Doctoral Dissertations

Tina Y. Mills

Date of Award

5-1993

Degree Type

Dissertation

Degree Name

Doctor of Philosophy

Major

Business Administration

Major Professor

James H. Scheiner

Committee Members

Michael G. Johnson, Keith G. Stanga, Jan R. Williams

Abstract

Prior research of external auditors' (auditors') reliance on the internal audit function (lAF) provided conflicting evidence on the lAF factors that were important to the auditors' decision and on the degree of consensus among auditors making reliance decisions. These studies contained two major limitations. First, they relied on the auditors' self-reporting the factors that were most important to their decisions, and research has shown that auditors have low self-insight. Therefore, they may not be able to accurately report the most important factors in their decisions. Second, prior research failed to consider that individual differences in the auditors, such as cognitive style, could account for differences in the importance of lAF factors and the degree of consensus among auditors. The primary objectives of this study were using a more objective data gathering technique to determine the important lAF factors in auditors' reliance decisions and to determine the effect, if any, that auditors' cognitive styles had on their reliance decisions and on the degree of consensus. A secondary objective of this study was to determine if auditors used LAF factors presented in Statement on Auditing Standards No. 65 that was issued to provide guidance to auditors making reliance decisions. A computer tracing program was developed and used in conjunction with cases to determine the lAF factors that auditors considered in their decision-making process. The program recorded the information that was viewed, the order in which the information was viewed, and the length of time that the auditors spent viewing the information. The program did not require any auditor intervention, and in fact, it monitored the auditors' decision processes without their knowledge of its existence. Information from this program was compiled and tested for differences between auditors with different cognitive styles. Cognitive styles were measured using two pen and paper psychological tests, the Group Embedded Figures Test and the Figural Intersections Test. Based on their test scores, auditors were divided into four cognitive style groups. These groups' reliance decisions were tested for differences, and the degree of consensus among the groups was determined. The results of this study showed that auditors with different cognitive styles made significantly different reliance decisions and that consensus was greater among auditors with similar cognitive styles. Also, this study found that auditors with different cognitive styles used different lAF factors in forming their reliance decisions. Interestingly, factors used by auditors in this study with one particular cognitive style were consistent with some prior studies, and factors used by auditors with another cognitive style were consistent with other prior studies. These findings suggest that perhaps prior research provided conflicting evidence because the auditors tested in these prior studies had different cognitive styles which were not accounted for in the analysis of their decisions. This research also found that several lAF factors including factors related to the supervision and evaluation of internal auditors, the independence of the lAF, and top management's support of the LAF mentioned in SAS No. 65 that had not been previously researched were used by auditors in this study. This finding suggests that the Auditing Standards Board correctly identified factors that are important to an auditor's reliance decision but that had not been identified in prior research.

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