Does Audit Committee Strength Diminish the Biasing Effects of Client Likability?

• In Event: Auditor Reliance on Advanced Technologies, Specialists, or Both

Abstract

The audit profession and regulators are concerned with the interactions between auditors and clients as a potential threat to audit quality. Researchers have sought to understand what factors affect the auditor-client relationship, with limited research indicating that interpersonal affect may be an important factor in its influence on audit quality. Accordingly, we conduct an experiment with 92 audit seniors to determine whether client management likability biases auditors’ judgments and whether an important safeguard of audit quality, the audit committee, moderates their judgments. Consistent with our predictions, we find that the biasing effect of client management likability is moderated by audit committee strength in affecting auditors’ judgments. Specifically, the effect of client likability is greatest when audit committee strength is weak, but a strong audit committee reduces this effect. Further, supplemental analyses indicate that auditors are less likely to perceive an unlikable client as competent, which leads them to increase their conservatism judgments, but only when the audit committee is weak. Our findings suggest one potential path (i.e., the audit committee) that can mitigate bias arising from interpersonal affect. Conclusions and implications of our study are also discussed.

Authors

• Anna M. Cianci, Wake Forest University

• Stephen Kuselias, Providence College

• George Theodore Tsakumis, University of Delaware

• D. Jordan Lowe, Arizona State University - Tempe