Opportunities for future research

Research design

The selected research design turned out to be both an efficient way of gathering data and an effective way in studying the research questions of this thesis. In addition, including an expert panel of industry leaders in the research design contributed in my view to existing research methodologies when studying the potential effect of the auditor’s level of industry-expertise. This suggests that in future research the selection of expert panel members needs to carefully consider the extent to which this selection comes close to the definition of expert judgments. Experts need to be individuals which obviously show the highest possible level of judgment performance. Future research studies may be directed towards categorization of audit tasks of the Business Risk Audit, for example like Abdolmohammadi, 1999) including the (functional) levels of auditors who conduct these tasks. Based upon such a categorization, future research may be able to more properly select: (1) the target population of auditors, and (2) the composition of an expert panel, specifically when examining the effect of task-specific experience on the auditor’s judgment performance.

Further improvements in research design may be achieved when the research design makes use of actual client settings, instead of a hypothetical case description.

Research findings

Implications for “expertise paradigm”

As mentioned, this study is the first empirical study incorporating three categories of experience. By integrating these categories into one study and examining the impact of experience on two different audit tasks in a new research field (i.e., the business risk audit), new research knowledge originated from this study. For example, the finding that only industry-specific experience explains the quality of the auditors’ judgments (to a certain extent) in an identification task, where general experience and task-specific experience are not associated with the auditor’s judgment performance. In other words, both the nature and the size of experience influence the quality of the auditor’s judgments. Future empirical studies have many opportunities to extend this research area. For example, other studies may examine the auditor’s judgment performance when conducting other audit tasks of the business risk audit approach (e.g., assessing the implications of identified business risks to actual working programs and substantive testing). Additionally, future empirical studies may further examine the skills and knowledge related to each category of experience. E.g., in this thesis industry-specific experience has been examined as a measure of expertise related to audit tasks, but it may well be the case that the objective of audit firm’s industry-specialization is also driven by other factors like marketing arguments, fee improvements, etc. Consider for example the marketing argument. Audit firms may want to show their industry knowledge to existing and potential audit clients. The question in this regard is what this industry knowledge really consists of. Is this knowledge related to competitor performance in the industry, market positioning of the client, identification of potential differences in accounting treatment of industry-specific financial statement accounts, etc. This type of research may yield more insight into the relationship between industry-specific experience and judgment performance in industry-specific audit tasks, e.g. the task

‘high-level review of financial statements including disclosures’).

This empirical study revealed that – regarding the identification tasks – industry-specific experience contributed to the auditor’s judgment performance where general experience and task-specific experience did not contribute to the auditor’s judgment performance.

Industry-specific experience in this empirical study related to the construction industry.

Organization along service lines, at least for Big4 audit firms, is still at hand. It would be of interest to investigate in future research whether and to what extent the results of this study can be generalized to other industries.

Appendix A: Research materials expert panel meeting (2003)

Introduction

Before the expert panel took place in 2003, the expert panelists received a confirmation letter of their attendance at the expert panel meeting. The meeting started with a short introduction by the researcher on the primary objectives of the meeting. Thereafter, they were provided with a case-description of a hypothetical audit client in the construction industry.

Case-description

Case introduction

Since ten years you have been engaged to the financial statement audit of construction company ABC. Currently, it is April 1, 2002. In the near future, the interim (process) audit will start and now you are preparing this audit by considering the most important points of attention relevant to the audit. Until now, you have conducted a systems-based audit approach, based upon risk assessments. You have always been able to provide an unqualified audit opinion, without notable discussion issues in the discussion meeting with client management. As a result, you have always delivered a short-sized management letter.

Organization chart of construction company ABC

Construction company ABC B.V. is a medium-sized construction company, with operations in the centre of The Netherlands, and executes primarily regular projects in the segments ‘civil constructions’ and ‘commercial/industrial buildings’. In 2001 revenues were generated of approximately € 50 million with a positive net result of € 1 million (2%). In recent years, both revenues and net result were consolidated at the current levels. Construction company ABC has organized the firm as follows: