Counteracting the Directional Influence of Incentives on Auditor Judgment.

• In Event: Factors affecting auditor judgment

Abstract

Auditing standards require auditors to be objective in their judgment. However, prior research indicates that incentives in the audit environment influence auditors’ judgment by motivating them to prefer a particular audit conclusion over others, undermining auditors’ objectivity. In this study, I examine the effects of two interventions, intrinsic motivation and accountability, on the directional influence of incentives on auditors’ judgment and information processing. I predict and find that increasing the salience of auditors’ intrinsic motivation for their job counteracts the directional influence of incentives on auditors’ judgment. The counteracting effects of salient intrinsic motivation on audit judgment is achieved through how auditors process information: auditors with salient intrinsic motivation search for relatively more information that contradicts the incentive-consistent audit conclusion and evaluate the information as relatively less supportive of the incentive-consistent audit conclusion than do auditors in the control condition. On the other hand, I find that holding auditors accountable according to relevant auditing standards does not reduce the directional influence of incentives on auditors’ information evaluation (consistent with my theory), nor does it mitigate the impact of incentives on auditors’ information search (contrary to my theory). The results of this study provide a new perspective on addressing the directional impact that auditors’ incentives have on audit quality, a challenging issue that has consistently concerned regulators, practitioners, and academics.

Author

• Dan Zhou, University of Illinois at Urbana-Champaign