The impact of auditors creating flowcharts on auditors’ understanding of the flow of transactions and internal control evaluation

What is it about?

Regulators have raised concerns about audit quality and specifically auditors’ failure to identify and test internal controls designed to address the risks of material misstatement. We find that auditors who create flowcharts gain a better understanding of the client's transaction flow and perform better on internal control evaluations than auditors who create narratives. These findings inform policy decisions and inspection efforts and audit firms’ quality and process improvement efforts by providing initial support for having auditors create flowcharts to improve their understanding of the flow of transactions and internal control evaluation performance.

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