Measuring Auditor Orientation and Its Impact on Judgment

• In Event: Continental Breakfast - Research and Education Forum
  In Roundtable Session: Table 12: Auditor Judgment

Abstract

Auditor orientation (rules or principles) is important to audit practice, as evidenced by continuing debate involving how accounting and auditing standards should be created and interpreted. Prior research cites the importance of measuring the impact rules-oriented versus principles-oriented auditors have when examining financial reporting judgments. The objectives of this study are to introduce a concise scale designed to ex ante measure rules-oriented/principles-oriented auditor attitudes (ROPOA) and determine its impact on auditor judgments. We focus on task ambiguity and auditors’ perceptions of applicable accounting standards when developing the scale.

We conduct two experiments using participants from both the US and The Netherlands; whereby, the tasks differ in their uncertainty and level of convergence between US GAAP and International Financial Reporting Standards (IFRS). Scale-related results indicate high levels of construct validity and robustness with regard to task effects, country of domicile and experience with rules-based and principles-based accounting standards. Regarding auditor judgment, we find that relative to auditors possessing principles-oriented attitudes, auditors with rules-oriented attitudes recommend a less (more) client-favorable treatment when the accounting standards converge (diverge). Scale items are included, as are future research suggestions related to both auditing practice and research.

Authors

• Robert E. Pinsker, Florida Atlantic University - Boca

• Ferdy van Beest, Nyenrode Business University