Root Cause Analysis and its Effect on Auditors’ Judgments and Decisions in an Integrated Audit

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This study evaluates whether auditor use of root cause analysis (RCA) for an identified client misstatement affects auditors’ assessments of underlying control issues and materiality in an integrated audit setting. We also test whether auditor cognitive style moderates these effects given prior findings that a misfit between task structure and cognitive style undermines performance. We randomly assigned 147 auditors to four RCA treatments (No RCA, Unstructured RCA, Structured “5 Whys” RCA, Structured “Fishbone” RCA). The results suggest that auditors using (not using) structured RCA are more (less) likely to identify control-related root causes of a financial misstatement and judge the misstatement to be more (less) material. We also find that the assessed severity of identified control deficiencies mediates RCA’s effect on materiality judgments. Finally, the materiality judgment results reveal a significant interaction between structured RCA method and auditor cognitive style, suggesting the importance of allowing flexibility in the specific RCA method applied in practice.

Integrating audits, Cognitive fit
DeZoort, T., Doxey, M. and Pollard, T. (2021), Root Cause Analysis and Its Effect on Auditors' Judgments and Decisions in an Integrated Audit†. Contemporary Accounting Research, 38: 1204-1230.