Does Cognitive Flexibility Moderate the Effect of Goal-Directed Information Processing on Auditors’ Ability to Assess and Respond to Risk?

• In Event: Doctoral Road Papers

Abstract

Audit planning risk assessments are a key driver of the overall audit process (Christ 1993). Despite the importance of the risk assessment, Public Company Accounting Oversight Board (PCAOB) inspection reports consistently note audit deficiencies related to assessing and responding to risk of material misstatement as one of the more common deficiencies between 2015 and 2017 inspection cycles (e.g., PCAOB 2017). In this study, I explore whether goal-directed information processing helps auditors overcome information overload when making planning decisions. This approach to information processing is useful in an audit planning setting because it reduces cognitive interference by directing auditors to focus on a goal to govern the flow of information. I also explore whether and how auditors' cognitive flexibility affects the way they assess risk. Cognitive flexibility measures an individuals' ability to adapt and shift cognitive processing strategies when facing a new environment. I use experimental research methods to investigate the interactive effects of goal-directed information processing and cognitive flexibility on auditors' ability to assess and respond to risk. My preliminary results suggest that cognitive flexibility is valuable to auditors when they assess risk, but only in the context of goal-directed information processing. For example, auditors with high cognitive flexibility who receive guidance from their manager specifying how to process information make more accurate risk assessments compared to high cognitive flexibility auditors who do not receive such guidance.

Authors

• Suzanne Mullinnix, AAMVA

• Kimberly Walker, University of Wisconsin-Madison