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Auditors routinely seek informal advice when making difficult decisions, yet we know little about the benefits of such advice. In this study, we investigate whether auditors make better fraud planning decisions when providing informal advice to a colleague versus deciding for themselves. Prior research conjectures that auditors often fail to effectively change their audit plans to address assessed fraud risks because they cannot think of what changes to make. In contrast, we apply psychology research to propose that auditors can identify what changes to make but their thinking is inhibited by a mental perspective focused on pragmatic considerations (e.g., the costs of making changes). Specifically, we hypothesize that auditors make better decisions when advising versus deciding because the more idealistic, effectiveness-oriented mental perspective they adopt makes them more apt to deviate from the status quo. In our experiment, senior-level auditors were randomly assigned a role (decider or advisor), and then recommended what changes to make to a same as last year (SALY) audit plan for two areas within accounts receivable: (1) an area with a seeded fraud risk; and (2) a low risk area. We find that auditors who are not provided a fraud prompt (i.e., unaided) make changes that are more consistent with fraud expert recommendations when advising versus deciding. Hence, advisors encourage their colleagues to deviate from a SALY plan (i.e., the status quo) when making changes would be appropriate. We also find that advisors make fewer changes than deciders in response to a prompt that asks them to consider that management might conceal fraud in the lower risk area. Importantly, advisors targeted the seeded fraud risk rather than increasing audit effort in both areas, alleviating concerns that they recommend unnecessary changes because they do not feel accountable (i.e., no “skin in the game”) for their decisions.
Tim David Bauer, University of Illinois-Urbana-Champaign
Sean Hillison, University of Illinois at Urbana-Champaign
Mark Peecher, University of Illinois-Urbana-Champaign
Bradley M Pomeroy, University of Waterloo