REALIZING THE BENEFITS OF NEW TECHNOLOGIES AS A SOURCE OF AUDIT EVIDENCE AN INTERPRETIVE

Description
The development of new audit technologies has been the focus of a great deal of attention by both
auditing academics and CPA 6rm administrators during the past decade. Many resources have been
devoted to the development and scientific validation of sophisticated new technologies with the
anticipation that increased audit “efficiency”, as well as improved “effectiveness” and inter-auditor
judgment “consensus”, would result. The primary focus of these efforts, and the related publications,
have been on the technologies themselves, in the apparent belief that qualities such as “efficiency” exist
objectively in the technologies.

Pergamon Accountfng, Oqanimkms andSocWy, Vol. 21, No. 2/3, pp. 219-242, 1996
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“REALZING” THE BENEFITS OF NEW TECHNOLOGIES AS A SOURCE OF AUDIT
EVIDENCE: AN INTERPRETIVE FIELD STUDY
MJCHAEL J. FISCHER
St. Bonaventure Uni versi ty
Abstract
The development of new audit technologies has been the focus of a great deal of attention by both
auditing academics and CPA 6rm administrators during the past decade. Many resources have been
devoted to the development and scientific validation of sophisticated new technologies with the
anticipation that increased audit “efficiency”, as well as improved “effectiveness” and inter-auditor
judgment “consensus”, would result. The primary focus of these efforts, and the related publications,
have been on the technologies themselves, in the apparent belief that qualities such as “efficiency” exist
objectively in the technologies. However, essentially no published research exists that has examined the
use of these new technologies by audit practitioners. The study reported in this paper was conducted as
an interpretive field study within several “Big 6” CPA firms, with a focus on proprietary audit tcchn@
logics that had been recently implemented or discontinued. All of the technologies involved new audit
approaches, rather than simply the automation of existing, established approaches to audit evidence
generation and evaluation. The central tiding reported in this paper is that benefits in the form of
enhanced audit efficiency did not result directly from the adoption and use of these new technologies.
Rather, where they were reported to have occurred, these benefits resulted from the concomitant
reduction or elimination of other audit procedures that had been performed in the past. Based upon
these tidings, it is argued that the “benefits” of new audit technologies, as a source of audit evidence, do
not exist objectively in the technologies themselves, and that these benefits arc not automatically realized
through the adoption and use of the technologies. Rather, the benefits attributed to the technologies are
seen to be made real, or “real-Ized”, through actions taken by the auditors concurrent with technology
adoption. Copyright 0 1996 Elsevier Science Ltd.
1 think there are abundant research opportunities In the
area of audit efficiency. We need breakthroughs, and in
my opinion there is evidence that suggests brcak-
throughs are possible. The evidence lies in the recent
fruitful attempts to substitute structure for judgment in
the audit process (Elliott, 1981, p. 3).
The development of new audit technologies has
been the focus of intensifying attention by both
auditing academics and CPA firm administrators
since the time of Elliott’s statement. A major
thrust of this work has been to research,
develop and “scientifically evaluate” (Ashton
& Willingham, 1988, p. 1) new audit technolo-
gies in attempts to increase audit efficiency.
Compared with the effort expended on the
development and scientific validation of new
l This paper is based on my dissenatIon. I am grateful to my committee members, Denny Gioia, Kevin Leicht and Iris
Vessey, and especially my chair, Mark Dirsmith, for the support and guidance they provided. I am also grateful for the
financial support provided by the Penn State Graduate School and the Richard D. Irwin Foundation during the time I was
working on my dissertation. In addition, I appreciate the many useful comments provided by the editor, two anonymous
reviewers, and my colleagues at St. Bonavcnturc University: Carol Fischer, Lary Hudack, John McAllister and Iany OrsInI.
Finalty, I would Iike to thank the many practicing auditors who shared their experiences in using new audit technologies.
219
220 M. J. FISCHER
technologies, relatively little work has been
performed that examines the actual use of
these technologies in audit practice. Further,
the primary emphasis of many studies of audit
technology has been on “use” as documented
in the practice manuals promulgated by admin-
istrators in the major CPA firms, rather than on
actual technology use by audit practitioners.
Those studies that have attempted to explore
technology use by audit practitioners have
tended to focus on relatively generic analytical
review procedures rather than on proprietary
technologies developed by individual firms.
However, it is interesting to note that this
line of research has consistently produced the
“surprising” (Biggs &Wild, 1984, p. 71) linding
that auditors tend to rely on relatively unsophis
ticated analytical review procedures even
though the use of more sophisticated pro-
cedures available to them would presumably
allow the auditors to conduct more efficient
audits without sacrificing effectiveness.
Further, it has been noted that practicing audi-
tors may not place substantial reliance on
newer audit procedures even when those
procedures are actual l y bei ng used on their
audits (Bedard, 1989, p. 69). Whi l e these
limited findings are interesting, owing to the
atheoretic nature of the research that has
been performed in this area, explanations for
this apparently puzzling phenomenon have not
been developed.
The pressing need for audit efficiencies in
to&y’s competitive marketplace appears to
be well established. So too, it seems taken for
granted that new technologies can be the
source of the desired efficiency gains. There-
fore, observations such as those cited in the
preceding paragraph are troubling. How are
audit efficiences produced through the imple-
mentation, adoption and use of new audit tech-
nologies?’ The answer to this question does
not appear to exist in the current auditing
literature.
THE RESEARCH OBJECTIVE AND PROCESS
The purpose of this study was to develop an
initial understanding of how new, proprietary
audit’ technologies,’ which are designed, vali-
dated and implemented by Big 6 CPA firm
administrators, come to produce efficiencies
in audit practice. Ashton and Willingham have
indicated that while this area of inquiry has
been “virtually ignored” by auditing research-
ers
“it is likely to be of great practical impor-
tance” (1988, p. 17).
This research reported here was conducted
as a grounded (Glaser & Strauss, 1967; Strauss,
1987; in accounting, see Covaleski & Dirsmith,
1983; Gibbins et aZ., 1990), interpretive field
study (Burrell 81 Morgan, 1979; Van Maanen,
1979a, b, 1988; Morgan & Smircich, 1980;
Dirsmith et al ., 1985; Covaleski & Dirsmith,
1990; Gioia & Pitre, 1990). The fieldwork in
’ The findings presented ln this paper were focused around understanding a slnglc observed mode of use of new audit
technologies - as a basis for substantially reducing the cost of completing an audit while maintalnlng the belief that audit
quality has not been impaired. This particular category of technology usage was selected for analysis because early field
observations suggested that it was important for at least some of the interviewed audltors. Further, this mode of use was
seen to be consistent with an important use of new technologies espoused (Argyrls, 1977, p. 119) ln the extant audlting
literature: as a source of audit cflickncles. However, it is Important to note that many other, seemingly important (to the
interviewed auditors) uses of the studied technologies by auditing practltloners were also noted during the course of thls
research. Exploration of these other uses is left for future research.
’ With respect to “audit technology”, Elliott and Jacobson have suggested that: “Audit technology . . . refers to the auditor’s
tool kit. A tool may be thought of as anything that enhances an indlvldual’s capacity to perform a task. Audit technology,
then consists of all the things designed to enhance the auditor’s capacity to perform an audit task” (1987, p. 198). This
relatively broad definition of “audit technology” was adopted ln this study. Con6dcntlallty was promlscd to the lndlviduals
and firms participating in the study, so details regarding the studled technologies arc not provkled. The term “proprietary
audit technologies” refers to technologies that have been developed lntemally by the various firms, for use within the firm.
NEW TECHNOLOGIES AS A SOURCE OF AUDIT EVIDENCE 221
this study was conducted within several “Big
6” CPA firms, with a focus on proprietary audit
technologies which had been recently imple-
mented or discontinued. All of the examined
audit technologies involved new audit
approaches, rather than simply the automation
of existing, established approaches to audit
evidence generation and evaluation (see
Fischer h McAllister, 1993, for further discus
sion of this distinction). The process of data
gathering extended over a period exceeding 1
year and was accomplished in a variety of
ways. For example, during the course of con-
ducting the study, the researcher visited offices
of the involved Iirms, participated in tirm con-
tinuing education programs, interacted with
firm personnel in other settings (e.g. when
they were visiting campus) and conducted tele-
phone interviews. Key interviews were tape
recorded and transcribed; details of other inter-
actions and the researcher’s observations were
maintained in field notes. Participants in the
study were primarily managers and partners
from both the national (administrative) and
practice offices of the Involved Brms.
The remainder of this paper is organized into
three major sections. In the first section, a
synthesis of the “Iirst order” findings (Van
Maanen, 197913) developed during the study is
presented. The next section then presents a
mote theoretical, “second order” analysis.3
Finally, a summary and discussion of the
research Endings is provided. While this order
of presentation may appear inverted in com-
parison with a more traditional format -
where the literature review precedes theory
development, and theory precedes data -
this order more closely represents the process
through which the study actually unfolded.
The research reported here is similar to that
in many other papers, reporting on an audit
world of extreme, and intensifying, competi-
tive fee pressures. Similarly, the findings
reported here indicate that new audit tech-
nologies may often play an important role in
enabling auditors to enhance audit efficiency
without apparently impairing the quality of
their audits. However, the findings reported
here also depart substantially from other
studies. The majority of the extant literature
arguably assumes that technologies, which
can be substituted for human auditors to
produce audits of higher quality at lower
cost, can be effectively created by academics
and firm administrators alone. In contrast, the
findings in this study suggest that, to produce
audit efficiencies, the developed technologies
must also be created, or “realized” (Weick,
1977, p. 287) by practicing auditors as a
“weighty” source of audit evidence. Rather
than the technology being physically substi-
tuted for the human auditor - which does
not seem able to be accomplished by iirm
administrators within the current organiza-
tional structure of the Big 6 CPA Erms - ben-
efits are created when individual auditors
cogn tttvely substitute the new audit
approaches or concepts embedded in the tech-
nologies for the highly institutionalized “what
was done last year” (Tipgos, 1978, p. 180) as an
objectified standard for a “quality” audit.
FIRST ORDER FINDINGS: THE NEED TO
REDUCE AUDIT COSTS WHILE
MAINTAINING QUALITY
The purpose of this section is to present in
some detail the data” gathered during the
process of conducting this research. While a
vast quantity of data was generated during
the study, only a small portion from the
detailed, Iinal analyses is presented here.
Synthesized discussions of the overall observa-
tions are augmented by verbatim accounts of
’ Van Mamen (1979b) discusses the importance of distinguishing between “first order” interpretations - essentially the
iatcrprctations of informants as provided to the researcher - and “second order” interpretations - the researcher’s
iaterprctations of the informants’ first order interptaations - when conducting and presenting the results of interpretive
field research.
222 M. J. FISCHER
participants in the study, which have been
chosen to illustrate and emphasize important
points. For each of exposition, the findings are
presented in a series of subsections that co-
incide with major thematic categories in the
first order analysis; importantly, these cate-
gories emerged through the process of con-
ducting the research, rather than having been
specified by the researcher a priori.
Pressure to cut audi t costs
the costs go up, the revenues are down and the vice is
tightening.
This statement, made by a partner inter-
viewed during the study, captures the senti-
ment of many participants who indicated that
they were experiencing the “tightening vice”.
There would appear to be at least two ways to
loosen the vice: cutting the cost to complete an
audit, and increasing the revenues generated by
raising the fees charged clients. However, many
participants in the study were emphatic that,
because of the increasingly price-competitive
nature of the market for audit services, raising
(or even maintaining) the level of audit fees is
not a viable alternative in many cases.
One partner seemed to capture the senti-
ments of many of those interviewed, regarding
the current state of the market for audits, when
he indicated that ‘I... we’ve got a war going on.
A competitive war . . . .” A recurrent theme
throughout the interviews was that price, or
the amount of the audit fee, is a primary basis
on which the major CPA firms are currently
competing for the available clients. One senior
manager indicated that he was not aware of a
single case in the last several years where the
“high bid got the job”, and that unless you are
fairly close to the lowest bid, the prospective
client “won’t even bring you in to see if they
are comfortable with you”. Another senior
manager indicated that, in his experience, fee
negotiation now often boils down to the client
saying “this is what the fee will be”. Yet
another senior manager commented that
there is sfgnificanr fee pressure. Companies don’t
change auditors that frequently. And whoever is getting
that work is getting it not necessarily because of
price, but the fee is a significant factor in almost all
circumstances. And 100% rates arc long gone.
The “rates” referred to by this auditor are
the “realization rates” monitored by his firm,
which are computed as the amount of the fee
divided by the total number of hours
reported by the personnel working on the
engagement multiplied by the “standard” bill-
ing rate for each staff member (plus other
costs incurred).
Similar to the observations made in other
studies (see, for example, Alderman &
Deitrick, 1982; Kelley & Seiler, 1982; Lightner
et al ., 1982, 1983; Dir-smith & Covaleski, 1985;
McNair, 1991) the auditors interviewed in this
study suggested that performance, in terms of
such measures as the realization rate, plays an
important role in the process of evaluating field
auditors within their tirms; and this understand-
ing was expressed not only by the field audi-
tors, but also by participants at the national
office level of the firms. Yet, interestingly, it
appears that the field auditors do not act solely
to maximize the profits that they are able to
report from their client engagements. Rather,
the auditors interviewed described a more
satisficing-like approach (see, for example,
March & Simon, 1958) to audit fee and cost
management, with the goal being to keep
realization rates and profitability at a satisfac-
tory level, rather than to necessarily strive for
the highest possible figures. Three general
themes in participants’ explanations of this
phenomenon emerged in the study. First, it
was observed that the tirms’ reward structures
may encourage such an orientation. One partner
explained the system in his tirm as follows:
there is virtually no effect on compensation from short-
term activities except downward. Don’t collect your
receivables, have lousy realization, you’ll get hurt. But
in order to get high compensation, you’ve got to
plug and plug for years. In other words, superior per-
formance isn’t quickly recognized . . . There is no
immediate payoff for good behavior, and there is
NEW TECHNOLOGIES AS A SOURCE OF AUDIT EVIDENCE 223
an immediate negative payoff for negative behavior.
So you bave little incentive to hit a home run.
Second, it appears that at least some auditors
feel a sense of duty to their clients and the
profession that prevents them from “over-
charging” - that is, charging fees that would
yield more than 100% realization rates - even
if they had the opportunity. One national office
partner summarized this point, and his feeling
about it, when he explained that among the
practice office partners in his firm there is
“almost a belief that anything other than bill-
ing by the hour [at standard rates] is unethical;
we’re trying to change that”.
Finally, the auditors may also be constrained
by a felt need to maintain the quality of their
audits an an acceptable level. However, as dis
cussed in the next section, there is no simple
answer to the question of “what constitutes a
‘quality’ audit? ”
Proxi es for a “qual fty” audi t
We’re in a marketplace where the product quality is
unobservable Now, if you go out and buy a dozen
eggs, and you break them open and they’re rotten, you
know it right away. If you buy a sub-GM.5 audit you
may never know it. Because every audit looks exactly
the same.
While this statement, by an interviewed
partner, concerned the observability of audit
“quality” by consumers of the audit, it seems
to be applicable to the producers as well.
Obviously, audit practitioners are in a much
better position than those placing reliance on
their reports to know what they have done, in
the way of audit procedures, to support their
opinions. However, it appears that the question
of the nature and extent of audit procedures
necessary to provide sufficient competent
evidential matter - that is, the question of
what constitutes an audit of adequate quality
- is difficult, if not impossible, to answer con-
clusively. In the absence of directly observable
measures, audit practitioners appear to rely on
proxies of audit quality.
During the course of this study, two different
general categories of proxies for audit quality
were observed: what had been done in the
past; and, firm policies and guidelines as
reflected in proprietary technologies and audit
practice manuals (see also Humphrey &
Moizer, 1990, for similar observations). Particu-
larly with the proliferation of new technologies
and audit approaches that has occured in
recent years, it appears that these two proxies
may often suggest substantially different audit
approaches.
Traditionally, it seems, auditors have relied
heavily on “what was done last year” (Tipgos,
1978, p. ls0) as a guide for planning current
audits. Even in the current environment, in
which new audit technologies are being made
available at a much more rapid rate than in the
past, many auditors are apparently still quite
reluctant to deviate substantially from past
audit approaches.
The firms involved in the study have devel-
oped, and are continuing to develop, proprie-
tary audit approaches that are encoded in
extensive audit practice manuals (see, for
example, Elliott, 1983; Mock & Willingham,
1983; Cushing & Loebbecke, 19sb; Shpilberg
& Graham, 19fl6; Walker & Pierce, 1988;
Graham et al , 1991). In addition, various
aspects of these approaches are embedded in
various proprietary audit technologies devel-
oped and implemented within the firms,
including the technologies focused on in this
study. Diligent use of these technologies and
audit approaches could apparently be expected
to result in a “quality” audit, at least as defined
by those in the national offices of the firms.
However, the mere availability - or even
strongly encouraged use - of these
approaches does not necessarily mean that
they will be employed by firm practitioners.
Nor, it appears, are audits which deviate from
these approaches necessarily of inadequate
quahty.
Professional standards require that “suffi-
cient competent evidential matter is to be
obtained . . . to provide a reasonable basis for
an opinion regarding the financial statements
under e xamination” (AICPA, 1980, para. 1).
224 M. J. FISCHER
However, GAAS provide little concrete guid-
ance for dete rmining what constitutes an audit
of adequate quality; this evaluation is pro-
fessionally recognized to be a matter of “pro-
fessional judgment” (AICPA, 1980, para. 19).
The overall evaluation of what constitutes a
“quality” audit may arguably be the most diffi-
cult, and important, judgment in auditing. Yet
truly objective measures of audit quality do not
exist.
While the fieldwork for this study was being
conducted, one of the firms had recently
received the results of a triennial peer review
of its audit practice, which had been per-
formed by another Big 6 Iirm. The reviewed
firm’s national director of auditing services
described the peer review report as being a
“clean opinion, with no comments”. In other
words, all of the reviewed audits were found
to be of fully adequate quality - a rarity in the
history of the peer review program (see
Wallace & Wallace, 1990). However, the peer
review Iirm also provided, as an appendix to
their report, a “Summary of Audit Efficiency
Observations”. In essence, this summary indi-
cated that, while adherance to the iirm’s pro-
prietary audit approach, as designed, would
result in audits of adequate quality, the
approach was not generally being followed in
practice. Rather, it was found that many more
traditional types of audit procedures were
being performed, rather than the more cost-
effective alternatives that were available.
Further, it was noted that even where the
ostensibly more costeffective procedures
were being performed, substantial reliance
was frequently not being placed on them.
These findings led the peer review firm to con-
clude its efficiency observations by suggesting
that “audit efficiencies are obtainable without
impairing audit effectiveness”.
The peer reviewed firm’s national director of
audit technology summarized the efficiency
observations more succinctly, indicating that
with the audit approach as generally practiced
in the firm, “we’re doing an audit and a half”.
However, it was also interesting to note the
reactions of some practitioner participants to
the efficiency observations. More than one
practitioner from the reviewed firm expressed
their opinion that the specific observations and
recommendations in the efficiency report
reflected the predominant audit approach prac-
ticed in the reviewing firm, rather than neces
sarily the si ngl e best way to conduct an audit.
Somewhat similarly, one interviewed audit
partner in the reviewed firm indicated that
the standard practice in his firm has been to
“overaudit”; however, he also suggested that
“maybe that’s a good thing . . . maybe that’s
why we’re not in the kind of trouble some of
the other Ilrms are [referring to litigation
related to alleged ‘audit failures’]“. Despite
the endorsement and encouragement of the
national office of the firm, many Iirm practi-
tioners had apparently not embraced the firm’s
new proprietary audit approach as adequately
representing a “quality” audit.
The new technology focused on in the study
of the peer reviewed firm has some key con-
cepts of the firm’s new proprietary audit
approach embedded in it. While interviews
with practice office managers and partners in
this firm confirmed the peer review findings
that many were not using the technology at
all, and that others were merely “going
through the motions” (as one audit manager
described his use of the technology), some
auditors were interviewed who indicated that
they had adopted the new technology and had
achieved substantial cost savings through its
use. In the following section, “successful”
adoption of this and the other new technolo-
gies focused on in this study are discussed.
Adopti ng new technol ogfes as a way to cut
audft costs whfl e mafntafnfng audi t qual i ty
When asked why a particular new audit tech-
nology had been adopted on one of his audits, a
senior manager explained that
we’ve got to keep finding more efficient ways to do the
audit. I mean that’s a driving force for all of us. What a
lot of the new soflware does is offer us a way to do
things faster. You know, we also want to do things
better. But we’re doing it to do things faster. Basically,
it’s fee pressure.
NEW TECHNOLOGIES AS A SOURCE OF AUDIT EVIDENCE 225
This explanation is typical of many offered
by the audit partners and managers inter-
viewed during the course of thls research. In
general, the interviewed auditors expressed a
need to maintain (but not necessarily to
increase) the quality of their audits, but also
often a strong need to reduce their audit
costs. While, as indicated earller, auditors may
not always be motivated to maxlmlze profits,
performance can apparently fall only to a
certain point. Beyond this point, the auditor
may be moved to act. In this vein, one partner
described reaching an unacceptably high “pain
level” - ln terms of low client profitablllty,
and a relatedly poor personal performance eval-
uation - when asked to explain the adoption
of a new audit approach.
Apparently, based on the accounts provided
by those interviewed, many auditors have
reached unacceptably high “pain levels” on
their engagements during the past few years,
and have been forced to look for ways to
reduce their costs substantially without com-
promising audit quality. The ability to achieve
these two objectives simultaneously - reduc-
ing cost and maintalning quality - was offered
by many recent technology adopters as the
primary reason for their decision to adopt a
new technology. These adopting auditors
generally indicated that they were, ln fact,
successful in reducing their audit costs,
despite the additional costs incurred (com-
pared with prior years) as a result of using
the new technologies.
When asked to explain how lower audit costs
were achieved, many participants attributed
the results to the new technology that had
been adopted. For example, in explaining effi-
ciency gains that had been achieved through
the adoption and use of a particular new tech-
nology, one senior manager indicated that
what we’re gaining (through the use of the new tech-
nology) is a more perceptive analysis. It is a better
technique than what we were using in the past.
Somewhat similarly, an audit partner indi-
cated that he felt that a particular new audit
technology was providing “more bang for the
buck” than the audit procedures previously
performed.
While attributions to the new technologies
are important, another theme was also present
ln these discussions: the substitution of the
new technologies for some previously per-
formed audit procedures. In fact, all of the
interviewed auditors who explained that they
had adopted a new audit technology ln order to
cut overall audit costs while malntainlng audit
quallty, and who indicated that they had
accomplished thelr objective, acknowledged
that they had cut other audit procedures that
had tradltlonally been performed, concurrent
with the adoption of the new technology.
Furthermore, the changes that they reported
having made were generally quite significant,
often representing substantial departures from
the past approaches in the affected areas. Most
commonly, these auditors indicated that they
were no longer performing many of the “tests
of details”, both in the compliance and substan-
tive testing areas, on which substantial reliance
had previously been placed. One senior man-
ager indicated that he sees detailed testing
“being deemphasized . . . . You know, ten years
ago, we were testing voucher packages and
that kind of thing. We’re not doing nearly as
much of that anymore.” Somewhat similarly,
another senior manager explained that “[in
the past] we used to come in and beat the
shit out of it at interim, and then come and
beat the shit out of it again at year-end . . . .
We don’t do that anymore.”
Owing to the substantial nature of the
changes made, the auditors were unable to
directly compare the current with the past
audit approaches. However, the interviewed
auditors generally indicated that they were
“comfortable” that they were doing sufficient
audit work to support the issuance of their
opinions. When asked to explain the basis of
this comfort, many auditors referred to the
quality of the technologies that they were
using, or firm audit policies as put forth in their
internal practice manuals. Additionally, some
auditors indicated that they were comfortable
226 M. J. FISCHER
that they were still doing sufficient work based
upon the lack of feedback that they, and others
around them, had received indicating that they
were not doing enough work. For example,
one senior manager indicated that he was
not aware of a single case in his office in
the last several years where they had found
out subsequent to an audit that they had
“blown one”.
Even with prompting, there were essentially
no discussions between the researcher and
interviewed audit practitioners which sug-
gested an indepth understa&ing of the tech-
nical concepts and assumptions embedded in
the technological “products” on which the
auditors were placing their reliance. Similarly,
discussions of firm audit policies generally
revolved around the names and acronyms
assigned by the firms to their proprietary
approaches, as well as general reference to
concepts underlying those policies such as
“risk analysis”. During these discussions, refer-
ence was generally made by the audit practi-
tioners to their firm’s audit approach, rather
than to the specific Statements on Auditing
Standards (SASS) and other literature on which
the audit approaches were based.
In interesting contrast to the discussions of
proprietary audit technologies with practi-
tioners, frequent, detailed reference was
made to the results of research - conducted
both within the firms and by academic
researchers - in discussions with national
office partners and managers regarding the
development of these technologies. Addition-
ally, while references were frequently made
to their internal firm policies, changes in
firm approaches were often explained in
terms of specific SASS that had been issued
recently by the Auditing Standards Board (ASB)
of the American Institute of Certified Public
Accountants (AICPA), as well as reportedly
similar actions being taken by the other major
CPA firms. Seemingly, the practitioners who
adopt new approaches may place reliance on
the developmental work done by those in the
national offices of their firms. Somewhat simi-
larly, many in the national offices may take
comfort in seeing their new audit technologies
and approaches as consistent with the chang-
ing framework of Generally Accepted Auditing
Standards (GAAS) and nature of auditing prac-
tice. Members of both of these groups seem to
take comfort in seeing their efforts and actions
as part of a larger, external reality, parti cul arl y
when they are making significant changes from
past practices. However, they may not overly
question the origins of these realities, perhaps
because this best enables them to rationalize
their actions.
However, one senior national office partner,
who was a former member of the ASB, appar-
ently did not take comfort even in seeing his
firm’s audit approach being in compliance with
GAAS. Rather, he described the role of the pro-
fession in promulgating GAAS, the set of stan-
dards against which its work is evaluated.
Specifically, with respect to several recent
changes in GMS, he expressed his opinion that
what happened was that the !irms had competed down
the price of audits to the point where you could no
longer make money doing all that work, so that GAAS
had to be changed to allow for less work. So we put one
out there that said, you know where we used to do this
expensive stuff called substantive testing? Hah! Look at
a few ratios, that’s just as good. And you know where
we used to look at internal control and test it? Hah! Just
look at superior controls and just look at them every
three to four years to make sure that management has
the right attitude. It’s all a way of institutionaBzing less
work under GAAL4
The focus in this section has been on cases in
which interviewed auditors reported that they
has been able to cut audit costs, while main-
taining audit quality, through the adoption and
use of new audit technologies. While various
* The specific Statements on Auditing Standards refemd to arc SAS 56, Analyrkal Procedures (AICPA, 198813) and SAS 55,
Consideration of #be I nternal Control Structure i n a Fi nunci al Statement Audi t (AICPA, 19BBa). This partner was not a
member of the ASB at the time these particular statements were issued.
NEW TECHNOLOGIES AS A SOURCE OF AUDIT EVIDENCE 227
cases were noted, across all of the studied
firms, in which cost savings were apparently
not achieved through the use of new techno
logies, the most notable set of examples
involved the “discontinued” technology
described in the next section.
Di sconti nui ng technol ogy use as a way to
cut audi t costs whi l e mai ntai ni ng audi t
qual fty
At the time of the study, one of the firms had
recently changed its audit policies such that the
use of a particular computerized decision aid
was no longer required. Based upon discus-
sions with national office personnel in the
firm, as well as examination of available written
materials, it was learned that this particular
technology was implemented by the firm
during the early 1980s. The apparent objective
of the technology was to enhance inter-auditor
consensus in both documentation and judg-
ments for a particular component of the audit
process, as well as to increase audit effective-
ness and efficiency. The technology grew out
of an extensive research effort undertaken by
the national office of the firm and various
academics, which was considered by some to
be at the leading edge of research in “auditor
judgment and decision making” at the time.
Prior to implementation, the technology was
“field tested”, to assess its “efficiency and
effectiveness” as well as to ensure that it had
been adequately debugged. Finally, all firm
audit professionals (up through and including
the partners) received trainingintheuseofthe
technology at the time of its general release.
Use of the technology was requi red by the
Iirm (after a phase-in period for recurring
engagements).
The emphasis in the data gathering was on
developing an understanding of how the tech-
nology had been used, and why the usage
requirement had been terminated. Repeatedly,
auditors in this Iirm explained that there had
been a growing recognition that, at least in
part as a result of the technology use require-
ment, there were “two audits going on” on
many of the Iirm’s engagements. As one senior
manager explained:
There was an audit done by staff people, which dealt
with the documentation. It dealt with hlllng out forms
to get us to the fmanclal statements. And then there was
the other audit that was done by the partners and man-
agers, where they looked at the risks that were
lnvolvcd, and they knew which arcas to look at. And
they concentramd their time only in those areas, and at
the end of the day, they were the ones who knew what
the issues were.
Another senior manager explained, quite simi-
larly, that
in a lot of instances you have two audits going on
The patrner and the manager probably have their own
audit, and the sta@has their own audit. They’re filling
binders up, and they’re going through all their check-
lists, and they’re trying to make sure that when the
engagement is subsequently reviewed, either lnter-
office or through the peer review system, that they’re
not in trouble because they didn’t dot their “i’s” and
cross their “t’s” And then the partner and the manager
arc on the issues and what the heck is going on.
While the technology was being “used”, in
accordance with firm requirements, it appar-
ently often was not being relied upon heavily
as a source of audit evidence by the audit
partners and managers. The “two audits”
were created when the work required to imple-
ment the new technology was added to the
traditional audit approach that was already in
place.
Two national office partners, who had been
involved with this technology since its incep
tion, were asked separately how the “two
audits” phenomenon had come about. Both
expressed their beliefs that it had occurred
because the audit partners had been “substan-
tially undertrained”, at the time the technology
was initially implemented, regarding the bene-
fits that could be achieved through the use of
the technology. In other words, in hindsight,
they felt that the training provided, especially
to the more senior practitioners, had been too
narrowly focused on the technical aspects of
using the new technology. In describing the
ramifications of this for the effective use of
228 M. J. FISCHER
the technology, one of the partners indicated
that “it’s a problem that we permitted to
happen by the early ’80s and that we never
recovered from”. It is obviously uncertain
now whether greater benefits from use of the
technology would have resulted from different
training programs. However, an important
point is that the technology was apparently
adopted because its use was required, rather
than because the audit partners necessarily
saw benefits to be gained through its use.
At least two major concerns with the audit
process ln the lirm, as it had developed since
the adoption of the now-discontinued tech-
nology, were expressed by participants ln the
study. The first, perhaps not surprisingly, was
audit cost. Apparently the expense of conduct-
ing these “two audits” became unbearable as
audit fees declined ln the competitive market-
place. The second major concern expressed
with the technology as it was being used,
which apparently also played an important
role in the decision to discontinue the tech-
nology use requirement, involved the develop
ment of staff members’ understandings of the
process of forming an audit opinion. There was
apparently a major concern by the more senior
practitioners that the junior personnel had
internalized the documentation of the tech-
nology use as the audit. According to one audit
partner, the widespread perception that the
staff were more focused on documentation
caused a great deal of concern for partners and for
senior managers in terms of whether or not people
were done auditing when the forms were done, instead
of when the work was done.
One source of concern over this situation
apparently involved the quality of the audit
work being produced by the staff under the
old regime, in terms of the probability of finan-
cial statement misstatements being detected
through the application of the required pro-
cedures. However, this concern was overcome
by performing extra, non-required audit work
to produce the evidential matter necessary to
satisfy the senior engagement team members
(with the obvious effect on audit cost). An
equally strong concern involved the ramlfica-
tions as the staff auditors indoctrinated into
the use of the now-discontinued technology
became the senior engagement team members.
Prior to discontlnulng the technology use
requirement, attempts had been made to
make incremental changes, to mitigate some
of the apparent shortcomings of the tech-
nology while preserving the beneficial aspects
of the approach. However, it was apparently
felt that a more radical change was needed to
break the “two audit” cycle, and the decision
was made, as one national office senior man-
ager explained, “to just totally throw the
form out, and . . . start over with a clean sheet
of paper”. Changing the audit approach, and
discontinuing required use of the technology
in which a significant investment had been
made, was obviously not costless. However,
many of those involved evidently anticipated
that the benefits would exceed the costs. As
one partner explained, the cost of the change
is a
price that we’re paylng as a partner&p. But lf we
didn’t, if we just stayed on track and continued doing
what we’ve done before, we think that the conx-
quences would be much more costly. Particularly as
these staff people become partners. And we have two
complete understandings, that differ one from the
other, about how audits are done.
This same partner went on to explain that,
by discontinuing use of the technology, he felt
that the audit partners ln the firm sought to
remind the staff that
judgment is the key, not the things that one provides
for the audit work papers that demonstrate that we arc
seeking to make that judgment. And that’s a very diffl-
cult thing to pass down to those whose f- was on
producing those papers, and doing the documentation.
Various interviewed participants, both at the
practice and national office levels, explained
that the firm’s “new” audit approach, after dls-
continuing the required use of this particular
technology, was not really a new approach
at all. Rather, it was described as a “re-
NEW TECHNOLOGIES AS A SOURCE OF AUDIT JIVIDENCE 229
emphasis” of the approach that had continued increased audit efficiency, wlll result. How-
to be employed by many of the partners and ever, cases were observed where auditors had
more senior managers all along. Evidently, the apparently been successful in using new tech-
documentation - the apparent evidential nologles to reduce the cost of conducting thek
matter - produced through the use of the audits while malntaining the belief that audit
nowdiscontlnued technology had never been quality had not been impaired.
seen by many of the more senior audit per- The main purpose of the presentation of first
sonnel as a “weighty” source of audit evi- order Iindlngs has been to develop a descrip
dence. Thus, it was possible to eliminate the tlve view - grounded ln accounts provided by
costs incurred to produce this documentation study participants, written materials made
without requlrmg a concomitant increase In avallable to the researcher, and other observa-
other procedures performed - the “other” tlons made during the course of the study - of
procedures were already being performed as the phenomenon of interest. The purpose of
part .of the old audit approach that had never the following section ls to elaborate an expla-
been supplanted by the new technology. natory framework to facilitate an understanding
As noted earlier, the basic phenomenon of the observed phenomena.
described here - the creation of “two
audits” when new technologies are adopted
SECOND ORDER FINDINGS:
without a concurrent reduction in other work
“REAL-IZING” THE BENEFITS OF
performed - was not unique to this one tirm.
NEW TECHNOLOGIES AS A SOURCE OF
Rather, similar instances were noted across all
AUDIT EVIDENCE
of the studied firms (e.g. note the earlier
comment regarding “going through the
motions” ln the application of new techno-
Van Maanen has suggested that, whereas first
logies). While the specifics of these noted
order concepts may be usefully thought of as
cases differed somewhat, the key similarity
the “facts” of an Investigation, second order
was that they all seemed to involve adoption
concepts represent the “theories” that the
of the technologies for reasons o&f3 than
researcher uses to organize and explain these
because the adopting auditors felt a pressing
facts (1979b, p. 540). The purpose of this sec-
need to cut audit costs while maintaining
tion is to present and elaborate the second
quality. These “other reasons” included, but
order findings developed during this study.
were not llmited to, instances where the audi-
The latter stages of the analytic process under-
tors were required to adopt the new techno-
lying these Iindlngs were organized around a
logles by someone above them in the &m
central question: “how do audit technologies
hierarchy.
come to be seen as a “weighty’ (Toba, 1975)
source of audit evidence, such that their use
Fi rst order concl udi ng comments
enhances audit efficiency?” The findings
From the Iirst order observations made dur-
presented here represent an attempt -
ing the course of this study, it may be con-
grounded in the Iirst order observations made
cluded that the acceptance by field auditors of
during this study - to begin developing an
technologies lnvolvlng new audit approaches is
answer to this question.
problematic, that the extent of variation in the
rate and mode of their usage is relatively high,
The “qual i ty” audi t as an i nsti tuti onal i zed
and that the anticipated benefits of technology
soci al constructi on
use are not always achieved in the field. In fact,
it has been seen that even mqufri ng the audi-
[there i s a] bias that exists in the field to do what was
tors to adopt and “use” such technologies does
done last year and not to place one’s self in the position
of justifying why a past audit procedure was no longer
not ensure that benefits, in the form of necessary . . . . The CPA is lypicaUy not concerned that
230 M. J. FISCHER
liability responsibility will ark fkom not using a more
effective and efficient approach, as long as that
approach had never been used in prior years’ audits
(Wallace, 1983, p. 18).
GAAS require the auditor to obtain “s&I-
cient competent evidential matter” to support
the issuance of his opinion (AICPA, 1980, para.
1). That is, a “quahty” audit is one in which
“sufficient competent evidential matter” has
been obtained. However, the professional
standards are vague as to what constitutes
sufficient competent evidential matter. gather,
they indicate that the ultimate assessment “Lies
in the judgment of the auditor” (AICPA, 1980,
para. 2).
Obtaining and evaluating evidential matter
forms the core of the process of auditing, yet
no definitive guidelines exist for evaluating this
process. In the absence of such objective
guidance, it appears that practicing auditors
have tended to rely heavily on past experi-
ences - both their own and those of others,
as at least partially documented in their work-
ing papers - as a guide in planning and execut-
ing current audits. The observation of a heavy
reliance on the past is weII established in the
existing auditing literature and is consistent
with observations made during the course of
conducting this research. Further, both the
extant literature and observations made during
this study suggest that auditors are reluctant to
place sole reliance, as a source of audit evi-
dence, on new audit technologies that are avail-
able to them. In fact, it appears that auditors
may continue to rely on traditional sources
of audit evidence even in cases where they
are al so physi cal l y usi ng new audi t techno-
l ogi es. Whi l e the existence of these pheno-
mena is becoming established, a conceptual
explanation has not been advanced.
The observations that have been made during
the course of this study and elsewhere strongly
suggest that a single, “one best way” to perform
a “quality” audit - as may be sought by those
in the administrative component of the studied
firms (Freidson, 1986, p. 226) - may not exist
in practice. gather, it appears that “know-
ledge” of the approach necessary to complete
a “qua&y” audit may differ substantiahy across,
for example, firms, audit teams, and even across
auditors working on the same client engage-
ment. Further, the evidence suggests that this
“knowledge” is not entirely stable, but rather
that individual auditors’ understandings may
change over time.
Based on the above, and despite the tacit
assumption that predominates in the extant
audit technology literature, it appears that
thinking about auditing knowledge as a single,
objective, “concrete structure” (see, for
example, BurreII & Morgan, 1979; Morgan &
Smircich, 1980; Dirsmith et al ., 1985) may
not be a particularly useful way to understand
auditing practice. gather, these observations
suggest that, in attempts to understand audit-
ing practice, auditors’ knowledge regarding
the “nature” and “extent” (AICPA, 1980) of
work necessary to constitute a “quality” audit
may be more usefully thought of as “objecti-
fied” (Berger & Luckmann, 1966) social con-
structions (see also, for example, BurreIl 8s
Morgan, 1979; Morgan & Smircich, 1980;
Dirsmith et al ., 1985).
From within this social constructionist
perspective, Berger and Luckmarm have
suggested that the production and reproduc-
tion of social phenomena are best “under-
stood in terms of an ongoing dialectical
process composed of three [simultaneous]
moments of externalization, objectivation,
and internalization” (1966, p. 129). These
three moments are essentially defined as
follows:
External i zati on, i n which social actors take
actions shaped by the exigencies of their
everyday lives;
Obj ecti vuti on, i n which these actions are
interpreted as part of an external, objective
reality; and
I nternal i zati on, i n which the objectified
reality is “retrojected into consciousness”, to
regularize and rationalize the social actors’
everyday actions (Berger & Luckmann, 1966,
p. 61; Scott, 1987, p. 495; Carpenter &
Dir-smith, 1993, p. 42).
NEW TECHNOLOGIES AS A SOURCE OF AUDIT EVIDENCE 231
Auditing practitioners take actions (“exter-
nalization”) when they plan the nature and
extent of procedures to be conducted in a par-
ticular client situation, and then execute those
procedures and issue their audit report. While
a great deal of latitude is permitted under GAAS
in terms of the nature and extent of procedures
performed, it appears that auditors may tend to
rely strongly on “objectified” knowledge
(Berger & Luckmann, 1966, p. 58) - such as
“what was done last year” (Tipgos, 1978, p.
180) - when planning and executing their
work. This tendency may exist for several
reasons: Iirst, especially over time, the type
and level of work that has been performed
may come to be taken for granted, such that
its appropriateness is not even questioned; and
second, as suggested by the quote at the begin-
ning of this section, and especi al l y given the
great deal of latitude permitted by the pro-
fessional guidance, auditors may have a strong
desire to “objectivate” (Berger & Luckmann,
1966, p. 61) their choices of auditing pro-
cedures - that is, to be able to interpret their
actions as having an external reality separate
from themselves (Berger & Luckmann, 1966;
Scott, 1987). Finally, simultaneous with the
above-described moments of “externalization”
and “objectivation”, the auditor “internalizes”
(Berger & Luckmann, 1966, p. 61) the planned
and executed level of audit work as being
appropriate in the circumstances - what is
being done is internalized as “knowledge” of
how to conduct an audit.
As the cycles of externalization, objectiva-
tion and internalization described in the pre-
ceding paragraph are repeated over time, and
as the originating audit personnel are succeeded
by future generations of auditors, this auditing
knowledge may continue to “thicken and
harden” (berger & Luckmann, 1966, p. 58).
The knowledge of how to audit, which was
produced through the practi ce of auditing,
continues to be reinforced, and reproduced,
through its use in guiding auditing practice.
This Institutionalized knowledge can serve as
a valuable guide to the auditor in carrying out
his work. However, it may also severely con-
strain the auditor’s ability to assimilate new
sources of audit evidence.
Past audit approaches are only one available
proxy for a “quality” audit. During the course
of this research, another proxy was observed
to be in use in certain situations: firm policies
and guidelines as reflected in proprietary tech-
nologies and audit practice manuals. As with
the “old knowledge” embodied in past audit
approaches, it appears that the “new know-
ledge” encoded in new technologies and audit
practice manuals may also be usefully thought
of as representing socially constructed realities.
While each firm may portray its own proprie-
tary approach as the “one best way” (Freidson,
1986, p. 226) to conduct an audit, the available
empirical evidence suggests that there is sub
stantial variation in encoded audit approaches
across the major Iirms (see, for example,
Cushing & Loebbecke, 1986). In addition,
these differing proprietary approaches may
not all be fully in “compliance” with GMS
(Gushing & Loebbecke, 1986, p. 31). Further,
as suggested earlier, the major CPA firms may
play a substantial role in the construction of
GAAS - the set of encoded “objective”
standards against which their performance is
then evaluated (see also Kinney, 1986).
Particularly with the proliferation of new
technologies - especially those which involve
new audit approaches - the two observed
proxies for a “quality” audit may often suggest
substantially different audit approaches.
Exploring the process by which, and condi-
tions under which, auditors substitute the
new proxy for the old appears to be critical
to understanding the assimilation of new audit
technologies as a “weighty” source of audit
evidence.
‘Real -i zi ng” the benefi ts of new technol o-
gi es through acti ons taken concurrent
wi th adopti on
The ongoing dialectic between man, the pro-
ducer, and the social world, his product,
reflects a “paradox, that man is capable of pro-
ducing a world that he then experiences as
something other than a human product”
232 M. J. FISCHER
(Berger h Luckmann, 1966, p. 61). According
to Berger and Luckmann, the central character
of this dialectic is captured in the double sense
of the world “reul fzut~on . . . i n the sense of
apprehending the objectivated social world,
and in the sense of ongoingly producing this
reality” (1966, p. 66, emphasis in original).
However, as they also point out, “the institu-
tional order is real only so far as it is reul tzed
through the actions of the involved social
actors (1966, p. 78-79, emphasis in original);
that is, the creation of the rei$ity through
human action must necessarily precede its
apprehension.
The sense-making perspective articulated by
Weick (e.g. 1977, 1979a, b) can be seen as an
attempt to understand organizational pr@
cesses, or organ&Zng, from within a social con-
structionist framework. Weick’s organizing
model is “based on the view that order is
imposed rather than discovered, on the
grounds that action defines cognition” (1979a,
p. 165). Human actions, or “enactments”, play a
central role in Weick’s organizing model.
Weick has suggested that
One of the best ways to capture the nuances in the view
that enviromnents are enacted is to say that people act
out and ieal-ize their ideas. In the processes of acting
out and reaMzing their ideas they create their own
realities. lBe cruc# phrase zk “readtzfng rbeir
ideas.‘” By this I mean literally that people make real,
or turn into a reality, those ideas that they have in their
heads Another way to phrase the issue of ideas
being real-ized is to say that sensemaking is an efferent
activity. The modifier “efferent” means “centrifugal”
or “conducted outward.” The person’s idea is
extended outward, implanted, and then rediscovered
as knowledge (1977, pp. 287-288, emphasis added).
A key to the social constructionist frame-
work is recognizing the central role of human
action in the construction, perpetuation and
destruction of knowledge. The phenomenon
of interest in this study was an action: the adop
tion of new technologies by audit practitioners.
However, the findings suggest that mere adop
tion of the technologies is not sufficient to
ensure that purported benefits, in the form of
enhanced audit efficiencies, are achieved.
Rather, it appears that other actions under-
taken concurrent with the adoption of the
new technologies play a critical role in deter-
mining the “results” of technology use. In the
following sub-sections the role of these other
actions in creating, or “real-izing” (Berger &
Luckmann, 1966, p. 66; Weick, 1977, p. 287)
the efficiency benefits of using new audit
technologies is articulated.
Acti on wi th acti on: reducfng other proce-
dures concurrent wi th adopti on
Fi gure 1 presents a stylized depiction of the
process by which new audit technologies
apparently come to be seen as a “weighty”
source of audit evidence. A key to this depic-
tion is that the benefits are created, or
“enacted” (Weick, 1977, 1979a), through
actions taken by individual auditors concur-
rent with their adoption of the new techno-
logy. Faced with a need to maintain adequate
client “profitability” despite increasing fee
pressures, the auditor reaches a point where
action must be taken - the cost of conducting
the audit must be reduced. While the auditor
may be highly constrained by the institutiona-
lized knowledge (Berger & Luckmann, 1966)
regarding the necessary nature and extent of
audit testing (what was performed in the
past), it appears that the new proprietary tech-
nologies and audit approaches developed and
implemented by the national offices of the fum
may provide an alternative “objectified” basis
for the auditor’s reliance. By adopting the new
technology, the auditor is able to rationalize, or
“objectivate”, the action, or “externalization”
taken to reduce audit cost. While the auditor
may have some knowledge, or belief, that the
adopted technology is a “weighty” source of
audit evidence pri or to its adoption, this
knowledge is reinforced by observing the
“successful” results of the auditor’s own
actions. The auditor creates the benefits, in
the form of reduced audit costs, from using
the new technology - by reducing or eliminat-
ing procedures that had been performed in the
past, concurrent with adoption of the new
technology - then is able to discover these
NEW TECHNOLOGIES AS A SOURCE OF AUDIT EVIDENCE
Fig. 1. “Real-l&g” the benefits of new technologies as a source of audit evidence.
233
results and “internalize” them as knowledge:
the new technology cm be used to reduce
audit cost without impairing quality.
Auditors may make real, or “real&e”, the
benefits of new technologies, as a source of
audit evidence, as a basis for “objectivating”
actions taken to reduce the cost of conducting
their audits. These created, or enacted, benefits
can then be seen, or “realized”, and “intema-
lized” by the auditors. A depiction of this pro-
cess, in terms of Berger & Luckmann’s three
simultaneous moments of institutionalization
in the social construction of reality is shown
in Fig. 2. Owing to the relatively short time
between auditors’ initial adoptions of the new
technologies underlying this analysis and the
time of this study, the discussion of the institu-
tionalization of these enacted benefits is some-
what speculative. However, this process can be
Seen more persuasively in the context of the
discontinued technology discussed in the
following section.
Acti on wi th i nacti on: adopti on wi thout
reduci ng other procedures
The fi ndi ngs described in the preceding sub
section are strengthened by comparison with
cases in which the benefits of using new tech-
nologies were apparently not “real-ized”.
Although other cases were also noted in which
the benefits from the use of new technologies
had apparently not been achieved, the most
dramatic example involved the “discontin-
ued” technology. Observations made during
the course of this study suggest that the tech-
nical quality of this technology may have been
quite good. However, the new technology
apparently did not effectively supplant more
traditional, established audit procedures and
sources of evidential matter in the minds of
the more senior audit practitioners in the firm
at the time it was introduced. Thus, the new
technology was not created, or “real-ized” as a
“weighty” source of audit evidence at the time
it was initially adopted. Furthermore, it appears
234 M. J. FISCHER
Reduce or eliminate procedures performed
in the past in order to reduce audit costs,
while concurrently adopting new technology
The auditor takes actions that
enact (create) a result
EXTERNALIZATION
OBJECTIVATION INTERNALIZATION
The auditor’s actions are
interpreted as part of un
external, objective reality
The enacted and objectivated
reality is retrojected into
conciousness as “knowledge”
The auditor is able to cut audit costs
while maintaining “quality” because reliance
is being placed on a superior audit technology
The new technology is seen by the auditor
as a “weighty” source of audit evidence
Fig. 2. The three moments of institutionalization in the social construction of new auditing knowledge.
that in many cases, the technology was never
so “realized”. gather, the technology came to
be increasingly seen by many partners and
more senior managers as a burden that
increased audit costs, and thus hindered their
ability to be price-competitive.
A stylized depiction of the process by which
this technology apparently came to be seen by
many of the more senior audit practitioners in
the firm as a burden, rather than as a “weighty”
source of audit evidence, is presented in Fig. 3.
In contrast to the situation portrayed in Fig. 1,
the action of adopting this technology at the
time of its initial implementation was accom-
panied by fnactfon i n many cases. In other
words, many of the adopting auditors appar-
ently did not substantially reduce or eliminate
other audit procedures that had been per-
formed by them in the past; rather, these other
procedures continued to be seen as necessary
for a “quality” audit. Accordingly, the cost of
the affected audits increased at the time the
new technology was implemented. This
result, created by the auditors through their
concurrent action and inaction, was then able
to be observed, or discovered, by the auditors
and internalized as knowledge: the technology
was not a “weighty” source of audit evidence
and use of the technology resulted in audit
inefficiencies. In addition, this knowledge
was apparently reinforced and institutionalized
- it “thickened and hardened” (Berger &
Luckmann, 1966, p. 59) - in the minds of
many of these senior practitioners as the tech-
nology was “used”, but not substantially relied
upon by them, year after year on their audits.
NEW TECHNOLOGIES AS A SOURCE OF AUDIT EVIDENCE 235
Catalyst -- Technology
Use Requirement
Xnowledge -- The New
Technology Is Not a
“Weighty I0 Source of
Audit Evidence
A
L-
b
Result -- Not
Able to Cut
Audit Cost
While Maintaining
I
Quality Through
Use of the New
Technology
I
Inaction -- Do Not
Reduce or Eliminate
Audit Procedures
That Have Been
Performed in the Past
Fig. 3. The new audit technologies are adopted, but are not “real-ized” as a source of audit evidence.
Interestingly, many of the more senior prac-
titioners interviewed during this study felt that
the technology had ben internalized by many
of the junior audit persennel as an efficient and
effective source of audit evidence. While the
technology had not supplanted other audit pro
cedures as a means for conducting a quaiity
audit in the minds of many who had been
partners and managers at the time of its intro
duction, apparently there was a concern
among the more senior practitioners that a sup
plantation wouM take place as those who had
internalized the new technology became
partners themselves. Concerns about the
“qua&y” of the firm’s audits as these newer
auditors became partners was apparently a
substantial factor behind the push by the
more senior audit practitioners in the firm to
discontinue use of the technology.
The focus of the discussion in this, and the
preceding, section has been on actions taken
by the studied auditors, including the adoption
of the new technologies. In the next section,
the discussion shifts to examination of the
apparent catalysts for the actions taken, and
their relationship to the “real-ization” of the
benefits of using new audit technologies.
Doubl e-l oopi ng the i nherent doubl e bi nd:
cogni tfvel y rei nventi ng tbe audft
An important distinction between the situa-
tions depicted in Figs 1 and 3 has been
described in the preceding section. In those
discussions it was suggested that actions taken
concurrent with the adoption of the new audit
technologies - specifically, the reduction or
elimination of audit procedures performed in
the past - played a central role in the process
of “reai-izing” the benefits of using these tech-
nologies as a source of audit evidence. In this
section, the focus shifts to another important
236
M. J. FISCHER
distinction between these two situations: the
apparent catalyst for action.
McNair recently characterized audit prac-
titioners ln Big 6 lirms as being caught in an
“undiscussable double bind” that is “inherent”
in the auditing context (1991, p. 636; for more
general discussions, see also Bateson, 1972;
Argyris, 1977; Dirsmith et al, 1985; Covaleski
& Dirsmith, 1990). The essence of this “double
bind” is that auditors are trapped between two
opposing forces: the need to reduce the cost of
performing their audits in order to respond to
increasing fee pressures from clients, and the
need to maintain, or even increase, the quality
of their audits. Like the other researchers who
have examined auditor responses to time bud-
get pressure (see, for example, Commission on
Auditors’ Responsibilities, 1978; Alderman &
Deitrick, 1982; Kelley & Seiler, 1982; Lightner
et al., 1982, 1983; Margheim & Pany, 1986;
Kelley & Margheim, 1987, 1990; Raghunathan,
1991), McNair concluded that there are basic-
ally two viable alternatives available to auditors
confronted by this “double bind”: either
under-reporting the amount of time that they
have spent working on an audit, or claiming to
have performed audit procedures that they
have not actually completed.
Data gathered during this study suggest that,
if anything, the forces resulting in the “double
bind” have intensified in recent years. How-
ever, the findings in this study call into ques
tion a major tacit assumption made by McNair
and others who have studied auditor responses
to time budget pressures. All of these research-
ers have assumed that some unspecified, but
fixed, quantity of audit work must be per-
formed to conduct an audit in accordance
with GAAS; in other words, the cost of com-
pleting an audit cannot be substantially
reduced without compromising audit quality.
In the situation depicted ln Fig. 1, it appears
that the auditors were able to loosen the
“double bind” - or the “tightening vice”, as
one audit partner described it - through a
process similar to “Learning II” described by
Bateson (1972, p. 293) and “double loop learn-
ing” as described by Argyrls (1977).5 That is,
the auditors were able to reduce audit costs,
while maintainlng their belief that audit quality
was unimpaired, by changing their proxy for a
“quality” audit from “what was done last year”
(Tipgos, 1978, p. 180) to the Iirm policies and
guidelines as reflected in proprietary audit
technologies.
Learning to use the new audit technologies
appears to be a necessary step in this process
of “double loop learning”. However, the find-
ings in this study suggest another at least
equally necessary, and arguably more difficult,
step: “unlearning” (Nystrom & Starbuck, 1984)
some of the highly institutionalized knowledge
regarding the nature and extent of procedures
necessary to produce a “quality” audit. Adopt-
ing a new approach to auditing, embodied in a
new technology, without simultaneously “dis
crediting” (Weick, 1979a, pp. 225-226) the
prior approach, appears to have played a crlti-
cal role in creating the “two audits” pheno-
menon that apparently contributed to the
demise of the “discontinued” technology.
The new technologies portrayed in Fig. 3
were not adopted as a basis for justifying the
elimination of procedures previously per-
formed. Rather, in these instances, the primary
action was the adoption of the technology,
which was prompted by the firm’s requlre-
ment for its use. No “unlearning” or “discre-
diting” of the partners’ and managers’ highly
’ According to Argyris (1977), single loop learning is similar to a correction made within a closed cybernetic system, such
as is made by a thermostat. In single loop learning, the change or correction is made without questioning the underlying
program or set of assumptions. In contrast, double loop learning is analogous to the thermostat changing the specified
room temperature or closing an open window. Rather than merely taking action within a specified set of alternatives,
double looping involves action and learning that redefine the set of alternatives on which action is based. According to
Argyris, single loop learning can lead to double binds, whereas double loop learning can be a way to avoid, or get out of,
them (1977, pp. 119-120).
NEW TECHNOLOGIES AS A SOURCE OF AUDIT EVIDENCE 237
institutionalized knowledge occurred, since
there was apparently no strong felt need to
reduce audit costs, and therefore none of the
procedures performed in the past were elimi-
nated. Further, as a consequence, there was no
need to “learn” to place reliance on - and, in
fact, to “real&e” - the newly adopted
technology as a valuable source of audit evi-
dence. Although the then-new technology
was adopted, it was not needed as a basis
for rationalizing, or objectivating, substantial
reductions in traditional audit procedures.
The process of “double loop learning”
appears to be critical to “realizing” the bene-
fits of new audit technologies as a source of
audit evidence. Further, being caught in a
painful double bind - or crisis (Nystrom &
Starbuck, 1984) - may be a necessary catalyst
for this process to take place. It appears that
auditors are highly constrained by their institu-
tionalized knowledge regarding the appropriate
approach to conducting an audit. However, at
a certain point, at least some auditors are
apparently able to selectively “unlearn”, or
“discredit”, some of what they have come to
know about auditing. This unlearning,
prompted by the intensifying “double bind”,
appears to be necessary in order for new tech-
nologies to be “realized” and intenalized as a
valuable source of audit evidence by audit prac-
titioners. Thus, the results of this research indi-
cate the existence of a previously unconsidered
response to the double bind: the selective
“cognitive reinvention of the audit” by indivi-
dual auditors through a process of “double
loop learning” occasioned by a pressing need
to reduce audit costs substantially while main-
taining the belief that audit quality has not been
impaired.
SUMMARY AND DISCUSSION
Auditing in its entity Is made up of two functions,
both dosely concerned wItIt evidence. The first is the
cvidencegathering function; the second Is that of
evidence evaluation (Mautz % Sharaf, 1961, p. 86).
Professional standards require that “sufii-
cient competent evidential matter is to be
obtained . . . to provide a reasonable basis for
an opinion regarding the financial statements
under examination” (AICPA, 1980, para. 1).
However, GAAS provide little concrete gui-
dance for determining what constitutes an
audit of adequate quality; this evaluation is
explicitly recognized to be a matter of “pro-
fessional judgment” (AICPA, 1980, para. 19).
This overall evaluation of what constitutes a
“quality” audit may arguably be the most diffi-
cult, and important, judgment in auditing.
The “weight”, in terms of sufficiency and
competency, assigned to the evidential matter
generated by new audit technologies is particu-
larly relevant to the current study, for the
greater the weight assigned to the evidential
matter produced, the greater the reductions
in total audit cost that can justifiably result
from use of the new technology. If, at the
extreme, zero weight is assigned to the new
evidential matter produced, no benefit will
result from the use of the new technology,
regardless of its technical quality, and the cost
of the audit will lnmease by the cost of apply-
ing the new technology. As with all other forms
of evidential matter, the ultimate judgment of
the “weight” of the evidential matter produced
by a new technology is made in the mind of the
engagement partner - the individual practi-
tioner who must sign the report representing
that sufficient competent evidential matter has
been gathered as a basis for the opinion.
There is a large, and growing, body of
research in the area of “auditor judgment and
decision making” (see Ashton et al., 1988, for a
fairly recent review of this area). Much of this
literature has focused on revealing apparent
shortcomings in auditor decision making.
These research findings have led at least some
observers to conclude that auditor effective-
ness and/or efficiency may be able to be
enhanced by developing tools to overcome
the “limitations” of human auditors. In fact
the entire area of research into auditor judg-
ment and decision making has arguably come
to be defined in terms of “improving” auditor
238 M. J. FISCHER
decisions; for example, Ashton & Willingham
have explained that
The ultimate goal of th[is] research is to provide a
scientific basis for improving auditor decisions, thus
favorably impacting the efficiency and/or effectiveness
of audits (1988, p. 2).
A sizable literature also exists that is con-
cerned with the development and evaluation
of new audit technologies by auditing acade-
mics and CPA Iirm administrators (see Akresh
et aZ., 1988 for a review). The major thrust of
this line of work has been to research,
develop and “scientifically evaluate” (Ashton
& Willingham, 1988, p. 1) new audit techno-
logies in attempts to increase audit efficiency,
as well as audit effectiveness and inter-auditor
judgment consensus. The focus of this stream
of research has been on the technologies them-
selves, rather than on evaluating the technolo-
gies as they are used by practitioners.
A somewhat smaller set of papers exists that
are concerned with the use of new audit tech-
nologies. The primary emphasis of a major
portion of this work has been on technology
“use” as documented in the practice manuals
promulgated by administrators in the major
CPA lirms, rather than on actual technology
use by audit practitioners (see, for example,
Cushing & Ioebbecke, 1986; Kinney, 1986;
Bamber & Snowball, 1988; Bamber et al.,
1988; Morris & Nichols, 1988; Williams &
Dirsmith, 1988; Newton & Ashton, 1989;
Mutchler & Williams, 1990; Dirsmith &
Haskins, 1991). Those studies that have
attempted to explore actual technology use
by audit practitioners have tended to focus
relatively generically on analytical review pro
cedures, rather than on proprietary techno-
logies developed by individual firms (see, for
example, Biggs & Wild, 1984; Daroca &
Holder, 1985; Tabor & Willis, 1985; Bedard,
1989). However, it is interesting to note that
this line of research has consistently produced
the “surprising” (Biggs & Wild, 1984, p. 71)
finding that auditors tend to rely on relatively
unsophisticated, traditional analytical review
procedures even though use of the more
sophisticated available procedures would pre-
sumably allow them to conduct more efficient
audits. However, owing to the atheoretic
nature of the research that has been conducted
in this area, it has not generated explanations
for this apparently puzzling phenomenon.
These three general segments of the litera-
ture - which together comprise a substantial
portion of all current auditing research - share
some common perspectives. Researchers in
these areas generally appear to make the tacit
assumption that the overall task of forming an
audit opinion can be decomposed into a series
of elements, which are individually amenable
to technical solutions, and that these solutions
can then be transferred without difficulty to
the practice of auditing in the field; the study
of auditor judgments, and development of new
technologies has been focused almost exclu-
sively at the level of these individual ele-
ments. The objectives of auditing are assumed
to be known and stable, and the extent to
which these objectives are achieved -
commonly discussed in terms of the “effec-
tiveness” of audit procedures or the “quality”
of an audit - is assumed to be capable of
objective evaluation. Further, in these works,
the auditor - the individual - does not play
much of a role, except as a source from
which auditing “knowledge” can be extracted
and used as a basis for developing new audit
technologies.
Interestingly, some of the major first order
observations made in this study are very
similar to well-replicated findings in the exist-
ing body of auditing literature, particularly
regarding:
(1) a tendency to “anchor” on the nature
and type of work that has been performed in
the past;
(2) significant inter-auditor judgment varia-
bility, especially regarding the selection of
audit procedures and the related evaluation
and aggregation of audit evidence; and
(3) a reluctance to place reliance on more
sophisticated, and ostensibly more efficient
NEW TECHNOLOGIES AS A SOURCE OF AUDIT EVIDENCE
239
and/or effective, new audit procedures even
when they are readily available.
From within the perspective adopted in this
study, these findings appear to be highly inter-
related, and perhaps not particularly surprising.
However, the Iindings in this study suggest a
much different perspective than that which is
prevelant in the existing literature regarding
the effective accomplishment of technological
change in auditing practice.
The majority of the extant literature arguably
assumes that technologies, which can be sub
stituted for human auditors to produce audits
of higher quality at lower cost, can be created
effectively by academics and Iirm admini-
strators alone. In contrast, the findings in this
study suggest that, to produce audit effi-
ciencies, the developed technologies must
also be created, or “realized” by individual
audit practitioners as a “weighty” source of
audit evidence. Rather than the technology
being physically substituted for the human
auditor - which does not seem able to be
accomplished by Iirm administrators within
the current organizational structure of the Big
6 CPA fhms - benefits are created when indi-
vidual auditors cogni ti vel y substitute the new
audit approaches or concepts embedded in the
new technologies for the highly institutiona-
lized “what was done last year” (I’ipgos,
1978, p. 180) as an objectified standard for a
“quality” audit.
This paper joins Carpenter & Dirsmith
(1993) in the attempt to understand the social
construction of new audit technologies in
terms of Berger & Luckmann’s (1966) three
moments of institutionalization. However, in
terms of the “internalization” moment, the
findings in this study suggest the need to
answer a previously unasked question when
attempting to understand the adoption and
use of new audit technologies by practi-
tioners: internalization of the technology CIS
what? Given the inherently equivocal nature
of these new technologies (Weick, 1977,
1979a, b, 1990) they can apparently be “real-
ized’ in a variety of different ways, by different
auditors in different situations. Accordingly, it
seems naive to assume that any new techno-
logy will always come to be “real-ized” and
internalized in the way anticipated by the
firm administrators responsible for its develop
ment and implementation.6 Rather, the findings
in this study suggest that the relevant qualities
of new audit technologies are at least partially
made real, or “realized”, through actions taken
by individual auditors concurrent with the
adoption of the technologies. It is these
“realized” versions of the technologies that
are then available for internalization by the
practitioners.
Debates in the last decade on the role of new
audit technologies have sometimes been
framed ln terms of “judgment vs structure” or
“organicism vs mechanism” (see, for example,
Dirsmith & McAllister, 1982a, b; Cushing &
Loebeccke, 19sb; Kinney, 1986; Elliott &
Jacobson, 1987). Many new technologies have
been seen as increasing the degree of “struc-
ture” in the audit process. Similar to research
in the area of auditor judgment and decision
making, the structure vs judgment arguments
are being made predominantly at the level of
individual elements of the audit process.
Further, the arguments are commonly framed
as an either/or proposition; will technology, or
structure, replace judgment in some element of
the audit process?
While the parties on either side of this
debate differ in opinion on the merits of
increased audit structure, they do seem to
agree on one of the major driving forces
I
O In fact, it may be that !irm admioistrators do not always have a single, irrevocably concretizcd view of what the
implemented technologies ate to be either. Rather, during the coot-se of this study, it was not uncommon to note at least
some variation in the intended purposes of the particular technologies as described by different national office partici-
pants. Further, at least one case was noted where the generally accepted purpose of a particular technology as explained
by fum administrators changed after the administrators realized how practitioners were “real-king” benefits through
application of the technology in practice.
240 M. J. FISCHER
behind audit structuring: the desire to increase
audit efficiency. This study does not resolve the
“structure vs judgment” debate, as it is cur-
rently being argued. Rather, the findings here
suggest the need to take our understanding of
auditor judgment to a higher level if we are to
understand, and perhaps manage effectively,
the process of enhancing audit efficiency
through the use of new technologies (struc-
tured or otherwise).
The ultimate audit judgment, about which
we understand relatively little, involves the
individual audit partner’s assessment of what
constitutes an audit of adequate quality; of
what constitutes sufficient competent evlden-
tial matter. Audit efficiencies will result from
the use of new technologies only when the
technologies are “real-ized” by individual prac-
titloners as a “weighty” source of audit evl-
dence, and the auditor is able to redefine
cognltlvely for his or herself the meaning of a
“quality” audit. The current study does not
provide anything close to a complete under-
standing of this process, but the research pre-
sented here does suggest that this process is
critical to the achievement of enhanced audit
efficiency through the use of new technologies.
Recent papers by Power (1992) and
Carpenter & Dirsmith (1993) have explored
the social construction of new audit techno-
logies, particularly statistical audit sampling,
primarily at the interface between firm admini-
strators (supported by academics) and the
“outside” society. In contrst, the study pre-
sented here focused on the construction of
new technologies at the individual practitioner
level. Substantial room exists for extending our
understanding of the social construction of
audit technologies, and of auditing ln general,
z&h&z each of these levels of analysis. How-
ever, perhaps the greatest potential (and
greatest difficulty) lies in melding these analyses
together to understand the development of
auditing as a product of the interplay between
all of the Involved social actors.
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