[This study describes an experiment that examines the effects of managers' perceptions of internal and external auditing on the potential commission of financial reporting irregularities. An earlier study by Uecker et al. (1981) examined the impact of auditor aggressiveness on auditee behavior. By introducing a no-audit condition into the experimental design, this study addresses the fundamental issue of whether the existence of internal and external auditing affects auditee behavior. The study also tests whether the deterrence effects of internal and external auditing are similar. Rather than directly eliciting responses from subjects, this experiment used the quantitative randomized response technique. This method is designed to assure subjects of anonymity and thereby obtain truthful responses to sensitive questions. A total of 264 subjects, the vast majority of whom were experienced managers, made decisions on three cases involving financial reporting issues. The first case, involving a potential write-off of a loan made to a key company officer, was virtually identical to that of Uecker et al. (1981). The second case involved a writedown of inventory to the lower of cost or market. The third case involved an accrual of an invoice for services rendered prior to closing the books. These cases varied several factors expected to impact on the effectiveness of auditing as a deterrent. The factors were: materiality, type of irregularity, perceived extent of GAAP violation, and incentives for misstating income. The decisions were made in a situation in which there was either no auditing at all, only internal auditing, or only external auditing. The results clearly supported internal and external auditing as deterrents to financial reporting irregularities when all of the following four conditions were present: material dollar amounts, irregularities involving asset overstatements, unambiguous GAAP violations, and less incentive for misstating income. However, the deterrent effects cannot be attributed to any one of the conditions. Also, the internal auditing effects were similar to those of external auditing.]

Auditing, Internal auditing, Internal audit evaluation, SAS No. 9

Auditing, Internal auditing, Internal audit evaluation, Internal control

Describes an experiment that examines the effects of managers' perceptions of internal and external auditing on the potential commission of financial reporting irregularities. Deterrence effects of internal and external auditing; Use of quantitative randomized technique.

Reviews the book `The Institute of Internal Auditors: 50 Years of Progress Through Sharing,' by Dale Flesher.

This study investigates the effects of a superior's suggestion on auditors' generation of additional hypotheses from long‐term memory (LTM). It investigates whether an inherited hypothesis affects the category membership of additional hypotheses retrieved from LTM, in particular when hypotheses from few alternative categories are considered. Based on research in cognitive psychology, the authors predicted that providing auditors with a superior's suggestion would interfere with their generation of additional hypotheses from the same transaction cycle as that of the superior's suggestion. The experimental results are consistent with the expected interference effect. Auditors who inherited a superior's suggestion from a particular transaction cycle generated fewer additional hypotheses from the same transaction cycle than did auditors who were not provided with a superior's suggestion. Moreover, the effect came into play immediately when auditors inherited a hypothesis involving a typical problem: the first hypothesis generated tended to come from a different transaction cycle than that of the superior's suggestion. Résumé. Dans l'article qui suit, les auteurs se penchent sur l'incidence que peut avoir la suggestion d'un supérieur sur les hypothèses supplémentaires que formulent les vérificateurs en puisant dans la « mémoire à long terme ≫. Ils cherchent à déterminer si une hypothèse transmise exerce une influence sur la catégorie à laquelle appartiennent les hypothèses supplémentaires tirés de la mémoire à long terme, en particulier lorsque les hypothèses envisagées proviennent d'un petit nombre de catégories possibles. En s'appuyant sur la recherche en psychologie cognitive, les auteurs supposent que la suggestion communiquée par un supérieur aux vérificateurs perturbera chez ces derniers la formulation d'hypothèses supplémentaires tirées du même cycle d'opérations que celui dont provient la suggestion du supérieur. Les résultats expérimentaux des chercheurs confirment cet effet perturbateur. Les vérificateurs à qui un supérieur a transmis une suggestion d'hypothèse provenant d'un cycle d'opérations donné ont formulé moins d'hypothèses supplémentaires provenant du même cycle d'opérations que les vérificateurs à qui aucune suggestion n'a été faite par un supérieur. En outre, l'effet perturbateur se manifeste immédiatement au moment où les vérificateurs se voient transmettre une hypothèse faisant intervenir un problème type: la première hypothèse formulée tend à provenir d'un cycle d'opérations différent de celui dont la suggestion du supérieur est issue.

The objective of this study was to examine the external auditor's evaluation of the internal audit function. A hierarchy of the attributes that enter into this decision process was developed based on prior research and with the assistance of Big 8 audit managers. An experiment which used the Analytic Hierarchy Process was conducted with 22 audit supervisors and managers. Contrary to previous studies, the results indicated that the competence of the internal auditors was the most important factor, followed by the objectivity and work of the internal auditors. The AHP methodology allowed us to assess which specific attributes were most important to the external auditor's assessment of these factors. However, the variability of the weights of these attributes indicates low agreement among the practitioners as to which attributes are most important. Résumé. Les auteurs de la présente étude avaient pour objectif d'examiner l'évaluation de la fonction de vérification interne par le vérificateur externe. La hiérarchie des attributs qui entrent en ligne de compte dans ce processus de décision a été dressée à partir de travaux de recherche antérieurs et avec la collaboration de chefs de groupe en vérification des huit grands cabinets. Vingt‐deux chefs d'équipe et chefs de groupe ont participé à une expérience faisant appel au processus de hiérarchie analytique. Contrairement aux résultats des études précédentes, les résultats de cette étude ont révélé que la compétence des vérificateurs internes était le facteur primordial, suivi de l'objectivité et du travail des vérificateurs internes. La méthodologie du processus de hiérarchie analytique a permis d'évaluer quels attributs précis étaient les plus importants dans l'évaluation de ces facteurs par les vérificateurs externes. Toutefois, l'importance des écarts relevés dans la pondération de ces attributs indique que l'unanimité est loin d'être faite chez les praticiens quant à l'importance relative des attributs.