Justification of Decisions in Auditing

Abstract

The purpose of this study is to determine how the anticipation of the audit review process and the degree to which evidence supporting or refuting management's explanations influence the justifications of auditplanning decisions.1 When planning the audit, auditors will typically examine the financial statements for unexpected fluctuations in account balances and ratios that indicate where additional audit work may be warranted. After observing any unexpected fluctuations and asking management for explanations,2 auditors decide how (if at all) to revise the audit plan and document in the audit workpapers justifications for the plan. Because it is often difficult to gauge the correctness of audit-planning decisions, the justification of such decisions is critical for judging their quality (Peecher and Kleinmuntz [1991]).