Task-specific experience

With respect to task familiarity, we have asked participants to provide details on their experience with identification of client business risks and entity-level controls as well as with the assessment of the impact of client business risks and entity-level controls on audit risk. All task familiarity variables are measured in terms of the ‘number of times task performed in the last year’ and ‘number of hours spent on the task in the last year’.

Table 4.6 reports the audit managers’ descriptive statistics for each of the distinguished task-familiarity variables. In Table 4.6, two outliers have been excluded (respondent 73, e.g., reporting 50 times the identification of client’s business risk task; and respondent 81 with 500 hours spent on the identification of entity-level controls).

Table 4.6 Audit managers’ task-specific experience

Task Description n Minimum Maximum Mean Standard

dev. because of missing values. On the whole, 3 respondents indicated having performed the task in the past year more than 20 times. Out of 81 audit managers, 35 reported having performed the identification of client’s business risk task less than 10 times last year, where 46 audit managers reported having performed this task more than 10 times. The means (e.g., the means of the number of times the four tasks have been performed is higher than nine) of all task-familiarity variables as reported indicate that most of the participating audit managers are sufficiently familiar with the tasks selected in the experiment. As a rule of thumb, the client portfolio of an individual audit manager regularly comprises 10 to 20 different clients (depending on client size). Taking this rule of thumb into consideration it is suggested that audit managers perform the tasks presented in Table 4.6 for the majority of their clients.

Table 4.7 reports the mean levels of task-specific experience of participants per individual audit firm.

Table 4.7 Mean levels of task-specific experience of participants per audit firm²⁸

IDBR1 IDBR2 IDBM1 IDBM2

Firm 1 9.6 29.3 9.7 27.3

Firm 2 9.2 35.0 10.0 59.9

Firm 3 7.8 44.9 8.1 63.1

Firm 4 14.2 52.2 11.9 78.8

Total 9.9 39.6 9.8 56.6

Based on the Scheffé test for multiple post-hoc comparisons, a significant difference between firm 3 and firm 4 has been reported regarding the task ‘identification of client’s business risks’ as measured by IDBR1 (p = .06). Table 4.7 suggests that firm 4 is mostly distinguished from the other firms. Based on the Mann-Whitney test it was reported that firm 4 significantly differed from the other firms both for IDBR1 and IDBR2 (p = .04 and p

= .07 respectively), but not for IDBM1 and IDBM2. No clear-cut explanation is available related to this finding.

Additionally, the task familiarity variables have been correlated with experience in the auditing field and industry-specific experience. The 1-tailed Pearson correlations are presented in Table 4.8 (p<.1).

Table 4.8: 1-tailed Pearson correlations task-specific with experience in the auditing field and industry-specific experience (audit managers) (significance p < .1)

Idbr1 Idbr2 Wbr1 Wbr2 Idbm1 Idbm2 Wbm1 Wbm2

Legend to Table 4.8 (significance between brackets; p < .1 is significant):

• Expyears: years of experience in the auditing field;

• Hours: industry-specific experience; hours spent over past three years on audit clients in construction industry;

• Idbr1: Number of times the task ‘identification of client’s business risk’ performed in last year;

• Idbr2: Number of hours spent on the task ‘identification of client’s business risk’ in last year;

• Wbr1: Number of times the task ‘assessing the impact of client’s business risk on audit risk’

• Idbm2: Number of hours spent on the task ‘identification of client’s entity-level controls’ in last year;

• Wbm1: Number of times the task ‘assessing the impact of the client’s entity-level controls on audit risk’ performed in last year;

• Wbm2: Number of hours spent on the task ‘assessing the impact of the client’s entity-level controls on audit risk’ in last year.

From Table 4.8 the following conclusions can be drawn:

• A significant negative correlation (-.229; -and -.302, respectively²⁹) has been reported between experience in the auditing field and task-specific experience related to the identification of client’s business risks and entity-level controls (as measured by the number of hours spent on these tasks). This implies that as the audit managers’ experience in the auditing field increases this is accompanied with a decreasing involvement in the two tasks. From a practical perspective this can probably be explained by the changing content of the task over time. E.g., in the period just after being promoted to audit manager, the audit manager performs the task him/herself. After some years, new promoted audit managers become involved in the task and the more experienced audit managers’ role changes from

‘performing the task’ to ‘reviewing and supervising the task performed by other audit managers’. Another explanation can be that more experienced audit managers perform the tasks in less time (more efficiently) compared to the less experienced audit managers. The debriefing questionnaire contained a question related to the ‘task environment’ in terms of the level of feedback a manager receives when performing the task. Pearson correlation between years of experience in the auditing field and the feedback measure also point in the direction of changed content of the task over time. The 2-tailed Pearson correlation between Experience in the auditing field and Feedback is negative: -.346 (p = .001;

n = 82³⁰). This implies that more experienced audit managers receive less feedback compared to less experienced audit managers. Although the explanation for the negative relationship between Experience in the auditing field and task-specific experience provided sounds reasonable, this does not imply a value judgment in terms of right or wrong. In the regulatory audit environment (see for example PCAOB, ISQC1, 2003), a tendency of increasing the importance of feedback by supervisors (including partner involvement) is observable. From Table 4.8 we cannot conclude that the increased importance of feedback and supervision has already been implemented by audit firms. Whether this finding also has an impact on the quality of the auditors’ judgments is examined in section 4.4.

• The second line of Table 4.8 suggests that industry-specific experience negatively correlates with two other task-familiarity variables: task familiarity related to the identification (as measured by the number of times the tasks have been performed) of client’s business risks and entity-level controls. Table 4.8 also shows that the significant correlations only relate to task-familiarity as measured in terms of

‘number of times the task is performed’; the other task-familiarity measures

29 For auditing students, these correlations are not significant.

(measured in terms of ‘hours spent on the task’) are not significantly correlated with industry-specific experience. This implies that increased industry-specific experience need not necessarily imply that the task is performed more efficiently.

In fact, the opposite is true. Namely, significant positive correlations were found between industry-specific experience and the average time spent on the tasks as can be seen in Table 4.9.

Table 4.9 Pearson correlations between general experience and industry-specific experience and average time spent on the task

Average time

• Finally, Table 4.8 indicates that all task-familiarity variables are positively correlated (most of them are significant) with each other. This could provide an indication that the four tasks selected for the experiment (two of them, related to the identification of client’s business risks and entity-level controls, are described in this chapter, and the other two tasks (assessing the impact of client’s business risks and entity-level controls on audit risk) are described in the next chapter) are performed together by the same functional level. In addition, these correlations suggest that the various task familiarity variables measure the same construct.

Table 4.10 presents the descriptive task-familiarity statistics for auditing students.

Table 4.10 Task-specific experience of auditing students

Task Description N Minimum Maximum Mean Standard

dev. relatively high task familiarity (e.g., the means of the number of times the four tasks have been performed are higher than seven). Based upon the relative novelty of the business risk audit approach and given the relative high complexity of the task (e.g.

Abdolmohammadi, 1999), it was (prior to the conduction of the experiment) expected that the tasks selected in this thesis would solely be performed by audit managers. The Independent Samples t-test shows that all task familiarity-related variables measured in

‘hours spent on the task’ report significant differences between audit managers and auditing students. With respect to the task familiarity-related variables measured in

‘number of times task performed’ no significant differences are reported.

31 Three auditing students reported they did not perform this task in the past year. Two auditing students

In section 4.2 the main descriptive statistics of the dataset have been described. In the next paragraph, the research hypotheses (developed in Chapter 2) will be repeated in summarized form.