Closing the Loop: Review Process Factors Affecting Audit Staff Follow-Through

Journal of Accounting Research, Forthcoming

48 Pages Posted: 3 Jun 2010 Last revised: 22 Jul 2011

See all articles by Tamara A. Lambert

Tamara A. Lambert

Lehigh University

Christopher P. Agoglia

University of Massachusetts at Amherst

Date Written: July 21, 2011

Abstract

The PCAOB recently expressed concern regarding the sufficiency and effectiveness of review and supervision of audit field work. For the audit review process to succeed as a quality control mechanism, any issues or questions identified by a reviewer must be adequately resolved and documented in the workpapers. If audit review fails to correct for errors/biases in the work of reviewees, there can be serious detrimental effects on audit quality and, in turn, financial statement quality. Our study extends the literature by examining the phase of the review process in which reviewees respond to (or “close”) notes/comments provided by their reviewers. Utilizing an experiment, we find that certain contextual factors (review timeliness and review note frame) influence reviewee follow-through during this critical phase. Specifically, we find that a delayed review elicits significantly lower effort levels than a timely review. Review note frame (i.e., how the reviewer phrases the rationale given for the underlying directive of a review note) significantly affects reviewee effort and performance when the review is timely. Through mediation analyses, we explore the mediating effect of effort on performance. In addition, we find that reviewer delay leads to greater over-documentation.

Keywords: Audit Review Process, Review Notes, Review Timeliness, Audit Quality, Audit Review and Supervision, Over-Documentation

Suggested Citation

Lambert, Tamara A. and Agoglia, Christopher P., Closing the Loop: Review Process Factors Affecting Audit Staff Follow-Through (July 21, 2011). Journal of Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1620072

Tamara A. Lambert (Contact Author)

Lehigh University ( email )

621 Taylor Street
Bethlehem, PA 18015
United States

Christopher P. Agoglia

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)

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