AAA Spark Meeting of Regions

The Joint Effect of Supervisor Influence and Investor Perspective: Unintended Consequences on Assessing Accounting Estimates

• In Event: Auditor Risk Assessment

Abstract

We examine the joint effect of supervisor influence and investor perspective on
novice auditors’ assessments of accounting estimates. In an experiment, we find that auditors
assign a higher (lower) risk of misstatement when their supervisor places high (low)
emphasis on evidence suggesting accounting adjustment. We also find that contrary to the
belief that taking the perspective of investors could enhance objectivity and independence,
investor perspective leads to a decrease (rather than an increase) in auditors’ perceived risk of
misstatement when the supervisor places low emphasis on evidence suggesting accounting
adjustment. Our findings are consistent with the notion that taking an investor perspective can
unintentionally make salient of novice auditors’ own interests, and thus make it more likely
for them to align with their supervisor’s preference. This study is one of the first to document
an unintended consequence of auditors taking an investor perspective.

Authors

• Lei Dong, University of Idaho

• Lei Wang, University of Northern Iowa

• Wenwen Chien, The State University of New York College at Old Westbury