How do Audit Workpaper Reviewers Cope with the Conflicting Pressures of Detecting Misstatements and Balancing Client Workloads?

Posted: 22 Jan 2010 Last revised: 28 Aug 2014

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: January 20, 2010

Abstract

The proliferation of electronic workpapers at audit firms allows audit managers and partners the choice of interacting electronically with their audit teams, as opposed to communicating with them in person. Prior research indicates that in-person discussion during review positively impacts audit effectiveness, while electronic review may improve audit efficiency. Thus, the choice of review format can be viewed as both a crucial and controllable audit input that can affect audit quality and, in turn, the reliability of financial statements. Still, little is known about how this decision is made. We conduct a survey and an experiment to extend the audit literature by examining reviewers’ choice of review format and by considering factors that influence this important choice. Survey evidence suggests that reviewers perceive in-person interaction during review as more effective and electronic interaction as more convenient. Given these findings, we conduct an experiment that explores whether misstatement risk and workload pressure influence the choice of review method. We find that these factors interact to affect reviewer behavior. Specifically, workload pressure can increase the likelihood of electronic review, but only when misstatement risk is low. When risk is high, reviewers choose to employ in-person reviews regardless of workload pressures. These findings are particularly relevant in light of changes in the regulatory environment that both emphasize the auditor’s role in detecting fraud/errors and exacerbate traditional workload pressures during busy times of the year. Our results suggest that reviewers cope with these conflicting pressures by choosing alternative review formats.

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

JEL Classification: M40, M41

Suggested Citation

Agoglia, Christopher P. and Brazel, Joseph F. and Hatfield, Richard C. and Jackson, Scott B., How do Audit Workpaper Reviewers Cope with the Conflicting Pressures of Detecting Misstatements and Balancing Client Workloads? (January 20, 2010). Auditing: A Journal of Practice & Theory, Volume 29, Issue 2, pp. 27-43, Available at SSRN: https://ssrn.com/abstract=1539652

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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