Interactive Effects of Subordinate and Client Competence on Audit Reviewers’ Inventory Write-Down Recommendations in the Post-SOX Era

• In Event: Auditing Research

Abstract

Prior research suggests that the perceived level of a subordinate auditor’s competence affects audit reviewers’ judgments. We extend this line of research by investigating the effects of perceived client competence (hereafter, ClientComp) and its interaction with subordinate auditor’s competence (hereafter, AuditorComp) on audit reviewers’ inventory write-down recommendations (hereafter, IWDR). We manipulate levels of AuditorComp and ClientComp as high/low in a 2x2 between-subjects design to collect data from highly experienced audit managers, senior managers, and partners, all CPAs for our investigation. We find a significant main effect for AuditorComp, but not for ClientComp. We also find that when AuditorComp is high IWDRs are not affected by levels of ClientComp. However, our hypothesis that when AuditorComp is low ClientComp will significantly affect on audit reviewers’ IWDRs is not supported. These mixed results suggest that in the post-SOX (2002) era, regulatory environment audit reviewers exercise heightened professional skepticism about ClientComp when considering clients’ assertions.

Authors

• Alan Reinstein, Wayne State University

• Mohammad J Abdolmohammadi, Bentley University