The Effect of Documentation Format on Business Process Comprehension and Change Identification: Experimental Evidence from Internal Control Flowcharts and Narratives

• In Event: Continental Breakfast and Research & Education Forum
  In Paper Session: Table 19: Fraud Risk and Internal Contols

Abstract

The PCAOB has formed the view that audits should switch from using narratives to flowcharts as the format of business process documentation used for ICFR audits. We conduct an experiment that examines whether format type and format type consistency of process documentation affects the identification of process changes, and the understanding of the process. We find using consistent format types results in more identified changes, lower average time spent per change identified when compared to inconsistent format types. Additionally, participants using consistent format types had significantly higher comprehension when using two narratives compared to two flowcharts, but no significant differences in average time or number of changes identified. These results suggest that if auditors follow the recommendation of the PCAOB, they will spend more time per change but will identify fewer changes in processes in the year a switch is made, and that process understanding may suffer in subsequent years.

Authors

• Justin Cole Short, University of Tennessee - Knoxville

• Steven R. Hawkins, University of Tennessee - Knoxville