Lancaster Avenue
Villanova, PA 19085-1678
United States

Jean C. Bedard

Bentley University - Department of Accountancy ( email )

175 Forest Street
Waltham, MA 02452
United States
781-891-2410 (Phone)
781-891-2896 (Fax)

Stanley F. Biggs

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States
860-486-2374 (Phone)
860-486-4838 (Fax)

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