The Impact of Hypothesis Set Size on the Time Efficiency and Accuracy of Analytical Review Judgments

This paper examines the effect of generating and testing hypothesis sets of different sizes on the efficiency and accuracy of auditors? analytical review judgments. In particular, and in contrast to prior descriptive research by, e.g., Libby [1985], Koonce [1993], and Ismail and Trotman [1995], we investigate the accuracy and time efficiency of audit judgments if auditors are required to use a strategy that generates and tests a specific number of initial hypotheses. Our research is thus aimed at evaluating the relative benefits of different approaches to hypothesis testing as opposed to understanding the processes auditors use to generate and test hypotheses