Interactive Effects of Client and Subordinate Competence on Audit Reviewers’ Inventory Write-Down Recommendations

• In Event: Inter-Track Topics

Abstract

Prior research suggests that the perceived level of a subordinate auditor’s competence affects reviewers’ judgments. Using the trust heuristic (Kadous et al. 2013), we extend this line of research by investigating the effects of perceived client competence (hereafter, ClientComp) and its interaction with subordinate auditor’s competence (hereafter, AuditorComp) on audit reviewers’ inventory write-down recommendations (hereafter, IWDR). We use experimental data from 95 audit partners, senior managers, and managers, manipulating levels of AuditorComp and ClientComp as high/low in a 2x2 between-subjects, quasi-experimental design. , We find a significant main effect for AuditorComp, but not for ClientComp. We also find a significant interaction effect supporting our prediction that when AuditorComp is high, the audit reviewer will accept the subordinate auditor's IWDR without significant modification irrespective of ClientComp. However, counter to our expectation, we find that for low AuditorComp, audit reviewers’ IWDR is higher when ClientComp is high relative to low, implying professional skepticism.

Authors

• Mohammad J Abdolmohammadi, Bentley University

• Alan Reinstein, Wayne State University