Joseph F. Brazel, Christopher P. Agoglia, and Richard C.
2005 - New technologies have created the ability to review
audit files in different ways. While a traditional form
of review involves an auditor (preparer) and a reviewer
meeting to discuss the reviewer’s concerns in a face-to-face
review, today audit documentation is often prepared online
and accessed electronically. The evolution of alternative
methods, such as an e-review, raises questions: Does the
review method affect the performance of the preparers anticipating
the review? Does the review method play a role in determining
an audit’s effectiveness and efficiency?
consideration of audit documentation has addressed the “reviewability”
of such documentation (PCAOB; SAS 96). Not much attention
has been given to how reviews are, or should be, performed.
first standard of fieldwork requires that an engagement
be properly planned and that assistants be properly supervised.
According to SAS 22, Planning and Supervision,
the supervision process includes the review of work performed
and documentation prepared by assistants. And
while it has been estimated that 30% of total audit hours
are allocated to the review process, little guidance exists
on how to effectively perform a review.
authors examined different review methods and analyzed their
impact on auditors’ performance. The findings suggest
that the method a reviewer chooses may have implications
for the preparer’s performance, which in turn could
impact the effectiveness and efficiency of the audit engagement.
managers were asked about their current review practices.
The survey results indicated that two formats dominate:
face-to-face review and e-review. Face-to-face review, where
the reviewer relays comments to the preparer in a face-to-face
meeting, either verbally or in writing, was used 35% of
the time. E-review, which involves the preparer’s
receiving and responding to review notes via e-mail, was
used 63% of the time. Although face-to-face review represented
the more traditional format, e-review has risen in popularity
because it allows several engagements to be reviewed concurrently
and from remote locations, reducing traveling time and the
necessity to coordinate schedules.
review process helps ensure the adequacy of procedures performed
and the appropriateness of conclusions drawn. It also increases
preparers’ accountability for their work, because
they know it will be reviewed by a superior. A separate
survey of audit seniors indicated that they are typically
aware of, or can anticipate, the method of review that will
be used by their reviewer. Thus, it seems reasonable that
preparers anticipating different review methods might perceive
different levels of accountability, which could lead to
differences in performance.
the traditional face-to-face review, preparers may need
to respond immediately to unanticipated reviewer concerns.
In addition, face-to-face review allows the reviewer to
see nonverbal cues, such as signs of nervousness on the
part of the preparer. One way for preparers to cope with
this increased pressure is to spend more time and effort
on workpaper preparation. This additional effort should
lead to increased workpaper quality and, therefore, fewer
questions from a reviewer. On the other hand, when responding
to review comments via e-mail, preparers may feel less pressure;
there is an inherent delay in e-mail communication that
allows preparers time to revisit an issue and prepare their
response. While preparers anticipating an e-review will,
of course, still be concerned about preparing high-quality
workpapers, where possible these preparers may look to save
time and effort in order to complete their tasks under budget.
investigate the potential impacts of using different review
methods, the authors asked 30 senior-level auditors to complete
a preliminary going-concern analysis for a hypothetical
client. Participants were provided with prior-year audit
documentation depicting the entity as financially viable
and current-year evidence depicting a decline in business
conditions. Fifteen of the auditors were informed that they
would be reviewed face to face, while the other 15 were
told they would receive an e-review. All auditors were asked
to prepare current-year workpapers consisting of a preliminary
judgment regarding whether the going-concern assumption
was reasonable on a scale of -- 7 (the going-concern assumption
was definitely not reasonable) to +7 (the going-concern
assumption was definitely reasonable), along with supporting
documentation for the judgment.
survey data indicate that preparers anticipating different
review methods view their positions differently and thus
differ in their performance (see the Exhibit).
As expected, preparers anticipating a face-to-face review
did feel more accountable to their reviewers than did those
anticipating an e-review. After completing their workpapers,
participants reported their perceptions on a scale from
0 (not at all accountable) to 10 (extremely accountable).
Preparers anticipating a face-to-face review provided an
average response of 8.27, while the average for those anticipating
an e-review was 5.20. Relative to their e-review counterparts,
participants expecting a face-to-face review also reported
that they spent greater effort, anticipated their reviews
would be more demanding, and felt greater pressure to perform
well to impress the reviewer. Their anticipation of the
review method clearly affected the thought processes of
differences in perceptions led to differences in performance
between the two groups. The more highly accountable face-to-face
group did devote more time to workpaper preparation. In
fact, two-thirds of the face-to-face preparers went 10%
or more over the budgeted time for the audit task, while
only one-third of the e-review preparers went greater than
10% over budget. Most e-review preparers were reluctant
to go significantly over budget and tended to deem their
work complete as they reached their budgeted time for the
workpaper. The next question was whether the extra time
spent by the face-to-face group led to increased effectiveness.
prior-year going-concern evaluation workpaper indicated
positive financial conditions at the hypothetical company.
On the other hand, the current-year evidence provided to
all auditors indicated a significant decline in business
conditions. Three audit experts—two senior managers
and a partner—were asked to evaluate the hypothetical
company and to provide an expert response, on a 15-point
going-concern evaluation scale ranging from -- 7 (the going
concern assumption is definitely not reasonable) to +7 (the
going-concern assumption is definitely reasonable). The
experts provided an average response of 0.67, very nearly
neutral. The face-to-face group’s average judgment,
0.60, was remarkably close to the experts and suggests that
their extra time was well spent. The e-review group’s
average going-concern judgment, 2.57, indicated that it
was less likely to recognize the current-year decline in
business conditions. Thus, while preparers anticipating
a face-to-face review were less efficient at the task (i.e.,
took considerably more time), they were more likely to identify
the going-concern issue.
in the e-review group may have attempted to save time by
relying more heavily on the prior-year going-concern evaluation.
Given the current-year change in conditions, this reliance
caused them to overestimate the entity’s ability to
continue as a going concern. This supposition is supported
by the fact that the e-review auditors spent more time examining
the prior year’s workpapers and less time considering
the current-year evidence than did the auditors expecting
a face-to-face review.
and Audit Effectiveness
survey results indicate that, when confronted with a complex
task, auditors that anticipate different forms of review
perceive different levels of accountability, which, in turn,
leads to differences in performance. While both groups are
likely concerned with audit effectiveness, auditors anticipating
a face-to-face review appeared to be relatively more concerned
with their effectiveness. On the other hand, e-review auditors
seemed to be more concerned about staying within their time
that the review method used can affect how preparers balance
audit efficiency and effectiveness, reviewers may want to
try matching the review method to the audit task at hand.
For complex and risky audit areas, letting staff know about
an impending face-to-face review may result in increased
effort. For less complex or less risky areas, an e-review
approach might draw out a more appropriate level of audit
effort, while ensuring that budgets are met. Another way
to avoid the downsides of each review method might be to
combine the two techniques. An e-review might be followed
up with a telephone call. Face-to-face reviews could incorporate
a discussion of budget concerns and the possibility of overauditing.
Last, mixing up review techniques may make review formats
of how reviews are performed, reviewers should be aware
that the method used may have implications for the effectiveness
and efficiency of audit engagements.
F. Brazel, PhD, is an assistant professor of accounting
at the college of management, North Carolina State University,
Christopher P. Agoglia, PhD, is an associate
professor of accounting at the Bennett S. LeBow College of
Business, Drexel University, Philadelphia, Penn.
Richard C. Hatfield, PhD, is an associate
professor of accounting at the college of business, University
of Texas at San Antonio.