Study Guide For Auditing

Hello and, welcome to the TAXATION course.

A student of today should be aware of what Philip Kotler Says, " Future is not Ahead of us, it has already happened". Future businesses and trades will face huge opportunities and challenges as well because; globalization, technologies and deregulation steps across borders have been changing at accelerating pace. Adopting accelerating changes therefore, becomes new millennium challenges for the upcoming managers – the students of today.

So, let get into the business! The first thing that I can tell you is the success of taking this course depends on the amount of time that we are going to spend behind study. Therefore, I would request you all to pay some additional time if possible behind study.

This Study guide gives you an smell of the lesson plan of the whole course. The course is divided into 10 lecture session. You will get 11 lecture classes in total. Of all the classes one lecture is dedicated for mid-term exam.

Obviously, this study guide is divided into ten sections. Each section covers one lecture. Even though you have to go through all the sections thoroughly for learning purpose, yet you need to focus on the areas and issues that are discussed in the real time lectures for exam purpose. I suggest that you take the following approach as you complete each study lesson:

1.     Read the study guide.

2.     Read the relevant areas of each section for exam purpose. Since the exam will consist of short multiple‐choice problems, the more problems you have studied or worked, the easier the exam will be for you.

3.     Read the assigned textbook chapter(s).

4.     Submitted written assignments must be written using Microsoft's Word® word processing program.

5.     Complete and send in the written assignment for the lesson. If you have trouble with some of the problems in the assignment (some of them are difficult), make an attempt at the answer and send in the assignment. Your lecturer will not count off if you have made an honest effort.

6.     I will send your assignment back to you along with the electronic file location (a URL) of the study guide suggested solutions. You should go over these solutions carefully. Not only will they give you the answers to problems you did not understand, they will also give you the correct understanding of the concept and the fact.

Good luck – the future managers! Take care!

A.   PREREQUISITES:

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To take this course and come out successful, students (all the batches) must have completed following Courses:

• Management and corporate accounting
• Management Economics
• Managerial corporate finance

In addition, students must have elementary knowledge of mathematics.

B.   MODULE AIMS:

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Auditing concerns external financial auditing, in which independent auditors will come from a CPA firm to audit a client company’s financial statements. We will concentrate on the process of gathering and evaluating evidence to determine whether the client’s financial statements are fairly presented in accordance with GAAP. We will also see how audit results are reported to readers of the client’s financial statements.

The primary objective of this course is to introduce the basic concepts underlying the audit process. An integrated approach will be taken with the primary emphasis on understanding why and how audits are performed.

The primary objective is to examine the process of gathering and evaluating evidence to determine whether a client company’s financial statements are fairly stated in accordance with GAAP, as well as many reporting issues. We also will examine a number of other issues pertaining to auditors, including accounting and review services, etc.

As we cover topics, we will also discuss how the auditor can minimize audit risk as well as audit risks and procedures relating to auditing in computerized environments. We will also stress ethical issues whenever possible.

C.   LEARNING OUTCOMES:

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These goals will help you meet the following performance objectives. At the conclusion of the course, you should be able to:

·         Describe the complete audit process based upon your knowledge of Accounting Information Systems.

·         Understand audit reports, as well as modifications including audit, attestation, review, and compilation reports.

·         Understand how a basic audit plan is developed.

·         Identify specific issues involving SEC (publicly-traded) audit clients.

·         Relate evidence-gathering to specific issues, including the audit risk model and qualities of evidence.

·         Develop a basic understanding of sampling in tests of transactions.

·         Appreciate, read and comprehend authoritative guidance for auditing.

·         Employ appropriate ethical conduct in your work, as well as understand issues relating to auditor ethics.

·         Research auditing issues on the Internet, as well as other appropriate media.

·         Maintain current competency in auditing after completing the course so that you can keep current with the profession.

·         Understand a basic audit plan.

·         Comprehend statistical sampling in substantive tests.

 What is the distinction between auditing and accounting? 

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Relationship between auditing and accounting:

Auditing and accounting are closely connected but both are separate activities. The directors of a company are responsible for establishing books of accounts that will accurately record financial information and that are used for preparing the annual financial statements. It is similarly the responsibility of the directors to adopt consistent and appropriate accounting policies in order to prepare and present the financial statements. The financial statements have to comply with national legislative requirements and International Financial Reporting Standards (IFRSs).

Accounting is the process of recording, classifying, summarizing and reporting financial information in a logical/systematic manner for the purpose of decision making. To provide relevant & reliable information, accountants must have a thorough understanding of the principles and rules that provide the basis for preparing the financial statements.

In auditing the financial statements, the concern is with determining whether the presented financial statements properly (true and fair) reflect the financial information that occurred during the accounting period. Since auditors are primarily concerned with the end result of this work i.e. do the financial statements show a true and fair view? In order to arrive at their conclusion the auditors must have a deep knowledge and understanding of accounting (including applicable accounting standards) and in practice, the directors will consult with the auditors as to appropriate accounting policies to follow.

Many financial statement users and members of the general public confuse auditing with accounting. The confusion results because most auditing is concerned with accounting information, and many auditors have considerable expertise in accounting matters. The confusion is increased by giving the title “Chartered Accountant” to individuals performing a major portion of the audit function.

 Purpose / Goal of Audit:

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Why is there a need for an audit?

The problem that has always existed at the time when the manager reports to the owners is that: whether the owners will believe the report or not? This is because the reports may:

• Contain errors
• Not disclose fraud
• Be inadvertently misleading
• Be deliberately misleading
• Fail to disclose relevant information
• Fail to conform to regulations
  
  

The solution to this problem of credibility in reports and accounts lies in appointing an independent person called an auditor to examine the financial statements and report on his findings.

A further point is that modern companies can be very large with multi-national activities. The preparation of the accounts of such groups is a very complex operation involving the bringing together and summarizing of accounts of subsidiaries with differing conventions, legal systems and accounting and control systems. The examination of such accounts by independent experts who are trained in the assessment of financial information is of benefit to those who control and operate such organizations as well as to owners and outsiders.

Many financial statements must conform to statutory or other requirements. The most notable is that all company accounts have to conform to the requirements of the Companies Ordinance 1984 but many other bodies (like: Charities, Building Societies, Financial Services business etc) have detailed accounting requirements as required by the relevant legislations. In addition all accounts should conform to the requirements of International Financial Reporting Standards (IFRSs).
It is essential that an audit of financial statements should be carried out to ensure that they conform to these requirements.

Audits are performed to ascertain the validity and reliability of information, and also provide an assessment of a system's internal control. The goal of an audit is to express an opinion on the person/organization/system etc. under evaluation based on work done on a test basis. Due to practical constraints, an audit seeks to provide only reasonable assurance that the statements are free from material error. Hence, statistical sampling is often adopted in audits.In the case of financial audits, a set of financial statements are said to be true and fair when they are free of material misstatements - a concept influenced by both quantitative and qualitative factors.

Traditionally audits were mainly associated with gaining information about financial systems and the financial records of a company or a business. However recently auditing has begun to include other information about the system, such as information about environmental performance. As a result there are now professions that conduct environmental audits.

Such systems must adhere to generally accepted standards set by governing bodies that regulate businesses. It simply provides assurance for third parties or external users that such statements present 'fairly' a company's financial condition and results of operations.

Types of Auditors:

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There are two types of auditors:

• Internal auditors generally directly report to the top management of the company. As employees of the organization, they may have an inside track on noticing fraud or certain other occurrences. Internal auditors are employees of a company hired to assess and evaluate its system of internal control. To maintain independence, they present their reports directly to the board of directors or to top management. They provide functional operation to the concern. Internal auditors are employees of the company so that they can easily find out the frauds and any mishappening.

• External auditors come from an outside accounting firm in order to evaluate the company's financial statements. Many external audits done fall into the category of the "big four," the mid-tier range, or affiliates of the big four. External auditors are independent staff assigned by an auditing firm to assess and evaluate financial statements of their clients or to perform other agreed upon evaluations. Most external auditors are employed by accounting firms for annual engagements. They are called upon from the out side of the company.

An External auditor is an audit professional who performs an audit on the financial statements of a company, government, individual, or any other legal entity or organization, and who is independent of the entity being audited. Users of these entities' financial information, such as investors, government agencies, and the general public, rely on the external auditor to present an unbiased andindependent evaluation on such entities. They are distinguished from internal auditors for two main reasons:

(1)   The internal auditor's primary responsibility is appraising an entity's risk management strategy and practices, management (including IT) control frameworks and governance processes, and

(2)   They do not express an opinion on the entity's financial statements.

Besides providing audit services, external auditors also provide different other kind of services. Most common of them are reviews of financial statements and compilation. In review auditors are generally required to tick and tie numbers to general ledger and make inquiries of management. In compilation auditors are required to take a look at financial statement to make sure they are free of obvious misstatements and errors.

The primary role of external auditors is to express an opinion on whether an entity's financial statements are free of material misstatements.

Some people confuse auditors with people who detect fraud but auditors have nothing to do with fraud detection exclusively. Auditors just want to make sure that company's financial statements are true and fair representation of its actual position. If they come across any fraud related information, it is their responsibility to bring it to the management's attention and consider withdrawing from the engagement if management does not take appropriate actions. Normally, external auditors review the entity's information technology control procedures when assessing its overall internal controls. They must also investigate any material issues raised by inquiries from professional or regulatory authorities, such as the local taxing authority. For public companies listed on stock exchanges in the United States, the Sarbanes-Oxley Act (SOX) has imposed stringent requirements on external auditors in their evaluation of internal controls and financial reporting.

The independence of external auditors is crucial to a correct and thorough appraisal of an entity's financial controls and statements. Any relationship between the external auditors and the entity, other than retention for the audit itself, must be disclosed in the external auditor's reports. These rules also prohibit the auditor from owning a stake in public clients and severely limits the types of non-audit services they can provide.

In the United States, certified public accountants are the only authorized non-governmental type of external auditors who may perform audits and attestations on an entity's financial statements and provide reports on such audits for public review. In the UK, Canada and other Commonwealth nations Chartered Accountants have served this role.

Who can be an auditor?

For appointment as auditor of:

• a Public Company or
• a Private Company which is a subsidiary of a Public Company.

a Private Company having paid up capital of three million rupees or more.

Major auditing firms:

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The four largest accounting firms in the world are collectively referred to as the Big Four. They are as follows:

• PricewaterhouseCoopers, also known as PwC
• Ernst & Young, also known as EY
• KPMG
• Deloitte Touche Tohmatsu, also known as Deloitte

There are many other audit firms competing with the big four for major audit engagements. Competition has intensified in response to independence issues and other legislative requirements introduced as a consequence of the Arthur Andersen Scandal. In the US and Australia, these firms are referred to as "mid-tier". Some of these include: BDO International, Moore Stephens LLP, Grant Thornton International, McGladrey & Pullen, Hall Chadwick, Dauby O'Connor & Zaleski, LLC, PKF, Pitcher Partners, Johnson Lambert & Co. LLP, Beard Miller Company, DFK International, Horwath International, and UHY firm.

In the UK the medium sized firms are also referred to as mid-tier. Many of these firms are international and increasingly are competing for work against the Big Four, especially following the recent large auditing scandals.

Auditing firms around the world:

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While the four major audit firms listed above provide audit services to the largest corporations in the United States of America, audit firms around the world are also in partnership with the Big Four. Since corporations held offices in other parts of the world, they tend to be audited by affiliates of the Big Four to maintain consistency and uniformity in their application of auditing standards.Types of Audits:

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Types of Audits can be discussed in many dimension.

Quality audits

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Quality audits are performed to verify the effectiveness of a quality management system. This is part of certifications such as ISO 9001. They are essential to verify existence of objective evidence of processes, to assess how successfully processes have been implemented, for judging the effectiveness of achieving any defined target levels, provide evidence concerning reduction and elimination of problem areas, and are a hands-on management tool for achieving continual improvement in an organization.

For the benefit of the organization, quality auditing should not only report non-conformances and corrective actions, but also highlight areas of good practice. In this way other departments may share information and amend their working practices as a result, also enhancing continual improvement.

 

Integrated audits:

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In the US, audits of publicly-listed companies are governed by rules laid down by the Public Company Accounting Oversight Board (PCAOB). Such an audit is called an Integrated Audit, and auditors have the additional responsibilities of expressing opinions on management's assessment of the firm's internal control, and on the effectiveness of internal control over financial reporting based on their (the auditors') own assessment.

Three types of audits are discussed in general, i.e.,

1. Financial statement audits
2. Operational audits
3. Compliance audits

 

Financial Statement Audits

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An audit of financial statements is conducted to determine whether the overall financial statements (the quantifiable information being verified) are stated in accordance with specified criteria. Normally, the criteria are the requirements of the applicable International Financial Reporting Standards (IFRSs). The financial statements most commonly comprises of the Balance Sheet, Income Statement, Statement of Changes in Equity, Cash Flow Statement, and Notes to the accounts. 

The assumption underlying an audit of financial statements is that these will be used by different groups for different purposes. Therefore, it is more efficient to have one auditor who will perform an audit and draw conclusions that can be relied upon by all users than to have each user perform his or her own audit. If a user believes that the general audit does not provide sufficient information for his or her purposes, the user has the option of obtaining more data. For example, a general audit of a business may provide sufficient financial information for a banker considering a loan to the company, but a corporation considering a merger with that business may also wish to know the replacement cost of fixed assets and other information relevant to the decision. The corporation may use its own auditors to get the additional information.

 

Operational Audits:

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An operational audit is a review of any part of an entity’s operating procedures and methods for the purpose of evaluating efficiency and effectiveness. At the completion of an operational audit, recommendations to management for improving operation are normally expected. An example of an operational audit is evaluating the efficiency and accuracy of processing payroll transactions in a newly installed computer system. Another example, where most accountants would feel less qualified is evaluating the efficiency, accuracy, and customer satisfaction in processing the distribution of letters and parcels by a courier company such as TCS.

Because of the many different areas in which operational effectiveness can be evaluated, it is impossible to characterize the conduct of a typical operational audit. In one organization, the auditor might evaluate the relevancy and sufficiency of the information used by management in making decisions to acquire new fixed assets, while in a different organization the auditor might evaluate the efficiency of the paper flow in processing sales.

In operational auditing, the reviews are not limited to accounting. They can include the evaluation of organization structure, computer operations, production methods, marketing, and any other area in which the auditor is qualified.

The conduct of an operational audit and the reported results are less easily defined than for either of the other two types of audits. Efficiency and effectiveness of operations are far more difficult to evaluate objectively than compliance or the presentation of financial statements in accordance with accounting conventions and principles; and establishing criteria for evaluating the quantifiable information in an operational audit is an extremely subjective matter.
In this sense, operational auditing is more like “management consulting” than what is generally regarded as “auditing”. Operational auditing has increased in importance in the past decade.

Compliance Audits:

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The purpose of a compliance audit is to determine whether the entity is following specific procedures, rules, or regulations set down by some higher authority. A compliance audit for a private business could include determining whether accounting personnel are following the procedures prescribed by the company controller, reviewing wage rates for compliance with minimum wage laws, or examining contractual agreements with bankers and other lenders to be sure the company is complying with legal requirements. In the audit of governmental units such as districts school, there is extensive compliance auditing due to extensive regulation by higher government authorities. In virtually every private and non profit organization,

there are prescribed policies, contractual agreements, and legal requirements that may call for compliance auditing. Results of compliance audits are typically reported to someone within the entity being audited rather than to a broad spectrum of users. Management, as opposed to outside users, is the primary group concerned with the extent of compliance with certain prescribed procedures and regulations. Hence, a significant portion of work of this type is done by auditors employed by the entity itself. There are exceptions; when an organization wants to determine whether individuals or entities that are obligated to follow its requirements are actually complying, the auditor is employed by the entity issuing the requirements. An example is the auditing of taxpayers for compliance with the federal tax laws, where the auditor is employed by the government to audit the taxpayers’ tax returns. 

Source Documents ( Invoices, Checks, etc.)
Journals -Transactions first recorded using Debits and Credits
General Ledger -Summarized transactions posted to the General Ledger Accounts using Debits and Credits
Abbreviated Accounting Equation	Property =		Property Rights
Expanded Accounting Equation	Assets =		Liabilities +		Owner's Equity
	Balance Sheet Accounts Permanent Accounts
Types Of Accounts	Asset Accounts =		Liability Accounts +		Capital Accounts (Mom)
Increase/Decrease Columns	Increase	Decrease	Decrease	Increase	Decrease	Increase
Account -Left / Right Side Columns	Left Side	Right Side	Left Side	Right Side	Left Side	Right Side
Debit / Credit Columns	Debit	Credit	Debit	Credit	Debit	Credit
Owner's Equity Equation that illustrates the effect of closing the temporary accounts -revenue-expenses-draws to the permanent Equity Accounts.					Owner's Equity = Beginning Capital + Profit or - Loss - Owners Draws + Owner's Investments
					Income Statement Accounts
Accounts Closed To Capital Account at End Of Period					Temporary (Nominal) Accounts
"Mom" Equity's "Kids" - Revenue - Expense - Draws					Expenses Draws	Revenue
Effect On "Mom" Equity (Capital)					Decreases	Increases
Revenue , Expense, and Draw Account "Rules" These accounts are often referred to as temporary or nominal accounts because at the end of a year (period) they are closed and their balances are transferred to a permanent Equity (Capital) Account (Balance Sheet Account). Debit / Credit Columns					Increase Decrease Decrease Increase Left Side Right Side Left Side Right Side Debit Credit Debit Credit
Profit / Loss Equation					Profit / Loss = Revenue - Costs and Expenses

Note: Yellow highlighted items in my cheat sheet represent the Normal Type Of Balance For an Account - Debit or Credit

The purpose of the table above is to serve as an aid for those needing help in determining how to record the debits and credits for a transaction.

The table begins by illustrating that source documents such as sales invoices and checks are analyzed and then recorded in Journals using debits and credits. These Journals are then summarized and the debit and credit balances are posted (transferred) to the General Ledger Accounts and the amounts are posted to the left side of the general ledger accounts for debit balances and to the right side of the general ledger accounts for credit balances. The General Ledger Accounts are made up of Balance Sheet and Income Statement Accounts.

Account Definition:

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An Account is a separate record for each type of asset, liability, equity, revenue, and expense used to show the beginning balance and to record the increases and decreases for a period and the resulting ending balance at the end of a period.

You should be aware that all Accounts:

• Can Be Debited and Credited
• Have an Increase Side and a Decrease Side
• Have a Debit Side and a Credit Side
      Debit Side is the Left Side (Left Column)
      Credit Side is the Right Side (Right Column)
• Have a Normal Balance Amount that is normally a Debit Balance or a Credit Balance
• Have a Type and are classified as an Asset, Liability, Equity, Revenue, Expense, or Draw
• Are Either a Balance Sheet or Income Statement Account

Industrial and Organizational Psychology and Training Employees

Industrial and Organizational Psychology and Training Employees

What is Industrial and Organisational (I/O) Psychology?

The “science of people at work”
Industrial and Organisational Psychology is a specialist area that applies psychological knowledge and skills to the workplace, with the aim of improving organisational effectiveness and the quality of work life.

I/O Psychologists have knowledge and skills in areas such as:

Selection and assessment
Job analysis
Training and development
Career development and coaching
Organisational development and change management
Attitude surveys and research on workplace issues
Performance development and review
Wellbeing, conflict, stress and work adjustment
Occupational health and safety
Program evaluation
Consumer behaviour and marketing
Advisory and advocacy regarding workplace issues

I/O Psychology Career Destinations

Human Resources/Organisational Development
E.g. Department of Treasury and Finance, RAC, WA Police Service, BHPBilliton, Rio Tinto, Coca-Cola
General Management
E.g. Department of Health, Wesfarmers
Consulting
E.g. Chandler & MacLeod, Deloitte, PriceWaterhouseCoopers, SHL
Academia

Salary expectations

Depends very much on which area you enter

In a recent Australian survey (n=231)
Median 2006 salary for current full time employees was $88,465 (range $22,000 - $400,000, mean=$106,530)
Median 2006 graduate salary for those starting work in the last 2 years was $51,000 (range $10,000-$122,000)

Degree Offerings in I/O Psychology at UWA

Master of Science (Industrial and Organisational Psychology)
Master of Psychology (Industrial and Organisational Psychology)
Combined MPsych/PhD (Industrial and Organisational Psychology)
PhD

Master of Psychology (Industrial and Organisational Psychology)

Intake of around 15 a year
Acceptance rate varies
Generally 10%-30% acceptance depending on the quality of applications
Coursework
Placements in Industry
Thesis

Coursework units

Selection and Assessment
Psychology of Training
Organisational Development & Work Design
Occupational Health, Safety and Well-being
Professional Issues in I/O Psychology
Statistics for Field Research
Research Methods in Applied Settings
2 Elective units (UWA Business School) e.g. Organisational Behaviour, Accounting, Advanced Human Resource Management, Marketing Principles

Placements

125 days (1000 hours) in total divided into 3 separate placements of 42 days each
Individualised placements depending on career stage and interests
Individual and group meetings within a peer coaching framework

Example Placement Projects

Development of internal communication strategy for a government agency
Analysis of training needs and development of training options for a diversified corporate
Selection and assessment for mining staff
Organisational culture survey development, administration, analysis and report for various organisations
Development of induction process for lateral hires for a top 4 accounting firm
Development and evaluation of induction program for overseas recruits in a state utility and for mining clients
Analysis of exit interview data for a large retail client


Example Placement Organisations

BHPBilliton
Chandler & MacLeod
ChevronTexaco
Coles
Department of Consumer & Employment Protection
Department of Environment and Conservation
Department of Racing, Gaming and Liquor
Department of Treasury and Finance
IKEA
People Solutions
Perth Transit Authority
PriceWaterhouse Coopers
Prime Psychology
RAC
Talent2
Woolworths
Wesfarmers Energy
Western Power

Research Thesis

Example topics
Employee burnout
Flexible work arrangements
Ethical codes
Work stress
Coaching
Turnover intention
Personality and intelligence
Employee engagement
Example participant organisations include
ChevronTexaco
Department of Environment and Conservation
Main Roads WA
Office of Public Sector Standards
OSA Group
Wesfarmers
Western Australian Institute of Sport
Woolworths

What are the main themes and focus areas of industrial and Organisational Psychology (I–O) and why are they important?

Describe the nature and identity of I-O psychology
Name and discuss various subfields of I-O psychology
Describe application fields in I-O psychology
Discuss the history of I-O psychology
Discuss professional training and practice in I-O psychology
Discuss future challenges in I-O psychology.

Sub-fields in psychology

Clinical psychology – aims to alleviate emotional distress caused by psychological disorders and problems of life 
Counselling psychology – management of pain caused by life, facilitating improved understanding of issues, fostering use of effective coping skills
Career psychology – involves studying and facilitating occupational development across the life-span
Educational and school psychology – focuses on studying factors, behaviour, processes & problems of learning
Developmental psychology – focuses on age related changes across a person’s life span
Social psychology – studying human social interaction by understanding the influence of behaviour, beliefs and feelings amongst people.
Cognitive psychology – revolves around the theory and research regarding higher mental processes
Personality psychology – the study of the more or less consistent patterns of behaviour in people across time and situations
Physiological/Neurological psychology – Study of relationship between human behaviour and neurological and physiological systems
Psychometrics – entails the development of psychological measuring instruments
Experimental psychology – used in many psychological disciplines to establish patterns of human behaviour in controlled situations
Health psychology – utilises psychological knowledge to identify causes and symptoms of physical health and illness and related dysfunctions.
Positive psychology – emphasis on enhancement of optimum human functioning
Forensic psychology – studying context of criminal behaviour   (e.g. causes) and obtaining and giving evidence in legal procedures
Community psychology – using, developing and adapting psychological knowledge and practices to improve quality of life in human communities
Cross-cultural psychology – focuses on diversity management or the consideration of differences in and between groups of people
Consulting psychology – professional involvement of psychologists with individuals, groups & organisations
Industrial and Organisational (I-O) psychology – utilises principles and assumptions of psychology to study and influence human behaviour at work.

Nature and identity of I-O psychology: I–O Psychology: A scientific discipline?

I-O Psychology is branch of psychology
Utilises psychological knowledge and in the work context to assess, utilise, develop and influence individual employees
While inextricably linked to psychology, I-O psychology has adapted and developed it own identity
It utilises, develops and teaches foundational  knowledge, e.g. psychological theory/research on human behaviour in work context
Foundational knowledge is supported through work-related research to further its knowledge base
Is an applied science utilising many types of practical applications and methods to achieve best fit between employee and workplace.

Sub-fields and practice areas in I-O psychology

Organisational psychology
Concerned with work organisations as systems involving individual employees and work groups, as well as structure and dynamics of organisations
Personnel psychology
Focus on utilising individual differences in and between employees and predicting the optimal employee-organisation fit 
Research methodology
Entails psychological methods of inquiry to solve research problems
Occupational psychological assessment
Entails the development and utilisation of assessment instruments to obtain measures of attributes and behaviour of employees.
Career or vocational psychology/counselling
Studies career development issues with regard to individuals, employment, unemployment, career-related issues in organisations and also non-work influencing factors
Employment relations
Deals with behavioural dynamics, communication and conflict management between individuals and groups of employees, employers and other parties
Employee and organisational well-being
Aims to facilitate positive psychological capital or resources in organisations and employees
Ergonomics
Concerned with understanding of human interaction between employees and their technical environment.
Consumer psychology
Also referred to as Economic and Market Psychology concerned with studying psychological aspects of consumer behaviour
Other applied fields
Cross-cultural Industrial Psychology
Management and leadership
Entrepreneurship and diversity management.

History of I-O psychology

Taylorism 
Man is a rational-economic being
Humans are inherently
Lazy, inefficient and unreliable
Only motivated by financial incentives
Criticism of taylorism
Heavily criticised as a result of findings in Hawthorne experiments
Perceived as an exploitation of workers
Neglect of individual differences
Hawthorne experiments
Employee work performance may vary if employees follow specific procedures and standards under strict supervision.

Hawthorne experiments

    What physical factors (e.g. lighting) govern worker productivity?
1924 study conducted at the Hawthorne factory of Western Electric failed to find that physical environment factors controlled productivity
Rather, any changes made increased productivity
Conclusion:  Mere observation of a worker is sufficient to change their behavior (termed the Hawthorne effect)
I/O can be traced back to the work of W.D. Scott who in 1901 argued that psychological principles could be applied to advertising
F.W Taylor proposed basic principles of scientific management (1911)
H. Munsterberg created a laboratory to study personnel selection and training (1913)
Early I/O psychologists studied worker productivity in the factory

Professional training and practice issues

Contributing institutions
HPCSA
Professional Board for Psychology, etc.
Contributing peoples, associations and events
Professional training and practice
Governing bodies
Qualifications
Practice
Universities and other training institutions
Proximity with human resources management.

Future challenges in I-O psychology

How to use existing knowledge and practice
How to develop and adapt this knowledge and practice
I-O psychologist must be able to speak the language of business
Future psychologists successes in making employees and organisation more adaptive to change
The management of the increase in work stress
Creating meaningful employment amidst growing sophisticated technology, business mergers and downsizing, decreasing job opportunities
Changing nature of work requires ongoing revision of validity theory in the assessment of employees
More incorporation of technology driven interventions in organisations

I/O Psychologists have knowledge and skills in areas such as:

Selection and assessment
Job analysis
Training and development
Career development and coaching
Organisational development and change management
Attitude surveys and research on workplace issues
Performance development and review
Wellbeing, conflict, stress and work adjustment
Occupational health and safety
Program evaluation
Consumer behaviour and marketing
Advisory and advocacy regarding workplace issues

Chapter:3=Human Factors Psychology

The focus of human factors psychology is to improve the design and function of machines and the work environment
Humans and machines form an interdependent system
Machine has displays and controls (displays allow for human perception, controls allow the human to control the machine)
Displays and controls can be fine-tuned to prevent accidents and improve performance

Personnel Psychology

Finding the right person for the job:
Job analysis:  What knowledge, skills, and abilities are required to do the job?
Candidate selection:  Who best matches the job analysis?
Interview process
Job training:  How is the person trained after hiring?
Orientation is designed to clue new hires into the new organization culture

Worker Evaluation

Performance evaluation is the formal procedure used to asses the multidimensional job performance of employees
Provides feedback on job performance
Can be used to identify training and development needs
Used to make decisions on promotions, transfers, and termination

Issues in Evaluation

Evaluations can be objective (units sold) or subjective
Often cannot identify objective criteria
Subjective evaluations suffer from rater bias
Halo effect is the tendency to rate a person as too high or too low based on one outstanding trait
Halo effect can be countered by having multiple persons contribute to the evaluation
The evaluation can be focused on rating behaviors rather than traits







Training In Organizations

Organizations spend $billions on training their employees
 Training can be very valuable by
Increasing employee competence and performance
Increasing employee motivation
Increasing employee adjustment and well-being
 Not always effective because training
is for the wrong thing
given to the wrong people
uses the wrong methods
 Characteristics of organizational training
1.  Field dominated by nonpsychologists practitioners.
2.  Much training crisis motivated.
3.  Much training frivolous--no particular goal.
4.  Many fads & fashions.
5.  Nontheoretical.  Few principles are applied.

Main I/O Training Activities

Need assessment
 Design
 Evaluation
 Delivery of training usually (but not always) done by non-psychologist trainers
 Determining what training should be done
 Major methods
 Job analysis:  KSAO's necessary for the job
 Critical incidents: E.g., hospital incident reports
 Performance appraisal: Can be part of a performance management system (see chapter 4)
 Employee surveys

Training Program Design Principles

Goal:  Transfer of training to job

Principles

Feedback necessary for learning
General principles: Cover the basic principles involved in the training.
Identical elements: Between training and job situation
Over learning--practice
Whole vs. part (depends on complexity)
Distributed or spaced vs. massed (distributed better)
Ability
Motivation
Supportive environment increases motivation
Anxiety

Use of the Types of Training

Evaluation: Did the Training Work

Criteria:  Ultimate vs. actual

Training criteria

Reactions
Learning

Performance criteria
Behavior
Results
Design of evaluation studies
Posttest only
Pretest posttest
Control group

training utility

Is training worth the money?
Study of training
18 training programs, single organization
16 showed positive training effects
13 had utility, although some were marginal
(Morrow et al. 1997)

Training Dollars Spent On…

Objectives
Discuss the systems approach to training and development.
Describe the components of training-needs assessment.
Identify the principles of learning and describe how they facilitate training.
Identify the types of training methods used for managers and nonmanagers.
Discuss the advantages and disadvantages of various evaluation criteria.
Describe the special training programs that are currently popular.

Training and Development and Other HRM Functions

Availability of training can aid in recruitment
Recruitment
Provide an additional source of trainees
Training may permit hiring less-qualified applicants
Selection
Effective selection may reduce training needs
Training aids in the achievement of performance
Performance Appraisal
A basis for assessing training needs and results
Training and development may lead to higher pay
Compensation Management
A basis for determining employee’s rate of pay
Training may include a role for the union
Labor Relations
Union cooperation can facilitate training efforts

Training and Development

Training
Effort initiated by an organization to foster learning among its members.
Tends to be narrowly focused and oriented toward short-term performance concerns.

Development
Effort that is oriented more toward broadening an individual’s skills for the future responsibilities.

The Systems Approach to Training and Development

Four Phases

Needs assessment
Program design
Implementation
Evaluation

Systems Model of Training

Phase 1:
Needs Assessment

Organization analysis
Task analysis
Person analysis

Phase 2:
Design

Instructional objectives
Trainee    readiness
Learning principles

Phase 3:
Implementation

On-the-job methods
Off-the-job methods
Management development

Phase 4:

Evaluation

Reactions
Learning
Behavior transfer
Results

Needs Assessment for Training

Competency
assessment
Analysis ofthe sets of skills and knowledge needed for decision-oriented and knowledge-intensive jobs.
ORGANIZATIONAL ANALYSIS of environment, strategies, and resources to determine where to emphasize training

TASK ANALYSIS of the activities to be performed in order to determine the KSAs needed.

PERSON ANALYSIS of performance, knowledge, and skills in order to determine who needs training.

Phase 1: Conducting the Needs Assessment

Organization Analysis
An examination of the environment, strategies, and resources of the organization to determine where training emphasis should be placed.
Task Analysis
The process of determining what the content of a training program should be on the basis of a study of the tasks and duties involved in the job.
Person Analysis
A determination of the specific individuals who need training.

Phase 2: Designing Training Programs

Issues in training design

Instructional objectives
Trainee readiness and motivation
Principles of learning
Characteristics of successful trainersz

Instructional Objectives
Represent the desired outcomes of a training program
Performance-centered objectives
Provide a basis for choosing methods and materials and for selecting the means for assessing whether the instruction will be successful.

Trainee Readiness and Motivation

Strategies for Creating a Motivated Training Environment:
Use positive reinforcement.
Eliminate threats and punishment.
Be flexible.
Have participants set personal goals.
Design interesting instruction.
Break down physical and psychological obstacles to learning.

Feedback and Reinforcement
Behavior Modification
The technique based on the principle that behavior that is rewarded, or positively reinforced, is repeated more frequently, whereas behavior that is penalized or unrewarded will decrease in frequency.

Characteristics of Successful Instructors

Knowledge of the subject
Adaptability
Sincerity
Sense of humor
Interest
Clear instructions
Individual assistance
Enthusiasm

Training Methods for Nonmanagerial Employees

On-the-Job Training (OJT)
Apprenticeship Training
Cooperative Training, Internships, and Governmental Training
Classroom Instruction
Programmed Instruction
Audiovisual Methods
Computer-based Training and E-Learning
Simulation
On-the-job training (OJT)
Method by which employees are given hands-on experience with instructions from their supervisor or other trainer.
Apprenticeship training
System of training in which a worker entering the skilled trades is given thorough instruction and experience, both on and off the job, in the practical and theoretical aspects of the work.
Cooperative Training
Training program that combines practical on-the-job experience with formal educational classes.
Internship Programs
Programs jointly sponsored by colleges, universities, and other organizations that offer students the opportunity to gain real-life experience while allowing them to find out how they will perform in work organizations.
Vestibule Training
A special type of classroom facility is used to give instruction in the operation of equipment like that found in operating departments
The emphasis is on instruction rather than production.
Computer-assisted Instruction (CAI)
A system that delivers instructional materials directly through a computer terminal in an interactive format.
Computer-managed Instruction (CMI)
A system normally employed in conjunction with CAI that uses a computer to generate and score tests and to determine the level of training proficiency.

Advantages of Web-based Training

Learning is self-paced.
Training comes to the employee.
Training is interactive.
New employees do not have to wait for a scheduled training session.
Training can focus on specific needs as revealed by built-in tests.
Trainees can be referred to online help or written material.
It is easier to revise a computer program than to change classroom-training materials.
Record keeping is facilitated.
The computer program can be linked to video presentations.
The training can be cost-effective if used for a large number of employees.

Training Methods for Management Development

On-the-Job Experiences
Seminars and Conferences
Case Studies
Management Games
Role Playing
Behavior Modeling

On-the-Job Experiences

Coaching
Understudy Assignment
Job Rotation
Lateral Transfer
Special Projects
Action Learning
Staff Meetings
Planned Career Progressions

Case Studies

The use of case studies is most appropriate when:
Analytic, problem-solving, and critical thinking skills are most important.
The KSAs are complex and participants need time to master them.
Active participation is desired.
The process of learning (questioning, interpreting, and so on) is as important as the content.
Team problem solving and interaction are possible.
When Using Case Studies…
Be clear about learning objectives, and list possible ways to achieve the objectives.
Decide which objectives would be best served by the case method.
Identify available cases that might work, or consider writing your own.
Set up the activity—including the case material, the room, and the schedule.
Follow the principles of effective group dynamics.
When Using Case Studies…
Provide a chance for all learners to take part and try to keep the groups small.
Stop for process checks and be ready to intervene if group dynamics get out of hand.
Allow for different learning styles.
Clarify the trainer’s role.
Bridge the gap between theory and practice.

Role Playing

Successful role play requires that instructors:
Ensure that group members are comfortable with each other.
Select and prepare the role players by introducing a specific situation.
To help participants prepare, ask them to describe potential characters.
Realize that volunteers make better role players.
Successful role play requires that instructors:
Prepare the observers by giving them specific tasks (such as evaluation or feedback).
Guide the role-play enactment through its bumps (since it is not scripted).
Keep it short.
Discuss the enactment and prepare bulleted points of what was learned.

Behavior Modeling

Behavior Modeling
An approach that demonstrates desired behavior and gives trainees the chance to practice and role-play those behaviors and receive feedback.
Involves four basic components:
Learning points
Model
Practice and role play
Feedback and reinforcement

Criterion 1: Reactions

Participant Reactions.
The simplest and most common approach to training evaluation is assessing trainees.
Potential questions might include the following:
What were your learning goals for this program? Did you achieve them?
Did you like this program?
Would you recommend it to others who have similar learning goals? What suggestions do you have for improving the program?
Should the organization continue to offer it?

Criterion 2: Learning

Checking to see whether they actually learned anything.
Testing knowledge and skills before beginning a training program gives a baseline standard on trainees that can be measured again after training to determine improvement.
However, in addition to testing trainees, test employees who did not attend the training to estimate the differential effect of the training.

Criterion 3: Behavior

Transfer of Training
Effective application of principles learned to what is required on the job.
Maximizing the Transfer of Training
Feature identical elements
Focus on general principles
Establish a climate for transfer.
Give employees transfer strategies

Criterion 4: Results

Utility of Training Programs.
The benefits derived from training.
Return on Investment
Viewing training in terms of the extent to which it provides knowledge and skills that create a competitive advantage and a culture that is ready for continuous change.
Benchmarking
The process of measuring one’s own services and practices against the recognized leaders in order to identify areas for improvement.
Plan: conduct a self-audit to identify areas for benchmarking.
Do: collect data about activities.
Check: Analyze data.
Act: Establish goals, implement changes, monitor progress, and redefine benchmarks.

Special Topics in Training and Development

Orientation
A formal process of familiarizing new employees with the organization, their jobs, and their work units.
Basic Skills Training
Typical basic skills: Reading, writing, computing, speaking, listening, problem solving, managing oneself, knowing how to learn, working as part of a team, leading others.

Items for an Orientation Packet

Company history
Copy of specific job goals and descriptions
List of unique terms in the industry, company, and job
Organizational publications
Telephone numbers and locations of key personnel
Performance appraisal forms and procedures
List of on-the-job training opportunities
Safety and emergency procedures
Policy handbook
Current organization chart
Map of facility
Union contract
List of holidays
List of employee benefits
Sources of information
Insurance plans

Feelings About Work

Job satisfaction: Attitude about the job reflecting like/dislike for it and various facets.

Organizational commitment:  Attachment to the job.

Emotion: Reaction to a situation that includes both physiological arousal and cognitive appraisal, e.g., anger or anxiety.

Nature of Job Satisfaction

Global approach: Overall satisfaction with work
Facet approach: Satisfaction with aspects of the job
Pay
Promotion
Supervision
Nature of work
Most people like the job overall
Facet satisfactions vary
Highest: Nature of work
Lowest: Pay and Promotion opportunities

Assessment

Self-report survey
Easy to use
Can be anonymous
Person best judge of own feelings
Standard scales exist
Job Descriptive Index (JDI)
5 facets of job satisfaction
Job In General (JIG)
Global job satisfaction
Scales exist for commitment and emotion

Antecedents of Job Satisfaction: Environmental

Job characteristics
Hackman & Oldham
Characteristics ? Psychological States ? Job satisfaction
Strong research support linking perceptions of characteristics to job satisfaction
Weak research support linking objective characteristics to job satisfaction
Pay
Salary compared to people in same job more important than different jobs
Justice
Distributive and Procedural related to global and facet satisfaction

Antecedents of Job Satisfaction: Environmental

Personality
Negative affectivity (high NAs less satisfied)
Locus of control (externals less satisfied)
Gender
Few gender differences
Age
Curvilinear—satisfaction lowest age 26 to 31
Culture and Ethnicity
Few racial differences within the U.S.
Western countries score higher than Asians
Could be due to response styles rather than true feelings

Person-Job Fit

Match between individual and the job
People differ in reactions to same situation
Characteristics of the person is a moderator
Moderator: Variable that affects relationship between two other variables
Growth need strength (GNS)
People high on GNS are more satisfied with high scope jobs
People low on GNS are not more satisfied with high scope jobs

Effects of Job Satisfaction

Job Performance
Small correlation
More evidence that performance causes satisfaction than reverse
Turnover
Dissatisfied people more likely to quit
Moderated by labor market—people quit when they find another job
Absence
Very small correlation—other factors more important
Health and Well-Being
Job satisfaction relates to health variables such as anxiety and depression
Life Satisfaction
Job satisfaction important component of life satisfaction
Spillover

Organizational Commitment

One commitment, three components
Mowday, Steers, Porter
Acceptance of organization goals
Intention to stay on the job
Willingness to work hard

Three commitments
Meyer and Allen
Affective: Like the job
Continuance: Need the job
Normative: Feel obligated to stay on the job

Commitment and Other Variables

Similar correlations as job satisfaction
High commitment associated with
High job scope
High job satisfaction
Low job stressors
Job Scope

Emotions and Work

Emotion state: How you feel now
Emotion mood: How you have been feeling lately
Positive emotions: Feeling good
Greater creativity
Higher job satisfaction
More contextual performance
Negative emotions: Feeling bad
Lower job satisfaction
Higher absence
More turnover

Emotional Labor

Requirement at work to express or inhibit emotional display
Smiling at customers
Not showing anger toward clients
Some studies showed that acting happy can lead to job satisfaction
Emotional dissonance: Expressing emotion you don’t feel
Leads to dissatisfaction and stress