Are Industry Specialists More Efficient and Effective in Performing Analytical Procedures? A Multi‐stage Analysis

Abstract

A substantial body of audit research has shown that auditor specialisation through training and experience in one main industry improves auditor judgements. However, because this research examines only one or two audit processes in isolation, it has not been possible to identify whether these improvements lead to gains over an entire task. Further, the comparison of auditors with very different industry specialisations has not allowed these studies to identify incremental gains of specialisation over task and domain experience within a specific industry. The purpose of this study is to examine incremental gains in auditor performance by specialist auditors over auditors with some industry experience (non-specialists) when both groups complete all stages of an analytical procedures task within the same industry. The results of a controlled experiment where both specialists and non-specialists had equivalent general and task-specific experience reveal that, while specialists do not exhibit superior performance in the initial hypothesis generation stage, differences do manifest in later stages. Compared to non-specialists, specialists had a more focused and efficient information search, were more able to generate the correct cause during the task, and identified the correct cause more often.Key words: Audit judgement, analytical procedures, audit quality, external audit SUMMARY Audit firms are increasingly designating individual auditors as specialists, a term suggesting superior performance in providing services to clients. While research to date has supported superior performance of audit tasks by specialists, there has been limited exploration of the processes used by specialists in their decision making and how these processes differ from those used by non-specialists.This study compares the decision processes and performance outcomes for a manufacturing industry analytical procedures task between two

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