Evidence on the Effects of Network Status and Perspective Taking on Component Auditor Testing Strategies

• In Event: Group Audits: Insights, Strategies, and Evidence for Standard Setting

Abstract

Component auditors’ judgments may potentially decrease audit quality at the group level when they audit significant components of multinational companies. Yet, few studies examine their judgments. We provide evidence on the joint effects of component auditors’ network status and a prompt to adopt the group auditor’s perspective on the extent of their testing strategies. We hypothesize that a prompt to take the group auditor’s perspective decreases audit testing of network component auditors but has no effect on unaffiliated component auditors. Our hypothesis hinges on the notion that network auditors expect less scrutiny and adjust accordingly when prompted to take the group auditor’s perspective. However, unaffiliated auditors anticipate more scrutiny and are not affected by the perspective-taking prompt. Using 119 experienced auditors, we find, as hypothesized, that taking the perspective of the group auditor decreases testing for network auditors but has no effect for unaffiliated component auditors. Our results are important because they show that prompting network auditors to take the group auditor’s perspective may reduce group audit quality. Thus, we have identified an important setting where perspective-taking (of the group auditor) may have a detrimental effect on audit quality.

Authors

• Stephen Kwaku Asare, University of Florida

• Herman van Brenk, Nyenrode Business University

• Barbara Majoor, Nyenrode Business University