One result of Public Company Accounting Oversight Board Auditing
Standard No. 3 Audit Documentation (AS No. 3) (PCAOB 2004) is that
audit firms are using more detailed audit workpapers and fewer summary
memos to document their procedures. We explore implications of the
choice of these two documentation methods. Specifically, we develop and
test a model showing how different forms of documentation affect the
cognitive processes auditors use during audit testing, and how
differences in cognitive processing affect auditors' memory and two
performance measures (error detection and recognition of a potentially
fraudulent pattern in the evidence).
The results of path analysis show auditors who prepare detailed
workpapers spend more total time on the task, and total time is
associated with identifying more errors and better pattern recognition.
Auditors who prepare summary memos examine the evidence items a greater
number of times, which is associated with better pattern recognition
and increased memory. The overall result is that each method enhances
cognitive processing differently and the manner of cognitive processing
affects performance measures differently. Documentation by summary
memos is more efficient and results in better memory of the evidence.
Documentation by detailed workpapers; results in better error detection
for one type of error and permits a self-review of documented evidence
by the preparer, which enhances pattern recognition. Finally,
documentation by detailed workpapers provides evidence that may
potentially enhance pattern recognition at the reviewer level.
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