AN INVESTIGATION OF AUDITOR JUDGMENTS OF THE EFFECT OF PRELIMINARY ANALYTICAL PROCEDURES ON THE EXTENT OF SUBSTANTIVE TESTING

A major type of substantive testing procedure performed during the audit examination are analytical procedures. The use of analytical procedures (APs) in the preliminary stages of the audit examination is required for both United States (U.S.) and international audits. Despite this requirement, neither international (International Auditing Guideline 12 and Australian Statement of Auditing Practice 17) nor U.S. (Statement on Auditing Standards No. 56) auditing standards provide guidance concerning the use of preliminary APs for specific account balances or in specific circumstances. This research represents a descriptive examination of auditor judgments concerning the use of preliminary APs in the audit engagement. Our results indicate that auditors believe that performing preliminary APs generally results in a significant reduction in the need for substantive tests of details; however, the reduction in substantive testing varied according to which APs were performed. The high levels of judgment consensus noted in this research indicate that, while specific guidance for preliminary APs has not been provided by U.S. auditing standards, it appears that firms examined in this study have developed structured approaches with respect to the use of preliminary APs. Finally, the higher level of consensus noted for the judgments of senior accountants and staff accountants compared to those of audit managers may reflect either the structured nature of the task examined in this study or the greater degree of senior and staff accountant familiarity with the use of preliminary APs.