An Investigation Into Auditors' Evaluations of Compliance Tests
Spires, Eric Edward
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https://hdl.handle.net/2142/71402
Description
Title
An Investigation Into Auditors' Evaluations of Compliance Tests
Author(s)
Spires, Eric Edward
Issue Date
1987
Department of Study
Accountancy
Discipline
Accountancy
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Business Administration, Accounting
Abstract
Auditors often perform compliance tests to determine whether an auditee's control procedures are operating as prescribed. While the literature seems to suggest that different types of compliance tests have different strengths (i.e., different capacities to detect deviations from prescribed control procedures), little has been written about why these different strengths are perceived to exist. The primary purpose of this study is to develop and test a theory of compliance test strength.
The objective of performing compliance tests is analyzed, which provides a basis for defining the various types of compliance tests and assessing the type of evidence provided by each type of test. Compliance test strength is defined in terms of three independent and comprehensive qualities of evidence: validity, verifiability, and coverage. A probabilistic measure of strength is developed using an expanded form of Bayes' theorem. Also, a classification scheme for compliance test results is developed, and the relationship between compliance test results and strength is discussed.
The data required to operationalize the theory are gathered by having practicing auditors respond to a questionnaire. A modified version of the Analytic Hierarchy Process is used to analyze the questionnaire data and to provide strength ratings for the different types of compliance tests.
Two laboratory experiments are used to test the descriptive validity of the theory. The design for the first experiment represents an improvement over the designs typically used in auditing research. In general, the results of both experiments support the descriptive validity of the theory. It appears that auditors take into account the differential strengths of compliance tests in evaluating test results. This is not consistent with the results of much psychology research, which suggests that people tend to ignore the reliability (or strength) of information. Auditors apparently perceive synergistic benefits to accrue when using combinations of compliance tests. That is, the strength of a combination of tests is perceived to be greater than the sum of the strengths of the individual tests making up the combination. The results also suggest that auditors may have difficulty assessing the impact of negative test results.
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