Investigation of adaptability in evidential planning;

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An Investigation of Adaptability in Evidential Planning
Janice D. DiPietro*
Northeastern University
Theodore J. Mock
University of Southern California
Arnold Wright
Boston College
A growing body of research (e.g., Mock and Wright 1993; Bedard 1989) has exam­ined
evidential planning decisions in auditing, reflecting the importance of these decisions to the design of an efficient and effective audit. Accordingly, auditing stan­dards
(SAS 31 and 47) stress the importance of adaptability1 in program planning. This study examines the effect of two pervasive factors in the audit environment that may significantly impact evidential planning: client industry and required procedures.
Prior research suggests that the level of risks, changes in risks, and evidence diag-nosticity are likely to vary by industry. In addition, the incidence, magnitude, direction and cause of audit errors differ cross-sectionally (Maletta and Wright 1993). Thus, the importance of considering industry setting in evidential planning is widely recognized in auditing. However, little empirical findings exist as to the level of adaptability of evidential planning in practice to industry conditions.
In contrast to industry factors, generally considered functional in appropriate plan­ning,
required procedures may impair program planning. The performance of required procedures, which can be quite time consuming, may serve to limit the auditor's ability to adapt to unique client risks. Further, these procedures may be over relied upon, since their sanctioning may imply greater diagnosticity than provided.2
Specifically the following two broad questions are examined. Are program plan­ning
decisions tailored to the client's industry? Further, do required procedures inhibit planning adaptability? This research studies evidential planning decisions as reflected in the working papers of a sample of 155 actual engagements. Two industries (manu­facturing
and merchandising) and accounts (accounts receivable and accounts payable) are examined.
The findings suggest that auditors adapt the nature of procedures to be performed to the client's industry. However, planning decisions were not found to be strongly linked to the level of and changes in risk. This finding has important implications for audit efficiency and effectiveness and suggests that additional training and/or the use of decision tools may be needed.
*The authors would like to gratefully acknowledge the comments and suggestions provided by participants
of the research workshops at the University of Southern California and Northeastern University and by
Jeffrey R. Cohen and Arnold Schilder. We also acknowledge the support received through KPMG Peat
Marwick's Research Opportunities in Auditing Program.
1 Adaptability, for purposes of this study, reflects the extent to which auditors develop their evidential plan
in response to the level and changes in risk, as well as, evidence diagnosticity and competency associated
with the client's industry and the audit area being examined.
2 The data utilized in this study was collected prior to the issuance of Statement of Auditing Standards
Number 67 "The Confirmation Process" which provides additional guidance on the use of confirmations.
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