Internal Accounting Control Evaluation and

This anthology presents the results of a comprehensive empirical study of internal control evaluation and auditor judgment initiated by Peat, Marwick, Mitchell & Co. in 1977 and originally published as an American Institute of CPAs research monograph in 1981. The research consisted of a series of five field experiments and a related verbal protocol study. The experimental task involved audit program planning given a comprehensive set of audit work-papers. The AICPA monograph was awarded the American Accounting Association Wildman Award in 1982. The anthology extends the original AICPA monograph in the following ways: An updated review of the professional literature related to internal control has been integrated into chapter 2. * The original statistical results that were based primarily on univariate analyses have been augmented by multivariate analyses. * The process tracing (verbal protocol) results have been revised to include additional decision process analyses and also to includean analysis of the decision criteria utilized by the auditors. * The summary and implications chapter has been augmented to include the new analyses listed above. In addition, we now discuss how the research was field tested and implemented at Peat Marwick Mitchell & Co. (now KPMG) into a new audit approach designated asSEADOC

Preface to the Anthology

vii

Foreword to the Original AICPA Publication

ix

Preface to Original Publication

xi

Introduction and Overview

3

(4)

The Development of Professional Standards Related to Internal Accounting Control Evaluation

7

(22)

The Relationships of Internal Accounting Controls to the Audit Program

29

(10)

Approaches to the Evaluation of Internal Accounting Controls

39

(16)

The Internal Accounting Control Experiments: Introduction and Task Description

55

(10)

Normative Analysis of the Audit Planning Task; Development of General Research Hypotheses

65

(12)

Research Methodology and Hypotheses

77

(16)

Experimental Results: The Effect of Improving Internal Accounting Controls and Differences in Guidance and Approach on Auditors' Sample Size Decisions

93

(32)

Experimental Results: A Synthetic a Posteriori Modeling Approach of the Auditors' Sample Size Decisions

125

(52)

Experimental Results: Auditors' Rationale and Modeling of Audit Decision Processes

177

(18)

Protocol Analysis of Auditor Decision Processes and Criteria Usage

195

(24)

Summary, Implications and Implementation

219

(14)

Appendix A: Olde Oak Case Materials

233

(30)

Appendix B: Example of Sample Size Rationale Documentation Checklist

263

(4)

Appendix C: Tables on Sample Size Recommendations

267

(6)

Bibliography

273

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Internal Accounting Control Evaluation and Auditor Judgement: An Anthology

Summary

Table of Contents

Supplemental Materials