THE STRUCTURE OF AUDITORS KNOWLEDGE OF FINANCIAL STATEMENT ERRORS

Information about financial statement errors is a principal component of the auditor's knowledge base. While the effective organization of t hese errors is thought to be important to audit performance, little is known about the nature or development of the organization of an audit or's knowledge. The two purposes of this study were (1) to empirically determine the categories used by experienced auditors when they organ ize financial statement errors on the basis of two dimensions suggeste d in previous literature: transaction cycle and audit objective, and ( 2) to determine whether there are experience-related differences in th e organization of auditors' knowledge bases. To achieve these objectiv es, a group of managers, staff auditors, and auditing students partici pated in a card-sorting task. A better understanding of the structure of auditors' knowledge could aid both practice and research because th e category structures suggested in current auditing standards, auditin g textbooks, and training materials appear to provide incomplete and i nconsistent bases to organize financial statement error knowledge. The results of this study are also compared to an often relied-upon categ orization of financial statement errors suggested by Coakley and Loebb ecke (1985). The results indicated that practicing auditors' categorie s appear to be influenced by audit planning and testing procedures as well as by the auditing literature. Staff auditors' categorizations by transaction cycle were very similar to managers', but their audit obj ective categories differed from those of the managers. The categorizat ions of staff auditors (who have less experience planning audit tests organized by audit objective) were more closely related to the auditin g standards and textbooks, and did not include apparent refinements ev ident in the managers' categories. Students were unable to categorize errors based on their underlying meaning using either dimension, and i nstead, sorted errors with similar wording into the same category. The se results are consistent with psychological literature (e.g., Chi et al. 1981) that suggests that more experienced individuals have better- developed category structures. Implications of these findings for both research and audit practice are discussed.