Expert and Novice Problem-Solving Behavior in Audit Planning Jean Bedard and Theodore J. Mock
Presenter - Soumitra kundu

This study talking about how well auditors perform the problem-solving process & where it can be improved ie problem-solving behavior of expert & novice auditors.

Expert auditors ( औदितोर्स)-Computer audit specialist or CASs
Novice auditors - haven’t much more computer knowledge in audit program
Expert are more efficient & perform rapidly than novice to acquire the knowledge.
Experts appear to have more knowledge than novices & have better organization of knowledge.
Novice auditors are more likely to use a sequential search strategy than expert auditors.

This paper focuses on the information search phase of the decision process and the effect of expertise on auditors’ information search. And this is done by using a computer-controlled information retrieval system (CIRS).

Three dimensions of information search behavior are examined:
-Information search strategy
-Information acquisition
-Information search duration

The CIRS, which runs on a microcomputer, keeps track of the individual information items accessed, the order in which information is accessed, the search duration, and the subjects‘ decisions.

Used following categories of information:
1) INSTRUCTIONS
(2) BACKGROUND INFORMATION
(3) APPLICATION CONTROLS
(4) GENERAL COMPUTER CONTROLS
(5) DECISIONS.
Expert auditors were more efficient and acquired significantly fewer information items than the novices in their specific area of expertise, general computer controls. Experts also acquired significantly fewer redundant control than novices. Although they acquired fewer general computer controls, experts attached significantly more importance to those controls.

Finally, experts required significantly less time to perform the task.

Budgetary Slack, Information Asymmetry, Budgetary Participation & Budget Emphasis.

The influence of information asymmetry and budget emphasis on the relationship between participation and slack.

Chong M. Lau and Ian R. C. Eggleton*

Presenter: Soumitra kundu

Introduction
Budgetary slack -when the people involved in creating a budget deliberately under-estimate the amount of revenue to be generated, or over-estimate the amount of expenses during the budget period.
Three crucial predictor variable of Slack
Information Asymmetry: one party has more or better information than the other.
Budget Emphasis Meeting budget goal target Reward
Participation an opportunity of budget holders to participate in setting their own budgets.



Theory development
Prior studies have theorized that budgetary participation, information
asymmetryand budget emphasis are three important predictor variables which may
influence the subordinates' propensity to create slack but empirical results remain
unclear.
Dunk (1993) tried to resolve—by three predictor variables into a single model
High budgetary participation is associated with slack creation.
High information asymmetry is associated with slack creation.
High budget emphasis provides the motive to create slack.
None of these hypotheses were supported by his results.
Prospect theory (Kahnemanand Tversky, 1979) find that high budgetary
participation,are likely to be discouraged from slack creation activities.
And
propensity to create slack is likely to be low when high participation is allowed in a
high budget emphasis situation. (Hopwood, 1972 & Lau et al., 1995)

Thisstudy,whichadoptedacontingencyapproach,thattherelationshipbetweenbudgetaryparticipationandthesubordinatespropensitytocreateslackismoderatedbyinformationasymmetryandbugetemphasis.Itisbasedontheassumptionofself-interestservingindividuals.

Thanks

Slack
1.Information Asymmetry
2.Budget Emphasis
3.Participation

Mental Accounitng & Sunk Cost

The Mental Accounting of Sunk Time Costs: Why Time is not Like Money.
DilipSoman
Presenter: Soumitra Kundu

Mental accounting
An economic concept established by economist Richard Thaler(1980),
-which contends that individuals divide their current and future assets into separate, non-transferable portions.
The theory purports individuals assign different levels of utility to each asset group, which affects their consumption decisions and other behaviors.
Mental accounting
•Utility theory is a common currency theory
•All options are evaluated with respect to utility
•But all gains and losses are not viewed as the same.
–People seem to have a variety of mental accounts.
Imagine you are shopping for a calculator and a jacket, and you find them both at the same department store. The calculator costs $25, and the jacket costs $120. You are told that a store across town has both items, but the calculator is $15 cheaper at that store. Do you buy the items at that store or do you go across town.
Most people say yes. If the jacket is $15 cheaper, most people say no.
In each case, they have spent the same amount of money.

The idea is that people are creating separate mental accounts for different goals.
–Money for necessities
–Money for entertainment
–Spending money from one account does not affect others.
Imagine you have gone to the movies to see a show. You got to the front of the line and realized you lost $10, do you still go to the movie?
Most people say yes
Imagine you have gone to the movies to see a show. The ticket costs $10. You buy the ticket early in the day. When you get to the theater, you realize you lost the ticket. Do you buy another one? Most people say no.

Sunk Cost Effect
Traditional economic theories predict that people will consider the present and future cost and benefits when determining a course of action. Past costs should not be a factor.
Contrary to these predictions, people routinely consider historic, no recoverable costs when making decisions about the future. This behavior is called the sunk cost effect.
The sunk cost effect is an escalation of commitment and has been defined as the “greater tendency to continue an endeavor once an investment in money, time, or effect has been made.”
Sunk costs have two important dimensions:
Size (Monetary) and
Timing.
Consider the following two scenarios by exampleAfamilyhasticketstoabasketballgame,whichtheyhavebeenanticipatingforsometime.Theticketsareworth$40.Onthedayofthegame,abigsnowstormhitstheirarea.Althoughtheycanstillgotothegame,thesnowstormwillcauseahasslethatwillreducethepleasureofwatchingthegame.Isthefamilymorelikelytogotothegameiftheypurchasedtheticketsfor$40oriftheticketsweregiventothemforfree?The common belief is that the family is more likely to go to the game if they purchased the tickets. If the tickets been free, the account could be closed without a benefit or a cost

Sunk Cost Effect ----Will an individual exhibit a sunk cost effect if he or she had invested time (rather than money) in a endeavor?
Do individuals mentally account for time investments using the same principles as monetary investments?
Do they set budgets?
Time VS Money
Time can’t be inventoried or replaced Time is not as easily aggregated as money Accounting for money is a routine activity, but accounting for time is not


The Mental Accounting of Time Cost
Key components of mental accounting model
Individuals track costs that are relevant to a particular expense and assign these costs to the relevant mental account.
The prospect theory value function dictates that the negative value of the cost displays diminishing marginal utility.
Expenses and funds are grouped into categories and spending is constrained by implicit & explicit budgets.
Researcher examined whether time investments follow these principles by 8 statement with time & monetary version

The Mental Accounting of Sunk Time Costs: Why Time is not Like Money.
DilipSoman
Presenter: Soumitra Kundu
Mental accounting
An economic concept established by economist Richard Thaler(1980),
-which contends that individuals divide their current and future assets into separate, non-transferable portions.
The theory purports individuals assign different levels of utility to each asset group, which affects their consumption decisions and other behaviors.
Mental accounting
•Utility theory is a common currency theory
•All options are evaluated with respect to utility
•But all gains and losses are not viewed as the same.
–People seem to have a variety of mental accounts.
Imagine you are shopping for a calculator and a jacket, and you find them both at the same department store. The calculator costs $25, and the jacket costs $120. You are told that a store across town has both items, but the calculator is $15 cheaper at that store. Do you buy the items at that store or do you go across town.
Most people say yes. If the jacket is $15 cheaper, most people say no.
In each case, they have spent the same amount of money.

The idea is that people are creating separate mental accounts for different goals.
–Money for necessities
–Money for entertainment
–Spending money from one account does not affect others.
Imagine you have gone to the movies to see a show. You got to the front of the line and realized you lost $10, do you still go to the movie?
Most people say yes
Imagine you have gone to the movies to see a show. The ticket costs $10. You buy the ticket early in the day. When you get to the theater, you realize you lost the ticket. Do you buy another one? Most people say no.
Sunk Cost Effect
Traditional economic theories predict that people will consider the present and future cost and benefits when determining a course of action. Past costs should not be a factor.
Contrary to these predictions, people routinely consider historic, no recoverable costs when making decisions about the future. This behavior is called the sunk cost effect.
The sunk cost effect is an escalation of commitment and has been defined as the “greater tendency to continue an endeavor once an investment in money, time, or effect has been made.”
Sunk costs have two important dimensions:
Size (Monetary) and
Timing.
Consider the following two scenarios by exampleAfamilyhasticketstoabasketballgame,whichtheyhavebeenanticipatingforsometime.Theticketsareworth$40.Onthedayofthegame,abigsnowstormhitstheirarea.Althoughtheycanstillgotothegame,thesnowstormwillcauseahasslethatwillreducethepleasureofwatchingthegame.Isthefamilymorelikelytogotothegameiftheypurchasedtheticketsfor$40oriftheticketsweregiventothemforfree?The common belief is that the family is more likely to go to the game if they purchased the tickets. If the tickets been free, the account could be closed without a benefit or a cost

Sunk Cost Effect ----Will an individual exhibit a sunk cost effect if he or she had invested time (rather than money) in a endeavor?
Do individuals mentally account for time investments using the same principles as monetary investments?
Do they set budgets?
Time VS Money
Time can’t be inventoried or replaced Time is not as easily aggregated as money Accounting for money is a routine activity, but accounting for time is not


The Mental Accounting of Time Cost
Key components of mental accounting model
Individuals track costs that are relevant to a particular expense and assign these costs to the relevant mental account.
The prospect theory value function dictates that the negative value of the cost displays diminishing marginal utility.
Expenses and funds are grouped into categories and spending is constrained by implicit & explicit budgets.
Researcher examined whether time investments follow these principles by 8 statement with time & monetary version

The Mental Accounting of Sunk Time Costs: Why Time is not Like Money.
DilipSoman
Presenter: Soumitra Kundu
Mental accounting
An economic concept established by economist Richard Thaler(1980),
-which contends that individuals divide their current and future assets into separate, non-transferable portions.
The theory purports individuals assign different levels of utility to each asset group, which affects their consumption decisions and other behaviors.
Mental accounting
•Utility theory is a common currency theory
•All options are evaluated with respect to utility
•But all gains and losses are not viewed as the same.
–People seem to have a variety of mental accounts.
Imagine you are shopping for a calculator and a jacket, and you find them both at the same department store. The calculator costs $25, and the jacket costs $120. You are told that a store across town has both items, but the calculator is $15 cheaper at that store. Do you buy the items at that store or do you go across town.
Most people say yes. If the jacket is $15 cheaper, most people say no.
In each case, they have spent the same amount of money.

The idea is that people are creating separate mental accounts for different goals.
–Money for necessities
–Money for entertainment
–Spending money from one account does not affect others.
Imagine you have gone to the movies to see a show. You got to the front of the line and realized you lost $10, do you still go to the movie?
Most people say yes
Imagine you have gone to the movies to see a show. The ticket costs $10. You buy the ticket early in the day. When you get to the theater, you realize you lost the ticket. Do you buy another one? Most people say no.
Sunk Cost Effect
Traditional economic theories predict that people will consider the present and future cost and benefits when determining a course of action. Past costs should not be a factor.
Contrary to these predictions, people routinely consider historic, no recoverable costs when making decisions about the future. This behavior is called the sunk cost effect.
The sunk cost effect is an escalation of commitment and has been defined as the “greater tendency to continue an endeavor once an investment in money, time, or effect has been made.”
Sunk costs have two important dimensions:
Size (Monetary) and
Timing.
Consider the following two scenarios by exampleAfamilyhasticketstoabasketballgame,whichtheyhavebeenanticipatingforsometime.Theticketsareworth$40.Onthedayofthegame,abigsnowstormhitstheirarea.Althoughtheycanstillgotothegame,thesnowstormwillcauseahasslethatwillreducethepleasureofwatchingthegame.Isthefamilymorelikelytogotothegameiftheypurchasedtheticketsfor$40oriftheticketsweregiventothemforfree?The common belief is that the family is more likely to go to the game if they purchased the tickets. If the tickets been free, the account could be closed without a benefit or a cost

Sunk Cost Effect ----Will an individual exhibit a sunk cost effect if he or she had invested time (rather than money) in a endeavor?
Do individuals mentally account for time investments using the same principles as monetary investments?
Do they set budgets?
Time VS Money
Time can’t be inventoried or replaced Time is not as easily aggregated as money Accounting for money is a routine activity, but accounting for time is not


The Mental Accounting of Time Cost
Key components of mental accounting model
Individuals track costs that are relevant to a particular expense and assign these costs to the relevant mental account.
The prospect theory value function dictates that the negative value of the cost displays diminishing marginal utility.
Expenses and funds are grouped into categories and spending is constrained by implicit & explicit budgets.
Researcher examined whether time investments follow these principles by 8 statement with time & monetary version