ABSTRACT: Formalization has been studied in a variety of contexts and continues to be
a relevant and important construct. This study compares the performance of auditors
from two public accounting firms with different degrees of formalization in their audit
decision processes on four different tasks characterized by low or high levels of
complexity. Results indicate that performance depends on the interaction between task
complexity and degree of firm formalization. For the two less-complex tasks, auditors
from both firms demonstrate comparable performance. In contrast, for the two relatively
complex tasks, auditors from the less formalized firm outperform auditors from the more
formalized firm. We argue that the use of less formalized processes affords increased
opportunities for auditors to learn underlying concepts and to exercise judgment. These
results contribute to the existing body of research, indicating that the decision to employ
different levels of formalization can significantly impact the development of a firm’s
human resources.