The Effects of Crowding and Client Importance on Auditor Conservatism

• In Event: Auditor Scrutiny, Liability & Conservatism

Abstract

We examine the effects of crowding (that is the number of auditors in direct competition for a promotion) and client importance on judgment conservatism. By drawing on tournament theory and the auditing literature, we argue that when a client is more important to the audit firm, auditors under high crowding will feel more accountable. We therefore predict that under high crowding, auditors will be more likely to judge more conservatively regarding more important clients. Using an experimental research design, we confirm our prediction in a sample of 80 experienced auditors from a Big Four firm. Our research provides novel insights into the behavioral implications of Big Four firms’ promotion structures.

Authors

• Jorien Pruijssers, McGill University

• Marcel Van Rinsum, RSM Erasmus University