Transaction Based Audit Studies

The auditor chooses key processes by subjectively weighing at least three factors: (1) the strategic relevance of the process, that is, how vital the process is to achieving a client’s strategic objectives, (2) the process’s inherent business risk, that is, how likely it is that a business risk will occur in the process, ignoring the effects of related controls, and (3) the strength of the client’s control environment, that is, management’s attitude, awareness, and commitment toward the importance of controls. Once chosen, the auditor studies each key process to gain an understanding of significant process objectives and related business risks, the controls in place to mitigate these risks, and the financial statement implications of these

O’Donnell (2003) provided undergraduate accounting students with computer-system control information organized with either a process focus, as in an SSA audit, or with a control-objective focus, as would be typical in a TBA audit. The participants in the process-focus condition found the task less complex than those in the objective-focus condition, and also displayed higher primacy bias and poorer recall

TBA(transaction based audit) differences in the way client information is presented to auditors affected their ability to identify and assess risks in an analytical-procedures planning context. They presented experienced auditors, all of whom were seniors from a TBA firm, with client information organized with either a process focus, as in an SSA audit, or a transaction-cycle focus, as in a TBA audit. The auditors were then asked to use analytical procedures to identify risks and rate the level of misstatement risk for the engagement. Results showed that the auditors in the SSA condition identified more risks and rated misstatement risk at a higher level than auditors in the TBA condition, indicating that SSA vs. TBA differences can affect an auditor’s decision performance. The authors concluded by suggesting that future research examine other dimensions of the association between knowledge acquisition and decision performance. This dissertation does so by investigating the effects of methodology differences on auditors’ knowledge acquisition, content, and organization, as well as the effects of any resulting knowledge differences on audit