Adding Value to the Audit Engagement: The Compromising Effect of Regulatory Focus.

• In Event: Breakfast and Research & Education Table Forum
  In Roundtable Session: Table 9: audit regulations

Abstract

In this study, I examine how auditors’ regulatory focus and choice to add value affect judgment quality, and show how a slight modification to audit practice mitigates the potentially harmful effects of choosing to add value. Audit partners and managers commonly emphasize to audit staff the importance of adding-value to audit engagements. Adding-value is essential to attract and retain clients as it allows firms to differentiate their audit product from what other firms may offer. While adding-value is clearly important to audit firms, research has yet to broach the topic. Consistent with Regulatory Focus Theory, I find that when adding-value is framed as beneficial to the audit firm, rather than the client, auditors perform better on a subsequent audit task because they adopt more of a prevention (rather than promotion) regulatory focus. Additionally, auditors’ regulatory focus moderates the effects of choosing to add value on judgment quality. Specifically, choosing to add value has a negative effect on judgment quality when auditors adopt a promotion focus, but a positive effect when auditors adopt a prevention focus. I contribute to the literature by demonstrating how auditors’ regulatory focus, and choice to add value, can influence judgment quality, and how a slight alteration of audit methodology can mitigate this behavior.

Author

• Curtis Mullis, Georgia State University