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The Effects of Social Costs and Internal Quality Reviews on Auditor Consultation Strategies

Sat, January 19, 10:15 to 11:45am, TBA

Abstract

Seeking advice from knowledgeable individuals within the firm is an essential feature of firms’ quality control systems and is intended to improve auditor decision making. It is important to understand factors that encourage or discourage auditors from proactively seeking out help and relying on the “right” people because advice can influence audit judgments. Existing studies in accounting focus on factors that affect how auditors use the advice they obtain during informal consultations. In this study, I examine factors that affect when auditors seek advice, to whom auditors go for advice, and how they present audit issues to the advisor, which are likely important determinants of the nature and amount of advice auditors receive. I predict and find that the social costs involved in seeking advice can decrease the likelihood that auditors will seek advice and cause them to consult laterally as opposed to raising issues up the organizational hierarchy. In addition, even when auditors seek advice and go to the most knowledgeable source, social costs can cause auditors to argue for their position more persuasively and present a less balanced set of facts to the advisor than when social costs are low. I find that the internal quality review process can help overcome otherwise strong social pressures and promote more effective consultations among auditors. Implications for researchers and practitioners are discussed.

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