Effectiveness of the audit review process
Audit research has revealed the following ways in which the effectiveness of the audit review process can be undermined. Measures which audit firms can implement to mitigate these effects are also discussed. ... Considering that justification memos by preparers are likely to be stylized to influence their reviewers (Solomon & Trotman, 1997a), the audit effectiveness can be undermined if the reviewer over-relied in the justification memo’s completeness and accuracy (Kennedy & Peecher, 1997). In order to reduce the influence of the preparer’s justifications, audit firms can incorporate an act of hypothesis generation into their audit procedures. ... Lastly, the audit firms can dictate that their auditors make initial likelihood assessments before reading the preparers’ justifications as this will reduce the influence of the memo on the auditors’ judgments (Yip-Ow, J. ... The audit firm can minimize the effects during rotation of audit teams. Instead of rotating the entire team, one of the auditors (who is already familiar with the preparer’s work), should join the new team to highlight the characteristics of the preparer’s work, so that the effectiveness of the audit review of complex tasks is maintained.