Accountability and Affect in Auditor Judgment

2007 ◽  
Author(s):  
Brad A. Schafer
Keyword(s):  
Auditor Judgment

The Halo Effect in Business Risk Audits: Can Strategic Risk Assessment Bias Auditor Judgment about Accounting Details?

2005 ◽  
Vol 80 (3) ◽  
pp. 921-939 ◽  
Author(s):  
Ed O'Donnell ◽  
Joseph J. Schultz
Keyword(s):  
Risk Assessment ◽  
Performance Evaluation ◽  
Laboratory Experiments ◽  
Halo Effect ◽  
Risk Assessments ◽  
Business Risk ◽  
Auditor Judgment ◽  
Strategic Risk ◽  
Strategic Assessment ◽  
Assessment Bias

Many auditors use an audit methodology that requires a strategic risk assessment of their client's business model as a first step for assessing audit risks. This study examines whether the holistic perspective that auditors acquire in making a strategic risk assessment influences the extent to which they adjust account-level risk assessments when they encounter changes in accounts that are inconsistent with information about client operations. Based on halo theory from the performance evaluation literature, we hypothesize that auditors who (1) perform (do not perform) strategic assessment, and (2) develop favorable (unfavorable) strategic risk assessments, are less (more) likely to adjust account-level risk assessments for inconsistent fluctuations. Data from two laboratory experiments using experienced auditors support both hypotheses. Findings suggest that the halo effect generated during strategic assessment influences judgment by altering auditor tolerance for inconsistent fluctuations.

The Effect of Auditor Reporting Choice and Audit Committee Oversight on Management Financial Disclosures

2021 ◽  
Author(s):  
Stephen H. Fuller ◽  
Jennifer R. Joe ◽  
Benjamin L. Luippold
Keyword(s):  
Audit Committee ◽  
Financial Statements ◽  
Audit Committees ◽  
Auditor Judgment ◽  
Joint Effects ◽  
Financial Disclosures ◽  
Auditor Reporting ◽  
Management Disclosures

We investigate the joint effects of auditor's reporting choice and audit committee effectiveness on management disclosures about complex estimates. A new PCAOB standard requires auditors to report on Critical Audit Matters (CAMs): issues "communicated or required to be communicated to the audit committee" about accounts or disclosures that (1) "are material to the financial statements" and (2) "involved especially challenging, subjective, or complex auditor judgment" (PCAOB 2017a, 11). Consistent with investor arguments, we find that audit committee effectiveness and more detailed CAM reporting encourage managers' disclosures of the risk underlying complex estimates. When the auditor's report is more informative about a complex estimate and the audit committee is more effective, management's related financial disclosures are more forthcoming. However, less informative auditor disclosures or more effective audit committees alone do not prompt greater management disclosure. Thus, expanded auditor reporting and more effective audit committees, together, can enhance the disclosures investors value.

Effects of Stories and Checklist Decision Aids on Knowledge Structure Development and Auditor Judgment

2017 ◽  
Vol 32 (2) ◽  
pp. 1-24 ◽  
Author(s):  
James L. Bierstaker ◽  
Denise Hanes-Downey ◽  
Jacob M. Rose ◽  
Jay C. Thibodeau
Keyword(s):  
Knowledge Management ◽  
Decision Aids ◽  
Knowledge Structure ◽  
Knowledge Structures ◽  
Management Systems ◽  
Professional Judgment ◽  
Structure Development ◽  
Auditor Judgment ◽  
Audit Firms ◽  
Training Materials

ABSTRACT The purpose of this paper is to compare the usefulness of a story versus traditional checklist decision aids for enhancing knowledge structure development and for improving the judgments of auditors related to fraud risks. The results from the first experiment indicate that novice participants who read stories develop knowledge structures that more closely resemble the knowledge structures of experts than do participants who read checklists. The second experiment reveals that auditors who read stories make judgments more like experts than do auditors who use checklists. The findings demonstrate that stories may have the capacity to train auditors and improve their judgments. Audit firms constantly seek methods to improve auditors' knowledge and judgments, and our findings suggest opportunities for firms to employ fraud stories to enhance knowledge of fraud and improve professional judgment. This study's results hold important implications for the design of training materials, decision aids, and knowledge management systems.

The Impact of Management Alumni Affiliation and Persuasion Tactics on Auditors' Internal Control Judgments

2017 ◽  
Vol 93 (2) ◽  
pp. 97-115 ◽  
Author(s):  
Sudip Bhattacharjee ◽  
J. Owen Brown
Keyword(s):  
Internal Control ◽  
Social Identity Theory ◽  
Audit Quality ◽  
Revolving Door ◽  
Auditor Judgment ◽  
Professional Skepticism ◽  
Sarbanes Oxley ◽  
External Auditor ◽  
One Year ◽  
The Impact

ABSTRACT Concerns over “revolving door” practices of companies hiring directly from their external auditor led to a Sarbanes-Oxley Act provision mandating a one-year cooling-off period before such hires can occur. Yet little is known as to whether these alumni affiliations, still prevalent today, actually impair audit quality. Drawing on Social Identity Theory, we conduct an experiment to examine whether auditors experience heightened identification with an alumni-affiliated client manager and, if so, how this perceived relationship affects their professional skepticism in response to a management persuasion attempt. As predicted, absent the use of a management persuasion tactic, auditors identify more with an alumni-affiliated manager than a non-alumnus with equal professional experience, and this perceived social bond enhances the manager's influence. However, the use of a common persuasion tactic, while effective at influencing auditor judgment when used by an unaffiliated manager, “backfires” when used by an alumni-affiliated manager, leading to diminished persuasion and increased professional skepticism. Evidence suggests that auditors are better able to identify the inappropriateness of the persuasion attempt when the tactic is used by an alumni-affiliated manager.

scholarly journals Integration of Internal Control and Financial Statement Audits: Are Two Audits Better than One?

2018 ◽  
Vol 94 (2) ◽  
pp. 53-81 ◽  
Author(s):  
Lori Shefchik Bhaskar ◽  
Joseph H. Schroeder ◽  
Marcy L. Shepardson
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Audit Quality ◽  
Internal Controls ◽  
Data Availability ◽  
Financial Statement ◽  
Auditor Judgment ◽  
Public Company ◽  
Better Than

ABSTRACT The quality of financial statement (FS) audits integrated with audits of internal controls over financial reporting (ICFR) depends upon the quality of ICFR information used in, and its integration into, FS audits. Recent research and PCAOB inspections find auditors underreport existing ICFR weaknesses and perform insufficient testing to address identified risks, suggesting integrated audits—in which substantial ICFR testing is required—may result in lower FS audit quality than FS-only audits. We compare a 2007–2013 sample of small U.S. public company firm-years receiving integrated audits (accelerated filers) to firm-years receiving FS-only audits (non-accelerated filers) and find integrated audits are associated with higher likelihood of material misstatements and discretionary accruals, consistent with lower FS audit quality. We also find evidence of (1) auditor judgment-based integration issues, and (2) low-quality ICFR audits harming FS audit quality. Overall, results suggest an important potential consequence of integrated audits is lower FS audit quality. Data Availability: Data are publicly available from the sources identified in the text.

scholarly journals The impact of emotional intelligence on auditor judgment

2017 ◽  
Vol 22 (1) ◽  
pp. 83-97 ◽  
Author(s):  
Ling Yang ◽  
Alisa G. Brink ◽  
Benson Wier
Keyword(s):  
Emotional Intelligence ◽  
Auditor Judgment ◽  
The Impact

Concede or Deny: Do Management Persuasion Tactics Affect Auditor Evaluation of Internal Control Deviations?

2009 ◽  
Vol 84 (6) ◽  
pp. 2013-2037 ◽  
Author(s):  
Christopher J. Wolfe ◽  
Elaine G. Mauldin ◽  
Michelle Chandler Diaz
Keyword(s):  
Information Technology ◽  
Internal Control ◽  
Manual Control ◽  
Control Problems ◽  
Systematic Bias ◽  
Auditor Judgment

ABSTRACT: In an internal control audit, the consequences and assessment subjectivity of control problems motivate managers to try to persuade auditors to lower the assessed severity of an observed control deviation. We report an experiment in which 106 audit seniors evaluate either information technology (IT) or manual control deviations that are potentially indicative of significant deficiencies, after exposure to persuasion tactics based in either concession or denial. For IT control deviations, we find that auditors assess the significance of deficiency lower and the perceived adequacy of management's explanation higher for concessions than for denials. For manual control deviations, we find no differences between concessions and denials. Our results provide evidence of a systematic bias in auditor judgment and indicate a rationale for the ubiquity of management persuasion attempts around control deviations—sometimes they work.

scholarly journals Pengaruh Auditor Judgement, Etika Profesi, dan Employee Engagement terhadap Kinerja Auditor dalam Pelaksanaan Pemeriksaan Laporan Keuangan (Studi pada Badan Pemeriksa Keuangan RI)

2019 ◽  
Vol 12 (2) ◽  
pp. 1-8
Author(s):  
Nissa Hanny Tatiara
Keyword(s):  
Data Analysis ◽  
Linear Regression ◽  
Multiple Linear Regression ◽  
Employee Engagement ◽  
Professional Ethics ◽  
Financial Statements ◽  
Financial Statement ◽  
Survey Method ◽  
Auditor Judgment ◽  
Analysis Technique

In financial statement audits, a good auditor's performance is the main key to the success of the results of auditing the financial statements. Some possible causes of auditor performance weakness are because there are still auditors who can be influenced in making auditor judgment, there are weaknesses of auditors in applying the principles of professional ethics, and the auditor's personal attachment to his employer. This study was conducted at the Indonesian Supreme Audit Board. This research aims to find out how much auditor judgment, the application of professional ethics, and employee engagement of an auditor influences the auditor's performance. Data were collected using a survey method with a questionnaire technique. The number of respondents in this study is 86 respondents, but respondent data that can be processed is 84 questionnaires. The data analysis technique used is multiple linear regression. The results showed that auditor judgment, professional ethics, and employee engagement partially and simultaneously had a significant effect on auditor performance. Dalam melaksanakan pemeriksaan laporan keuangan, kinerja auditor yang baik menjadi kunci utama suksesnya hasil pemeriksaan laporan keuangan tersebut. Beberapa kemungkinan penyebab kelemahan kinerja auditor karena masih terdapat auditor yang bisa dipengaruhi dalam pembuatan auditor judgement, terdapat kelemahan auditor dalam menerapkan prinsip etika profesi, dan lemahnya keterikatan pribadi auditor tersebut dengan pemberi kerjanya. Studi ini  dilakukan pada Badan Pemeriksa Keuangan RI. Riset ini bertujuan untuk mengatahui seberapa besar auditor judgement, penerapan etika profesi, dan employee engagement seorang auditor berpengaruh terhadap kinerja auditor tersebut. Data dikumpulkan menggunakan metode survei dengan teknik kuesioner. Jumlah responden penelitian ini adalah 86 responden, namun data responden yang dapat diolah adalah 84 kuesioner. Teknik analisis data yang digunakan adalah regresi linier berganda. Hasil penelitian menunjukkan bahwa auditor judgement, etika profesi, dan employee engagement secara parsial dan bersama-sama (simultan) berpengaruh signifikan terhadap kinerja auditor.  

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