Comprehension of Nonroutine Transactions During Audit Planning: Evidence from Free Recalls and Inferences

Abstract

This study examines the effect of experience on both the quality (importance) and quantity of recalls made and inferences drawn in evaluating the effects of nonroutine transactions in the auditor's planning process. Consistent with expectations drawn from previous research, our results indicate that experienced subjects recalled a greater proportion of critical idea units and drew a larger proportion of critical inferences than inexperienced subjects. Ancillary analysis suggests that transaction-specific experience results in a further improvement in the ability to recall critical idea units beyond general accounting/auditing experience; no such improvement was noted for the ability to draw critical inferences. The results did not support the contention that experienced subjects' performance would not be affected by the complexity of the environment (amount of information provided). The ability of experienced auditors to discriminate between more- and less-important information has important implications on their ability to conduct more efficient and effective audit examinations.