This article comments on the article "Behavioral Implications of Taxation," D. Larry Crumbley, published in the October 1973 issue of the journal "The Accounting Review." Crumbley considers some behavioral aspects of income taxation. He makes two major points. First, he suggests that research should be undertaken into the effects of tax laws on behavior. Second, he suggests that accountants should become involved. With respect to the first point, the purpose of this article is to indicate that Crumbley is recommending two distinctly different types of research. He does not always maintain a clear distinction between these two types in his discussion of behavioral tax research. With respect to the second point, the purpose of this article is to examine Crumbley's reasoning for his suggestion that accountants become involved in behavioral tax research. It has been suggested that the primary aim of behavioral science is to identify underlying regularities in human behavior and to determine what antecedent conditions give rise to them and what consequences follow from them. However, research which focuses primarily upon antecedent conditions and human behavior in an effort to predict consequences is very different from research which focuses primarily upon consequences and tries to infer the behavior that led to those consequences.

This article focuses on various models of auditing. One property of accounting numbers which has received a great deal of attention in the past few years is that of predictive ability. Research conducted to date has tended to view predictive ability as an impersonal criterion for the evaluation of accounting numbers. Behavioral reactions to particular sets of accounting numbers by particular decision-makers have typically not been investigated by predictive-ability researchers. However, a committee of the American Accounting Association recently introduced a model which, according to the committee, provides the potential for evaluating internal accounting numbers by examination of the utilization of those numbers by decision-makers. The purpose of this article is to provide a more complete discussion of the proposed model and, more importantly, to indicate potential hazards and other considerations in the implementation of the committee's proposal. The discussion draws heavily upon certain portions of the psychology literature which deal with the manner in which individuals utilize numerous pieces of data in making complex judgments or predictions.

Financial analysis, Decision making, Human information Processing, Predictions

Auditing, Internal control system, Judgment variance, Experience

Behavioral accounting, Student representativeness

Studies of the error-detection performance of audit procedures have found that three attention-directing procedures--client inquiry, expectations based on prior-year errors, and analytical review--signal almost half of the material errors detected. Further, the cost of performing such procedures appears to be relatively low, suggesting a positive cost/effectiveness relation. The primary purpose of the present study is to report detailed results of applying these attention-directing procedures when errors are identified. The sample consists of 186 engagements involving 368 proposed audit adjustments of a Big Eight audit firm. The results corroborate prior studies in that about half of the errors were signaled by the three attention-directing procedures and the simplest forms of these procedures (e.g., analytical reviews comparing current- and prior-year balances) identify many errors. Moreover, internal controls appear to condition the diagnosticity of audit procedures. When controls are strong, procedures involving internal accounting data are more diagnostic, while with weak controls evidence external to the accounting records signals relatively more errors.

[Studies of the error-detection performance of audit procedures have found that three attention-directing procedures-client inquiry, expectations based on prior-year errors, and analytical review-signal almost half of the material errors detected. Further, the cost of performing such procedures appears to be relatively low, suggesting a positive cost/effectiveness relation. The primary purpose of the present study is to report detailed results of applying these attention-directing procedures when errors are identified. The sample consists of 186 engagements involving 368 proposed audit adjustments of a Big Eight audit firm. The results corroborate prior studies in that about half of the errors were signaled by the three attention-directing procedures and the simplest forms of these procedures (e.g., analytical reviews comparing current- and prior-year balances) identify many errors. Moreover, internal controls appear to condition the diagnosticity of audit procedures. When controls are strong, procedures involving internal accounting data are more diagnostic, while with weak controls evidence external to the accounting records signals relatively more errors.]

[Five experiments that examined sequential belief revision in simplified auditing contexts are reported. The results suggest that auditors' belief revisions depend on both the order in which evidence is received and the manner in which it is presented, and they provide preliminary insights into auditors' "attitudes" toward evidence. The results also suggest that audit judgment may differ from judgment in general in two ways. First, the subjects were "prone" to revise their beliefs when new evidence was received, while the behavioral decision theory literature suggests that persons in general tend to "avoid" new evidence. Second, the subjects revised their beliefs to a greater extent when they received evidence that tended to disconfirm their current beliefs, whereas the literature suggests that persons in general are more strongly influenced by confirming evidence.]

Five experiments that examined sequential belief revision in simplified auditing contexts am reported. The results suggest that auditors' belief revisions depend on both the order in which evidence is received and the manner in which it is presented, and they provide preliminary Insights into auditors' "attitudes" toward evidence. The results also suggest that audit judgment may differ from judgment in general in two ways. First, the subjects were "prone" to revise their beliefs when new evidence was received, while the behavioral decision theory literature suggests that persons in general tend to "avoid" new evidence. Second, the subjects revised their beliefs to a greater extent when they received evidence that tended to disconfirm their current beliefs, whereas the literature suggests that persons in general am more strongly Influenced by confirming evidence.

This paper reports an empirical study of 281 errors requiring financial statement adjustments on 152 audits. It reports, among other things, the audit areas in which the errors occurred, the audit procedure, circumstance or other event that initially signaled that an error had occurred, and the apparent causes of the errors, including whether they appeared to have been caused intentionally or unintentionally. The results suggest that client personnel problems, such as inexperience and insufficient knowledge of accounting, and cut-off or accrual problems, are important causes of errors. The results also suggest that analytical review procedures and discussions with the client signal a large proportion of errors. Various other results are presented, and some potential implications for audit planning are discussed.