Auditor Judgment in a Multiple Accountability Setting: The Effects of Power Level and Justification Timing

• In Event: Auditor Judgment II

Abstract

Abstract: Auditors must often justify their decisions to multiple important parties, such as audit firm members and clients, who may have conflicting preferences. This study experimentally investigates how a power differential between conflicting parties (i.e., audit supervisor and client contact) and a difference in justification timing impact auditor decision-making. Drawing on accountability theory (Tetlock 1999) and construal level theory (Liberman and Trope 1998), auditors’ decisions are expected to differ based on whether the accountability sources are of relatively equal power, or there is a significant difference in power level between the two parties. Furthermore, the timing of the justification (i.e., whether the auditors’ must immediately justify their decisions to an accountability source or justify their decisions at some point in the future) is expected to influence auditors’ decisions. Consistent with expectations, the results of this study indicate auditors’ decisions vary depending upon whether a power difference exists between accountability sources. Auditors more closely align their decisions with the preferences of the more powerful party when there is a difference in power level between the two sources. In addition, auditors align their decisions with the preferences of the party to whom they must justify their decisions at some point in the future, as opposed to aligning their decisions with the preferences of the party to whom they must immediately justify their decisions. Overall, this study adds to our theoretical understanding of auditor decision making within a multiple accountability setting and has implications for practice as well. Accountability to an important client may influence auditor judgment, potentially raising audit quality concerns. Firms may counter this effect by strategically increasing the salience of the final audit superior review during the audit engagement to reduce the influence of client power on auditor judgment.

Authors

• Bonnie Jean Brown, University of Missouri-Kansas City

• Amy Donnelly, Clemson University

• David Donnelly, University of Missouri - Kansas City