Audit Documentation Quality and Regulatory Inspection Results
Keywords:
audit documentation, regulatory inspection, audit quality, narrative coherence, professional judgment, content analysisAbstract
This research investigates the underexplored relationship between the qualitative dimensions of audit documentation and the outcomes of regulatory inspections, moving
beyond traditional compliance-focused metrics. While prior literature has predominantly examined documentation completeness and adherence to standards, this study
introduces a novel framework for assessing documentation quality based on three original constructs: narrative coherence, evidential triangulation density, and professional
judgment transparency. We argue that these qualitative attributes, which capture the
richness and logical integrity of the audit reasoning process, are significant predictors of inspection outcomes, even when quantitative compliance metrics are satisfied.
Utilizing a mixed-methods approach, we analyze a unique dataset of 150 audit engagements from financial institutions that underwent regulatory inspection between
2000 and 2004. Our methodology involves a proprietary content analysis protocol to
score documentation against our new framework, coupled with regression analysis to
test its predictive power on inspection findings. The results reveal that engagements
with higher scores in narrative coherence and professional judgment transparency are
associated with a 40% and 35% lower probability, respectively, of receiving significant
adverse inspection findings, controlling for standard compliance scores and firm size.
Furthermore, we find that evidential triangulation density moderates the relationship
between complex accounting estimates and inspection outcomes. These findings contribute original insights by demonstrating that the *quality of argumentation* within
documentation, not merely its existence, is a critical determinant of regulatory perception and success. The study offers a new paradigm for audit practice, training,
and regulatory evaluation, emphasizing the communicative and persuasive function of
documentation as a core component of audit quality
