Sparked Intuition Power: An Audit Risk Activity

Abstract

This case explores the subjective nature of professional judgment related to audit risk through the lens of a fictitious company, Sparked Intuition Power (SIP). SIP has just been accepted as a new audit client by an international accounting firm. Students play the role of associates on the audit engagement team. As part of their work on the audit, the students identify potential risks present at SIP as part of the initial risk assessment process. Once these risks have been identified, the students decide how to assess the potential severity of each risk and determine the resulting effect on the overall auditor workload. Through interaction and discussion with their instructors, the students should be better able to navigate the decision-making process related to risk evaluation in an audit engagement.

1. Introduction

Auditing educators face a constant task of developing curricula that effectively convey core auditing concepts in a manner that facilitates the learning, understanding, and application of these ideas. Presumably, the objective of these classroom endeavors is to better prepare students for their future careers in accounting and auditing. However, practitioners maintain that traditional auditing courses may not adequately incorporate experiential learning activities that are relevant to the profession (Dombrowski et al. 2013). As a result, many have questioned whether auditing courses accurately reflect the nature of the audit profession. Educators have been challenged to provide classroom experiences that are more relevant to the practical aspects of auditing (Chiang et al. 2021).

Educators have responded to this challenge in several innovative ways. One way in which they have fused theoretical and practical concepts is by exploring major events in the profession as a lens for scrutinizing auditor performance (McKenna et al. 2023; Pope 2023; Wald 2023). Another method is to utilize technological tools in classroom activities (Cunningham and Stein 2018; Andiola et al. 2022). Finally, educators have incorporated examples of professional auditing activities into classroom learning exercises (Hanes et al. 2014; Andiola et al. 2018).

A goal of any teaching case related to professional concepts is to present content that develops practical knowledge. However, it can be difficult for audit educators to find content with both educational and practical relevance. Moreover, practical relevance may not be readily apparent to students in classroom settings.

This activity presents a scenario in which a public accounting firm conducts a preliminary risk assessment of a new audit client, Sparked Intuition Power (SIP). Students examine situations that represent different types of risk. They evaluate the nature and severity of the identified risks and determine the necessary allocation of work hours to respond to each risk.

2. The Case

You are an audit professional at a large international accounting firm. The firm you work for has been expanding and has recently taken on Sparked Intuition Power (SIP) as a new client. A firm partner has sent you an overview of Sparked Intuition Power and requested that you determine potential risks associated with the first-year financial statement audit. Your job is to review the information provided about the company, prepare a list of risks, and rate their severity (low, moderate, or high). The partner has asked you to also provide an analysis of the time it would take to test these risks.

2.1. Case Details

2.1.1. Company Overview

Sparked Intuition Power (SIP) is a public utility provider based on the west coast. Founded in 1937 in San Diego, California, the company has 15 offices spread equally through California, Nevada, and Arizona. Since its incorporation, SIP has based most of its business on providing gas power for consumer housing. SIP has recently launched a solar power buyback program to attract new customers and create additional revenue. For the 20X2 fiscal year, SIP posted revenues of USD 7.63 billion. Although now a large corporation, SIP has a reputation as a family-owned and -operated business that customers can trust.

2.1.2. Note from the Previous External Auditor

SIP has exceeded earnings expectations for the past 16 quarters and has grown significantly over that timeframe. In a recent 8-K published by SIP, the audit committee and board of directors dismissed their small regional accounting firm that had served as its auditor for several years. Excerpts from the 8-K, including the dismissal of the outgoing auditor, the appointment of the new auditor, and a letter of acknowledgement by the outgoing auditor, have been included for reference in Appendix A.

In addition to the formal letter included as part of SIP’s 8-K, the outgoing auditor released the following statement after its dismissal:

“SIP has become a staple of the West Coast power grid. Although certain offices and financial practices remain outdated, the company has tried hard to provide unique opportunities to its customers. The company has come under scrutiny in prior years due to its executive compensation structure. However, SIP has been a great client, and we wish them continued success”.

2.1.3. Office Functionality

SIP’s regional offices are in different stages of technological advancement. The newest offices are equipped with modern accounting systems, but the older offices have been slow to upgrade, with some still utilizing outdated technologies and systems. Each office must prepare financial reports for its respective area and then send all the information to the headquarters for review. Regardless of each office’s technological status, the company has affirmed that it can provide all the necessary financial data for the audit.

2.1.4. Gas-Powered Electrical Grid

SIP has based its business on gas power for over 70 years. The company has a strong foothold in the west coast power market and targets consumer housing as its primary customer base. Each office has its own bank account where its respective customers pay their bills. From there, each office deposits its monthly revenues into the main corporate SIP bank account in San Diego, CA. The office headquarters then performs a monthly reconciliation. Accounting procedures common to SIP’s industry have not changed significantly over the past 15 years.

2.1.5. Solar Buyback Program

Five years ago, SIP provided customers with a unique opportunity. A growing number of homes on the west coast began installing solar panels, which presented a problem for SIP’s heavy reliance on gas revenues. In response, SIP implemented a solar power buyback program. Households that have installed solar panels could opt for SIP to install hardware that stores excess power. SIP would then buy any excess power created by the solar panels to sell to other customers. The purchase rates for excess power depend on the area’s cost of living and average energy costs. Most energy buyback programs generate low revenues because the buyback and market rates are comparable. However, in contrast to the rest of the industry, SIP has rapidly developed its buyback program. What began as a company promotion now accounts for over USD 950 million in annual revenues.

SIP provides hardware free of charge to incentivize customer participation in the solar buyback program. However, the hardware necessary for storing excess energy and connecting it to SIP’s electrical grid is expensive. The previous external auditor explained that SIP utilizes an advanced recovery of hardware costs. The company maintains a database of the average energy creation and usage for households in specific regions. SIP can then calculate the amount of energy it will be able to buy from each new participant in the program and then sell. Based on these calculations, the company recognizes the entire first year of revenue. This revenue recognition method is used to offset hardware costs. The company accounts for any differences between recognized and actual revenues with an adjusting entry at year-end.

The success of the solar buyback program took SIP by surprise. As the program was vastly different from the company’s normal operations, SIP created separate accounts at a local bank near the main headquarters. The bank encountered some problems early on but eventually figured out how to manage new cash inflows. The bank does not have the technology to complete online confirmations through regular sites, but SIP promised to provide monthly bank statements detailing all transactions. SIP’s previous external auditor explained that it had used bank statements because they were created by a third party and could be trusted.

2.1.6. Results-Based Bonuses

SIP bases its executive compensation on positive financial performance, with strong company performance yielding higher compensation. The company’s executive board has undergone multiple changes in recent years. Both the CFO and COO retired seven years ago. SIP decided to reinvigorate the management team by recruiting younger candidates to fill these positions. The new CFO is an MBA with experience at a California-based clean energy start-up. The new COO was an internal hire that worked in the strategy division for nine years. The board of directors is pleased with the performance of the new executive team. Both the CFO and COO played significant roles in the implementation of the solar buyback program.

2.1.7. Outlook

Every successful company inevitably experiences growing pains. SIP is regarded as a trustworthy family-owned business that has provided services to the west coast for over 85 years. Although there are potential issues related to the engagement, it represents a major opportunity for entering the energy sector. A client with annual revenues of USD 7 billion will generate a large amount of revenue for the firm. A larger accounting firm possesses the necessary resources to provide stakeholders with assurance regarding SIP’s financial reports.

2.2. Case Requirements

Document the risks present at SIP. Refer to Appendix A and Appendix B for assistance with this task.

3. Case Learning Objectives and Implementation Guidance

3.1. Case Learning Objectives

3.1.1. Overview

This study seeks to provide a setting where students must exercise judgement and decision-making skills in an audit. Specifically, this study presents a risk assessment scenario where audit students evaluate various circumstances to determine the optimal assignment of risk for each situation. Subsequently, the students allocate work hours for the purpose of investigating these risks. The intention is to acquaint students with the challenges posed by both risk assessment and time allocation and the importance of professional judgement in this setting.

Auditing educators—and, to a broader degree, accounting educators in general—apply various teaching methods to convey critical knowledge and prepare students for their careers. Even so, numerous studies have identified a consistent gap between accounting education and practice (Marshall et al. 2010; Ayeboafo 2012; Majzoub and Aga 2015). To their credit, many universities have incorporated additional programs, such as experiential learning activities, to enhance their curricula (Ferguson et al. 2000; Dombrowski et al. 2013). However, these programs do not directly address the core of the problem: accounting and auditing courses do not cultivate all the necessary skills that students will need in the future.

One such area of focus is risk assessment. Auditing textbooks are fairly consistent in their presentation of the audit risk model and the role of risk assessment in the design and operation of internal controls. The average auditing student could probably explain in reasonable detail why higher risks are a challenge to the audit and how such risks can affect the nature, extent, and timing of audit procedures. Notably missing, though, are discussions of how to categorize the appropriate level of risk. While it is readily apparent to most students what situations represent a risk, it is less apparent what levels of risk these situations represent. This study seeks to address this issue.

This case presents a fictitious company, Sparked Intuition Power (SIP), as a new audit client. Students take the role of first-year associates who are assisting with the assessment of various risk factors at SIP. The preliminary evaluation involves the identification of specific risk factors associated with the client, its operations, and its environment. Subsequently, students are provided with a comprehensive list of risk factors and asked to classify each risk as low, moderate, or high. Finally, the students must consider the effect that their assessments will have on the audit engagement regarding the amount of work required.

Our results from the case were largely positive. Students had varying levels of success in initially identifying risk factors at SIP and classifying the severity of these risks. However, the students found the discussions surrounding these procedures helpful and appeared to have a better understanding of the nature of risk assessment following the activity. Despite the innate challenges associated with such a subjective process, we received generally positive feedback from the students regarding the activity.

Our study contributes to the existing literature by providing a case that enables audit educators to develop judgement and decision-making skills in their students. As reflected by the expectations of the accounting profession, certification exams (most notably, the Certified Public Accounting exam) test higher-order thinking skills well beyond basic memorization and application. Accordingly, accounting and auditing students need to be prepared to analyze and evaluate challenging professional issues. We believe that our case provides an opportunity to engage students in this regard.

3.1.2. Learning Objectives

This case targets undergraduate-level auditing classes after the students have completed the preliminary coverage of audit engagement planning, risk assessment, and the audit risk model. Upon the completion of this case, students should be able to

• Identify client characteristics and activities that relate to the auditor’s evaluation of risks related to an audit engagement.
• Apply problem-solving techniques to determine the significance of the identified risks and assess the impact on the auditor workload.

Table 1. Other instructional resources covering similar learning objectives.

References	LO 1	LO 2
Andiola et al. (2018)		X
Andiola et al. (2022)	X	X
Bagley and Harp (2012)		X
Barnes and Enget (2022)	X	X
Boritz et al. (2012)	X
Chiang et al. (2021)	X
Clikeman and Diaz (2014)	X	X
Cunningham and Stein (2018)		X
Hanes et al. (2014)	X	X
Heitger et al. (2021)		X
Knapp and Knapp (2013)	X
Lehmann and Heagy (2017)	X	X
McKenna et al. (2023)	X	X
Peaden and Stephens (2013)	X	X
Rummell and Weickgenannt (2021)	X	X
Sargent and Bishop (2018)	X
Smith and Stephens (2020)		X
Stefaniak (2016)	X	X

provides a summary of resources that instructors may refer to for support, categorized by learning objectives. We provide a more detailed discussion of these cases in the following section.

3.1.3. Background and Literature Review

Broadly speaking, the learning objectives of this case can be categorized as (1) The identification of risks and (2) Assessing the significance of risks. Both objectives relate to a wide array of tasks within audit engagements. Accordingly, prior studies have incorporated various methods of enhancing students’ skills in these areas.

While risk assessment will frequently occur at many different points throughout an audit, the preliminary evaluation generally takes place during the engagement planning process. Rummell and Weickgenannt (2021) present a training activity that has participants plan substantive testing and identify inherent risk factors for the audit client, with the goal of providing a clearer understanding of audit planning. Along those lines, Peaden and Stephens (2013) expose students to audit programs and documentation as part of a larger activity emphasizing the importance of clear and effective communication in an audit. Barnes and Enget (2022) take a less traditional approach, introducing students to planning and risk concepts using a gamified escape room activity.

Risk assessment is more directly scrutinized as part of teaching cases that employ assessment techniques. Sargent and Bishop (2018) explore these concepts through an auditor evaluation of questionable management estimates. The inherent subjectivity and bias in this area frequently create conflicting views between auditors and their clients’ management teams. Boritz et al. (2012) further evaluate students’ perceptions of risk using narratives and diagrams to depict client business processes. While they do not find that the depiction methods makes a significant difference in students’ assessments, they do find that student characteristics (such as academic performance and self-efficacy) may influence these assessments. Finally, Chiang et al. (2021) developed a mini-audit assessment activity for the purpose of promoting experiential learning. Consistent with the goals of our study, they find that activities that emulate practical audit applications appear to promote student interest in active learning.

A specific area of concern in risk assessment relates to auditors’ responsibilities for detecting fraud. Knapp and Knapp (2013) present a teaching case regarding the financial statement fraud at DHB Industries, Inc. Among other issues, the authors discuss the risk factors that are present in a highly contentious audit engagement. In a similar vein, Lehmann and Heagy (2017) present a teaching case based on actual events in which students must identify conditions that may suggest the potential for fraudulent activity by a client. Beyond that, the case requires students to prepare recommendations on how to respond to the identified risks.

Beyond the identification of risk, previous research has also explored the role that auditor testing plays in risk assessment. Hanes et al. (2014) introduce students to cash confirmations testing for a fictitious organic soup producer, Simply Soups. While heavily focused on the technical aspects of confirmations testing, Simply Soups also requires students to evaluate the implications of their results. Bagley and Harp (2012) offer a similar experience through fixed asset testing and documentation as part of the audit of a fictitious shoe store chain, Shoe Zoo. Like Simply Soups, Shoe Zoo supplements the required testwork with student decisions regarding risks and related controls. Andiola et al. (2018) also employ electronic documentation for a fictitious audit client in their case regarding closing review notes, Sprandel, Inc. Like the aforementioned cases, Sprandel, Inc. requires students to demonstrate judgement and decision-making skills associated with the audit testwork in the case.

Other teaching cases in this area employ fictitious company audits to demonstrate the use of analytical procedures. ABC Electronics (Clikeman and Diaz 2014) involves preliminary analytical procedures used during the planning and risk assessment phase of the audit, while The Real Wheel (Smith and Stephens 2020) delves into analytical procedures utilized as a part of substantive procedures. Both cases involve student evaluation of these analytical procedures for the purpose of evaluating the implications for the client and the audit engagement.

A more recent trend of audit teaching cases involves the use of computerized tools as part of an audit engagement. Cunningham and Stein (2018) incorporate Tableau visualization software in a revenue testing case. By identifying outliers in a client’s daily revenue reports, students can improve upon traditional sampling analysis by identifying specific observations for testing. Wealthy Watches (Andiola et al. 2022) leverages multiple technology tools as part of its audit testing procedures. First, students use the Interactive Data Extraction and Analysis (IDEA) data analysis tool to prepare a sample for accounts receivable testing. After preparing their sample, students evaluate the output derived from a robotic process automation (RPA) tool to prepare a projected balance. While students do not work directly with the RPA tool, the case does illustrate how such a tool might be used in an actual audit engagement.

One final area of exploration from previous studies relates to the implicit pressures faced by auditors and their clients. Heitger et al. (2021) discuss the audit implications of management performance incentives. Using two real-world examples, students scrutinize problmeatic management control systems that were the catalysts for organizational failures. As for failures on the audit side, McKenna et al. (2023) chronicles the recent scandal at KPMG, where the firm hired PCAOB employees in prominent roles in exchange for information on upcoming audit inspections. The case illustrates that risks that an auditor may be exposed to are not just constrained to their clients. Related to this notion, Stefaniak (2016) employs a challenging classroom activity—the “Wave”—as a metaphor for the social and psychological pressures that students may face as future auditors.

3.2. Implementation Guidance

3.2.1. Key Activity Decisions

This case may be conducted as an in-person or virtual class activity. While this case was intended for use as part of a regular class session, the instructor may choose to conduct the case as a standalone activity outside of normal class meeting times. Regardless of which implementation route an instructor chooses, we recommend that the case be conducted as a live activity. The primary reason is to facilitate discussion among participants.

Another choice left up to the instructor is whether to conduct the case as an individual or group activity. We believe that there are merits to both methods. Working in groups, students can share ideas and perspectives that may allow them to provide a more detailed and thorough analysis of the case tasks. Working individually, on the other hand, requires students to evaluate the case issues on their own and articulate distinct responses. The early implementations of this case were conducted both with students working on the activity individually and with students working together in groups. Regardless of the method selected, we found that most students stayed engaged in the activity. However, the final decision on how to conduct the activity is up to the instructor.

One final consideration is whether to conduct the activity during a single class session or over multiple sessions. In each of the authors’ implementations of the case, the activity was performed in a single session, with students preparing for the activity on their own outside of class. However, some instructors may elect to conduct the first part of the case during class and conduct the activity over two class sessions. In this circumstance, we recommend setting aside 15–30 min in the first class session for students to work on the risk identification task, either individually or as part of a group, and completing the remainder of the activity during the second class session.

3.2.2. Pre-Activity Preparation Tasks

Setup instructions for the activity are provided in the Teaching Notes (provided in the Supplementary Materials to this case). We found that the preparation time for the first implementation of the case was approximately 30 min. For subsequent activities, the preparation time was reduced to approximately 15 min.

3.2.3. Introducing the Activity

The instructor should assign their students to read The Case approximately two-to-three days in advance of the activity (or, should the instructor choose to conduct the activity over two class sessions, during the first session). This case introduces Sparked Intuition Power (SIP) and provides a preliminary risk identification exercise. The instructor should inform their students to have The Case and their identified risks on hand for the activity. In addition to evaluating students’ identified risks, the activity will require students to refer to The Case to assess the severity of the identified risks for evaluation purposes.

3.2.4. Conducting the Activity

First, the instructor should briefly review the details of The Case. Following this, the instructor should encourage students to share their identified risks. Prior experience suggests that students usually identify a few relevant risks (approximately three to five). The instructor should discuss these risks and assist them in identifying the remaining risks (see Table 1 of the Teaching Notes). This can be accomplished by reading the relevant sections of The Case and prompting students to identify any risks present.

Once all risks have been identified, the instructor should distribute the Case Instructions and the Risk Testing Timesheet (Appendix A and Appendix B in the Teaching Notes, respectively). The instructor should then review the Case Instructions and instruct the students to classify these risks according to (1) the severity (low, moderate, high) and (2) the anticipated work required for risk testing. The instructor should also discuss competing interests in time allocation. While an auditor is incentivized to minimize the required work, failure to perform sufficient work in an area will likely require more subsequent effort. The instructor should encourage the students to consider these conflicting incentives in their time allocation. The students should then complete the Risk Testing Timesheet. This task should take approximately 15 min.

Once all students have completed their timesheets, the instructor should review the answers with the students (see Table 1 in the Teaching Notes). Attention should be paid to the guidance provided to the students in Appendix A of The Case. The instructor should also provide the optimal allocation for risk testing.

3.2.5. Debriefing the Activity

The instructor should take a few moments to debrief the students on takeaways. One primary lesson involves the nature of risk assessment with respect to the auditor effort. If an auditor allocates too much time to one area, it may expend unnecessary time and effort. On the other hand, if an auditor does not dedicate enough time to a given area, it may incur penalties, such as additional work or litigation and reputational damage due to audit failure.

We recommend that the instructor place particular emphasis on the judgment and decision-making requirements of the case activities. As previously alluded to, the goal of the case is to provide students with an opportunity to utilize critical thinking and professional judgment skills. While the concept of risk assessment should be familiar to students, the process of identifying and evaluating the severity of risks is not as widely studied. As part of the debrief of the activity, the instructor should explain how decisions like the ones explored in this case fit into the overall architecture of an audit engagement.

The instructor should also explain the subjective nature of decision-making in auditing. Despite the detailed guidance provided, students’ risk assessments and allocations are likely to differ from those given in the case. While we feel that we have sufficient justification for our answers in this case, we recognize that none of them are definitively “correct”. Even with sufficient and appropriate information, auditors can still reach different conclusions. Accordingly, the instructor should discuss the challenges associated with the consistent application of professional judgment and emphasize that the objective is not necessarily to arrive at a “correct” answer but rather a justifiable conclusion given the evidence and information provided.

3.2.6. Estimated Timeline for Completion

Based on the experiences of the authors, an instructor should be able to conduct this case over the course of a single 50 min meeting (or as part of a class session for courses with longer meeting times). Figure 1 provides the timeline for completion. Although the duration of the activity steps is flexible, they should be completed in this sequence. Other than the pre-work reading and the risk identification task (which, at the discretion of the instructor, should be completed outside of class or during a prior class session), all of the tasks in the case should be completed during the designated meeting time.

3.3. Evidence of Efficacy and Student Feedback

3.3.1. Analysis of Results

This activity was conducted at universities in the Northeast and Midwest United States by the authors. Two undergraduate auditing courses and two graduate advanced audit-related courses participated in the study (n = 67 students). Immediately following the activity, the participants were asked to provide anonymous feedback. Efficacy data and student feedback were gathered using a Google Forms survey. This survey instrument was reviewed and approved by a university institutional review board (IRB).

Table 2. Key Results from Student Questionnaires.

Demographics and Experience	n = 67
Gender a	Male	38 (58.5%)
	Female	27 (41.5%)
Age (average age in years) b	Male	22.5
	Female	23.3
Auditing topics covered a
Engagement planning	Yes	48 (73.9%)
Risk assessment	Yes	61 (93.9%)
Procedures and evidence	Yes	58 (89.2%)
Tests of internal controls	Yes	45 (69.2%)
Opinions and reports	Yes	46 (70.8%)
Time spent on the case in minutes
Less than 15 min		11 (16.4%)
15 to 30 min		36 (53.7)
30 to 60 min		18 (26.9%)
Greater than 60 min		2 (3.0%)

^a Two (2) students did not answer the question; ^b Five (5) students did not answer the question.

provides a summary of student demographics and experience. The students reported their perceived learning regarding the learning objectives as well as the difficulty, interest, and recommendations for use. These items were ranked on a five-point Likert scale ranging from strongly disagree (1) to strongly agree (5). The students also provided qualitative feedback on what they liked and disliked and the strategies they employed in the activity.

The first qualitative feedback question posed to the participants in the case study was what they liked most. Most participants (63 out of 67) provided feedback on this question. While their responses naturally varied, they largely fell into two categories: (1) The brevity of the case and (2) The application of the activity to what they had learned in class. Several students noted that this case differed from other teaching cases in terms of the time commitment involved. One student stated “It wasn’t so time consuming, yet I felt that I learned a lot”. In addition, many students mentioned the applicability of the activity to their course work. One student observed how the “case related to risk assessment in class”, while another remarked that the case required them to “act like an auditor to rate the risk level”. In general, the students appeared to enjoy the case and derive identifiable benefits from participating in it.

The second question was what participants liked the least about the case. About half of the participants (32 out of 67) responded to this question. Apart from the subjective nature of the case (discussed in the next paragraph), the most common criticism related to the case materials. Despite the brevity of the case, one student said that there was “too much material”. Another student felt that the instructions to the case were “a little vague”. In response to these concerns, we updated the Case Instructions to provide clearer guidance. We also included an appendix in The Case with a description of the audit risk model and guidelines on the assignment of risk levels. Finally, some tips were provided in the Teaching Notes to facilitate discussion regarding subjectivity in audit risk evaluation.

One interesting finding related to students’ thoughts on the subjective aspects of the case. Given that the case requires the use of critical thinking and professional judgment, students were made aware that there would likely be differences between their responses and the case answers. Several students remarked on this, expressing mild frustration with “getting answers wrong”. While this was certainly expected, we were surprised that far more students responded to the subjective nature of the case positively. One student observed that these types of decisions they had to make for this case would be like those “that would actually come up in a job”. In a few instances, students mentioned subjectivity as something that they both liked and disliked about the case.

The final feedback question inquired about the strategies that they employed in their allocation of work hours. While a few students stated that they relied on “personal feelings” and “intuition”, the most common response to this question referred to concepts that they had previously studied in their auditing course. One student observed that the allocation of work hours was reminiscent of a homework assignment from earlier in the semester where they had to determine materiality for an audit engagement. Other students recalled discussions of professional judgment from course lectures. Additionally, many students stated that they utilized the guidelines provided in The Case to aid them in their allocations.

Table 3. Student Learning and Efficacy: Self-assessment of the Learning Objectives.

Percentage of Students Selecting Each Response
Post-Case Evaluation, n = 67
Type	Item	Strongly Agree	Agree	Neutral	Disagree	Strongly Disagree	Mean a
LO 1	The case increased my understanding of audit risk.	43.30%	46.30%	8.90%	0.00%	1.50%	4.30 ***
LO 2	The case required me to use problem-solving skills.	50.70%	35.80%	6.00%	7.50%	0.00%	4.30 ***
General	The level of difficulty for the case was appropriate.	55.20%	34.30%	9.00%	0.00%	1.50%	4.42 ***
General	The case instructions and background information were clear.	65.70%	25.40%	7.40%	1.50%	0.00%	4.55 ***
General	Overall, I learned a lot from this case.	32.90%	52.20%	13.40%	1.50%	0.00%	4.16 ***
General	Overall, I enjoyed working on this case.	70.10%	25.40%	4.50%	0.00%	0.00%	4.66 ***
General	I would recommend this case study for use in future audit classes here and at other universities.	74.60%	20.90%	3.00%	1.50%	0.00%	4.69 ***

^a Two (2) students did not answer the question; *** p-value < 0.01 [Mann–Whitney U Test, mean = 4].

presents the results of students’ self-assessments. Overall, feedback from the students indicated that the learning objectives were met. The case shows fairly strong efficacy with respect to both learning objectives, with average ratings of 4.30 for both objectives. Over 85% of the students agreed that the case aided in their ability to understand audit risk and utilize problem-solving skills. Similarly, students rated the case very highly in terms of enjoyment and the potential for use at other schools (average scores of 4.66 and 4.69, respectively). One area of improvement relates to student learning (average score = 4.16). Based on the student feedback, we believe that this lower score is attributable to issues with the instructions in an earlier version of the case. As previously mentioned, we have substantially revised several sections of the case to address these issues.

3.3.2. Discussion of Results

To test the validity of our survey results on student learning and efficacy, we used a Mann–Whitney U test. Using a measure of four for the Likert scale mean comparison figure, we find that both learning objectives and all of the general case objectives are highly significant. These results suggest that, despite some preliminary issues with case construction and implementation, the participants found value in the activity and reflected positively on the experience in their survey responses.

For comparative purposes, we also examined how our survey results compared with those of several recent teaching cases in the same area. While each of the cases we selected utilized a Likert scale to measure student responses, the studies used a different number of points. Also, in a few cases, the authors used an ascending Likert scale measure (that is, a value of one indicates high favorability, with sequentially larger numbers indicating less favorable ratings).

To address these inconsistencies, we calculated mean Likert scores as a percentage of the highest score (or, in the case of ascending Likert scale measures, as the inverse of this percentage). Generally speaking, efficacy results in previous teaching cases ranged from 75% to 85% of the highest possible score. In terms of a five-point Likert scale like the one used in this study, this would result in mean scores between 3.75 and 4.25. By comparison, both learning objectives in this study and all but one of the general case objectives scored higher than 4.25. Objectively speaking, this suggests that our case compares favorably with these recent cases.

4. Conclusions

This case provides a setting for auditing instructors to introduce tasks requiring professional judgment to auditing students. Specifically, students are required to consider the nature of risks presented by several client characteristics and develop subjective estimates based on these considerations. While accounting at its most basic level is viewed as a quantitative subject, higher-order disciplines within accounting frequently require complex evaluation and estimation methods. This case provides an example of the challenges related to these types of tasks that auditors face.

Consistent with prior studies in this area, we find that students acknowledge the benefits of this activity. While the participants found the subjective nature of risk assessment to be difficult to initially comprehend, they recognized the value of the activity and provided generally positive feedback. While there were challenges with the initial conceptualization of the case, we feel that many of those issues have been subsequently resolved.

The primary contribution of this paper relates to the focus on learning associated with judgment and decision-making. While most audit teaching cases incorporate technical work, we feel that the real value of such cases comes from the knowledge that they provide beyond the technical details. This additional knowledge frequently comes from students’ ability to assess the implications of their work. To that end, we feel that this case represents a relevant contribution to the literature.