Prepopulating Audit Workpapers with Prior Year Assessments: Default Option Effects on Risk Rating Accuracy

45 Pages Posted: 20 Sep 2016 Last revised: 24 May 2018

See all articles by Sarah E. Bonner

Sarah E. Bonner

University of Southern California

Tracie M. Majors

University of Southern California

Stacey Ritter

University of Southern California - Leventhal School of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2018

Abstract

Risk assessment is a critical audit task, as auditors’ accuracy therein affects audit effectiveness and financial reporting quality, as well as audit efficiency. We propose that risk assessment accuracy for client risks that have changed from the prior year is affected by the manner in which auditors access prior year risk assessments, specifically whether they face a default option created by the prepopulation of current year workpapers with those assessments. We find that auditors with prepopulated (versus blank) workpapers are less accurate for risks that have changed because they are more likely to stick with last year’s assessments, and also to work fast. We then show that auditor characteristics reflecting a preference for accuracy reduce, but do not eliminate, these effects. Finally, we provide exploratory evidence that sticking and working fast are associated with, respectively, motivated reasoning and superficial processing. Collectively, these findings suggest the critical need for an intervention, and also have implications outside auditing.

Keywords: Default options, prepopulation, prior year results, audit workpapers, risk assessment, audit effectiveness, audit efficiency, auditor characteristics

JEL Classification: M40, M42, D80, D91

Suggested Citation

Bonner, Sarah E. and Majors, Tracie McDonald and Ritter, Stacey, Prepopulating Audit Workpapers with Prior Year Assessments: Default Option Effects on Risk Rating Accuracy (May 1, 2018). Journal of Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2841050 or http://dx.doi.org/10.2139/ssrn.2841050

Sarah E. Bonner

University of Southern California ( email )

Marshall School of Business
Los Angeles, CA 90089-0441
United States
213-740-5025 (Phone)
213-747-2815 (Fax)

Tracie McDonald Majors (Contact Author)

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

Stacey Ritter

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States

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