Knowledge that Transforms

Segment reporting, Geographic segment disclosures, Predictive ability, Predictive accuracy

Auditing, Audit planning, Risk hypothesis generation, Cognitive computational model

In this study, we explore a view of expertise in which specific experiences and training create knowledge, and knowledge is combined with innate ability to perform specific audit tasks. Specifically, we test the extent to which we can explain cross-sectional variation in auditors' performance in several audit tasks using various types of knowledge and ability measures that have been identified in the psychology literature as important determinants of auditor expertise. We compare these results to the explanatory power of a simple measure of general audit experience. Our results indicate that, although more experienced auditors outperform less experienced auditors on average (and given our performance criteria), knowledge and innate ability provide a better explanation of variation in performance. Part of the motivation for this paper is to distinguish between general and expertise in the performance of information-processing tasks. Early studies of human information processing in accounting examined the effect of on performance in audit tasks (see, for example, Ashton and Brown [1980], Hamilton and Wright [1982], and Messier [1983]). Implicit in this research is the notion that . . a primary determinant of improved expertise ... is experience (Hamilton and Wright [1982, p. 757]). The reasoning behind this notion is that knowledge can be gained through and many audit tasks are knowl-

Equity offers, Primary stock offers, Asset beta, Equity beta

Auditing, Auditor independence, Contingent fees, Contingent fee contracts

J. L. G. Board, M. Walker, Intertemporal and Cross-Sectional Variation in the Association between Unexpected Accounting Rates of Return and Abnormal Returns, Journal of Accounting Research, Vol. 28, No. 1 (Spring, 1990), pp. 182-192

Auditing, Audit experience, Memory errors

Auditing, Auditor change, Public sector, Audit quality

This paper shows that the positive effects on decision making of financial incentives, performance feedback, and the requirement to justify one's decisions to others can be undermined or even reversed by the availability of a decision aid. More specifically, in the absence of a decision aid, subjects achieved greater classification accuracy in a repetitive decision task when a monetary incentive was offered, or when feedback about past performance was provided, or when they were required to justify their choices, relative to the absence of these three variables. In contrast, when a statistically valid decision aid was available, the same incentive, feedback, and justification requirements resulted in lower classification accuracy, again relative to the absence of these three variables. These results are interpreted within a framework having two basic tenets. First, financial incentives, performance feedback, and a justifi-