How Cultural Mindsets Impact Auditor Judgments in Fair Value Auditing: Implications for Practice and Research

• In Event: Continental Breakfast & Research and Education Forum
  In Paper Session: Table 17: Auditor Judgment

Abstract

Standards setters worldwide have been engaged in efforts to standardize accounting principles across countries under the premise that this should lead to more comparable financial statements across nations, with a primary focus on principles-based standards. However, research in psychology suggests that people from different cultural backgrounds process information in different ways. In this study, we investigate the effects of cultural mindsets on auditors’ judgments. Specifically, we look at how a holistic versus analytic mindset affects judgments in an ambiguous fair value setting. We find that auditors from the United States and China differ in their judgments based on their focus on different aspects of evidence. We also propose an easy-to-implement de-bias mechanism, explicitly instructing auditors on how to minimize the effects of cultural mindsets, and we find that this eliminates the difference in U.S. and Chinese judgments. Our study contributes to the current literature exploring cross-national comparability of financial reporting, cultural impact on professionals’ judgments, and professional judgments related to fair value auditing. In addition, our results will be useful for practitioners in improving their training on fair value auditing and adapting global training materials to local offices with different cultural backgrounds. Finally, we demonstrate the methodological importance of using an experimental manipulation to identify the effects of different cultural factors, rather than solely measuring cultural views.

Authors

• Aaron Saiewitz, University of Nevada-Las Vegas

• Ying Wang, University of Massachusetts-Amherst