Can an Audit Firm’s Tone at the Top Messaging Attenuate Confirmation Bias in Auditors’ Judgments?

• In Event: Auditing Complex Estimates and Reliance on Specialists

Abstract

Recent PCAOB inspection findings indicate audit firms are overemphasizing firm performance objectives as opposed to audit quality in its tone at the top messaging, which can induce auditors to not exhibit appropriate professional skepticism potentially leading to confirmation bias. The tendency to exhibit confirmation bias is especially prevalent when difficult audit tasks require complex judgments. Our experiment investigates whether tone at the top messaging, a firm-level quality control mechanism, can mitigate auditors’ confirmation bias at the engagement-task level. We also investigate whether a third-party specialist engaged by management can influence the effect of tone at the top messaging on auditors’ confirmation bias. By introducing a recent psychology theory on non-conscious goal conflicts into the audit literature, we show that priming two competing firm-level goals equally (i.e., both firm performance and audit quality goals) in a balanced messaging approach decreases auditors’ tendency to exhibit confirmation bias when management does not engage a specialist as compared to when auditors are presented with messaging that overemphasizes performance objectives. Further, we find that a messaging approach that emphasizes audit quality is required to reduce auditors’ tendency to over rely on management’s specialists during difficult audit tasks. Our results have important implications for regulators and practitioners.

Authors

• Jonathan Pyzoha, Miami University

• Mark H Taylor, Case Western Reserve University

• Yi-Jing Wu, Texas Tech University