Root Cause Analysis and its Effect on Auditor Skepticism and Judgment in an Integrated Audit

• In Event: Professional Skepticism

Abstract

This study evaluates whether applying root cause analysis (RCA) to a client misstatement affects auditors’ identification and assessment of underlying control issues and materiality judgments. We also test whether auditor cognitive style moderates these effects given prior findings that a mismatch between task structure and cognitive style undermines performance. We randomly assigned 147 auditors to four RCA treatments (No RCA, Unstructured RCA, Structured “5 Whys” RCA, Structured “Fishbone” RCA). Results indicate that auditors using (not using) structured RCA are more (less) likely to identify control-related root causes and judge the misstatement to be more (less) material. We also find that the assessed severity of the control deficiency mediates RCA’s effect on materiality judgments. Finally, the materiality judgment results reveal a significant interaction between structured RCA method and auditor cognitive style, suggesting the importance of allowing flexibility in the specific RCA structure applied in practice.

Authors

• Todd DeZoort, University of Alabama-Tuscaloosa

• Marcus M. Doxey, University of Alabama-Tuscaloosa

• Troy Pollard, The University of Alabama