The impact of extensive audit experience on internal control evaluation

This study investigates the effect of extensive internal control audit experience on internal control evaluation. Prior studies have examined the effect of industry experience on specific audit knowledge and the effect of general audit experience on internal control knowledge/performance. However, there has been no known study that examines the effect of extensive internal control audit experience on multiple measures of internal control performance. Extensive internal control audit experience includes compliance based audit experience and financial institution audit experience. Auditors with predominantly compliance based audit experience perform a higher level of compliance testing compared to auditors with predominantly substantive based audit experience. Auditors with financial institution audit experience are more frequently exposed to internal control review due to the audit requirement specified in AGS 1008, Audit Implications of Reserve Bank Prudential Reporting Requirements. Due to the frequent exposure to internal control review, auditors with these extensive audit experiences are expected to attain a higher level of knowledge accuracy, consensus between subjects and self insight within subjects. The study also examines the effect of the level of knowledge on internal control evaluation. It is predicted that subjects with a higher level of knowledge will attain a higher level of consensus and self insight. Results indicate that there are significant differences in the levels of knowledge accuracy, consensus and self insight between student and auditor subjects except for the level of consensus between auditors with predominantly substantive based audit experience and students. Auditors with predominantly compliance based audit experience exhibit a significantly higher level of consensus compared to auditors with predominantly substantive audit experience but neither a higher level of knowledge accuracy nor self insight. There are no significant differences in the performance of auditors with and without financial institution experience. Furthermore, there are no significant differences in the level of accuracy of consensus and self insight between the high knowledge group and the low knowledge group. The results indicate that compliance based audit experience may be a useful factor in training an auditor to become an expert in internal control evaluations, as evidenced by firstly, the significant differences in the level of consensus between auditors with compliance based audit experience and auditors with substantive based audit experience; and secondly, the lack of significant difference in the level of consensus between auditors with predominantly substantive audit experience and students. Furthermore, it is clear that some experience as opposed to no experience plays a key role in the accumulation of knowledge and performance of internal control evaluation.