G. Bradley Bennett, University of Massachusetts Amherst and Richard C. Hatfield, The University of Alabama, (2013) “The Effect of the Social Mismatch between Staff Auditors and Client Management on the Collection of Audit Evidence”. The Accounting Review: January 2013, Vol. 88, No. 1, pp. 31-50.
Overview & Background
A typical audit engagement involves junior staff-level auditors (those with 1-2 years of professional audit experience) frequently interacting with client management in order to compile audit evidence and complete audit tasks. These interactions can be socially awkward or intimidating for junior-staff-level auditors given they are typically much younger (in their early twenties), less experienced, and less knowledgeable than many members of client management with whom they interact.
A recent study by Bradley Bennett and Richard Hatfield appearing in the January 2013 issue of The Accounting Review, entitled “The Effect of the Social Mismatch Between Staff Auditors and Client Management on the Collection of Audit Evidence,” directly considers this interaction between staff auditors and client management.
The paper won the AAA/Deloitte Wildman Medal Award (sponsored by Deloitte) at the 2015 American Accounting Association Annual Meeting for the publication published in the past five years with “the most significant contribution to the advancement of the practice of public accountancy.”
First, the study conducts a preliminary survey of junior staff-level auditors focusing on their experience during audit fieldwork (that is, time at the client’s office/site). Staff auditors reported spending a significant amount of their time during an audit at the client’s office, as well as interacting with client management in a variety of ways: requesting documentation, asking for clarification/explanations during testwork, and asking additional follow-up questions from these initial requests and conversations.
Staff auditors reported that during fieldwork they spend a significant amount of time interacting with senior levels of client management (for example, Controller, CFO). Additionally, 100% of surveyed auditors have been in meetings with client management in which the auditor perceived the client’s tone/attitude “seemed to indicate that he/she was becoming annoyed with [the auditor’s] interruptions of his/her work.”
Audit Task & Approach
The study next conducted an experiment utilizing graduate students at a public university in the US with significant full-time work experience in public accounting (at least one “busy season”). Participants were placed in the role of staff-level auditor for an engagement and needed to evaluate the confirmations and resolve discrepancies between the audit client’s records and their customers’ noted discrepancies on the confirmation.
In addition, auditors were introduced to the audit client’s “Controller”―an accounting professional portraying the Controller who had information the auditors may need. As in the audit profession, it was up to the auditor study participant to decide whether or not to ask the Controller questions.
Participants were randomly assigned with one of three “versions” of the Controller: (a) a Controller who was similar in age and experience as the participant (similarly matched with knowledge), (b) a Controller who was older and more experienced than the participant (mismatched with experience and knowledge), and a (c) Controller who was older and more experienced but who also tried to intimidate or undermine the confidence of the staff auditor (for example, saying things like “I’m not sure why you would ask this question; it’s very simple and straightforward.”) This allowed the researchers to evaluate the differences in auditors’ decisions between the three groups of staff auditors.
To determine whether the use of email may help relieve this social dilemma of interacting with a more experienced Controller, half of the participants had the option to meet with the Controller face-to-face to ask questions and the other half had the opportunity to email questions to the Controller (instead of asking questions face-to-face).
The study finds that the social “mismatch” between young, inexperienced staff auditors and older, more experienced and knowledgeable client management did impact the staff auditors’ willingness to gather additional audit evidence needed to properly complete the audit confirmation task. Of those staff auditors paired with an older, more experienced Controller, only 35% of them chose to meet with the Controller face-to-face. However, 83% of the auditors paired with a Controller that was more similarly “matched” in age, knowledge, and experience chose to meet with the Controller face-to-face to ask further questions/gather more evidence. Surprisingly, it did not matter whether the Controller was acting in an intimidating manner or not. Instead, young staff auditors were reluctant to ask follow-up questions when the controller was older and more experienced. Their reluctance to ask follow-up questions resulted in less evidence being collected and lower-quality documentation and conclusions. Further, work papers were often prepared in a vague way, making the loss of information hard to detect during the review process.
However, when provided with the opportunity to email the controller instead of inquiring face-to-face, auditors were much more likely to request additional evidence: 69%, as compared to 35% who did not have the opportunity to email. Hence email curtailed, but did not eliminate, the reduction in evidence collection caused by avoiding live, face-to-face interaction. Overall, while electronic communication helps, it does not completely erase staff auditors’ reluctance to ask follow-up questions, and importantly, such communication loses the richer context of in-person interactions.
While this study has the generalizability limitations common to all experimental studies, there are key findings for audit practice. Staff-level auditors spend a great deal of time with members of client management who are more knowledgeable and more experienced, compared to the limited amount of experience that new staff-level auditors have. Given this “mismatch” in age, experience, and knowledge, the staff auditors often find themselves in intimidating situations when having to ask questions of client management. While young auditors using email are more willing to ask questions, the use of email does not fully mitigate this negative impact on the evidence-gathering process. In addition, email communication has other potential drawbacks as well.
These findings suggest that new staff-level auditors may need to be better prepared for this social dynamic and trained in how to handle this intimidating scenario. Junior auditors may also benefit from being accompanied by more experienced staff/seniors when making inquiries of client management. Further, staff auditors’ superiors and reviewers should be aware of the impact such a mismatch in experience and knowledge has on the quantity and quality of the audit evidence gathered and documented, especially since results suggest the review process may not mitigate work paper quality reduction.