Effects of Expectations, Prior Involvement, and Review Awareness on Memory for Audit Evidence and Judgment

TLDR

Repeat audit engagements involve repeated assignments, and prior involvement and staff rotation can influence consistency, prompting this study to examine how the threat of review may prevent consistency effects. The paper investigates how prior expectations, prior audit involvement, and the review process affect auditors’ decision‑making, testing whether repeat engagements lead to consistent judgments, staff rotations reduce this consistency, and the review process can counteract these effects. The authors empirically examine repeat engagements, staff rotations, and the review process to assess their influence on auditors.

Abstract

In this paper, I investigate how the audit decision process is affected by prior expectations, prior audit involvement, and the review process. The first two features are inherent in repeat audit engagements, in which individuals tend to be assigned repeatedly to these engagements. I examine whether repeat engagements increase the likelihood that auditors' judgments will remain consistent with prior findings and whether staff rotations tend to reduce any such tendency. I also assess whether another control procedure employed in auditing, the review process, can overcome consistency effects. However, unlike prior studies of review processes (e.g., Trotman [1985] and Libby and Trotman [1992], but see Kennedy [1993] for an exception), I focus on the preventive effect of the threat of review on the reviewee's decision process. These attributes interact so that staff rotation and the prospect of review should reduce consistency effects arising from prior involvement (see, for example, Gibbins and Emby [1984], Ashton et al. [1989], and Libby [1989]).