The Relationship between Knowledge Structure and Judgments for Experienced and Inexperienced Auditors

Decision makers refer to their long-term memory to test the implications of evidence about a current problem (Birnberg and Shields 1984; Libby 1989). Given this reliance on long-term memory, biases in retrieval of previously encountered information may be an important source of decision error (Libby 1989), and differences in such biases may be one explanation for differences in auditor judgment performance across experience levels. The present study adopts a schema-based framework to examine some differences in the knowledge structures and judgments of experienced and inexperienced auditors and the relationship between these knowledge structures and judgments. The study examines the recall of typical and atypical information by experienced and inexperienced auditors within the context of a going-concern situation and then relates this measure of memory to the inferences and predictive judgments made by these auditors. Three experiments were conducted. In experiment 1, auditors read a description of a company that the audit partner-in-charge had suggested may have a going-concern problem. The description consisted of items that are considered typical of a company with going-concern problems, atypical items, and filler items. After an intervening period with a distractor task, all subjects were given a recall test, were asked to infer the likelihood of certain previously unstated items being true, and to estimate the probability that the firm would fail within a year. The first of six main findings showed that experienced auditors recalled more atypical items than inexperienced auditors, but there were no differences in the number of typical items recalled. Second, experienced auditors recalled more atypical than typical items, whereas inexperienced auditors did not. Third, experienced auditors were more likely than inexperienced auditors to infer that previously unstated atypical items were true. Fourth, for both experienced and inexperienced auditors, the ratio of atypical to typical items recalled was positively correlated with the inferences made, and the inferences were negatively correlated with the predictive judgments. This last correlation was much higher for the experienced than for the inexperienced auditors. Fifth, there was no direct relationship between recall and predictive judgments. Sixth, clustering of recall on the basis of atypical/typical items was significantly higher for experienced than for inexperienced auditors and was significantly