Performance in Internal Control Evaluation : The Importance of Documentation Format and Task-Specific Knowledge

SAS No. 78 requires that on every engagement auditors obtain a quot;sufficient understanding of internal controlquot; to plan the audit and determine the nature, timing and extent of audit testing (AICPA 1995). Two formats that have been used by auditors in the past to document their understanding of internal control are the narrative and flowchart (Mock and Turner 1981; Cushing and Loebbecke 1986; Purvis 1989). The choice of documentation format is important because it may affect the way auditors encode (Plumlee 1985), retrieve, and evaluate information (Frederick 1992). The purpose of this study is to examine if documentation format (the internal control flowchart or narrative) affects the recall and evaluation of internal control information, and how task-specific knowledge mediates this effect.There were three major findings in this study. First, auditors who read a narrative and updated a flowchart outperformed those auditors who only read a narrative when evaluating internal control. Second, auditors who read a narrative and received an incomplete flowchart recalled less uncued information than those who only read a narrative, consistent with part-list interference. Third, higher levels of internal control knowledge were associated with better performance when evaluating control weaknesses, but not control strengths