Knowledge of Auditor’s Bias May Be a Dangerous Thing

Audit reviewers may be unduly influenced by preparers' feelings about individual clients, finds recent research.
Matthew HellerMarch 5, 2015
Knowledge of Auditor’s Bias May Be a Dangerous Thing

Those lunches or other gatherings where audit preparers vent or enthuse about a client to accounting-firm reviewers may have a counterintuitive effect on the reviewer’s judgment, according to a new study.

The conventional wisdom is that reviewers who are aware of a preparer’s positive or negative feelings toward a client will correct for those biases, not allowing them to influence the final audit. The reality, though, may be quite the reverse.

University of Pittsburgh researchers found in a paper published in The Accounting Review, the journal of the American Accounting Association, that a reviewer’s awareness of bias may cause them to rely more on the preparer’s judgments than they would without such awareness.

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By failing to correct for a preparer’s bias, a reviewer won’t simply adopt a preparer’s recommendation, study co-author Vicky Hoffman said in a news release. But the failure to correct may “significantly impede a reviewer’s own good judgment.”

The study’s findings were derived from an online experiment involving 119 audit managers and senior managers from two Big Four accounting firms who had an average of 9.37 years of experience.

Reviewers were provided with a preparer’s judgment that appeared inconsistent with the audit workpapers. The researchers then examined the effect of providing — and not providing — reviewers with a cue about the preparer’s positive or negative feelings toward the controller.

“Reviewers who are not informed about the preparer’s affect are not significantly influenced by the preparer’s judgment and arrive at judgments more consistent with the audit evidence,” the paper concludes. “In contrast, reviewers who receive the same preparer judgment and workpaper evidence, but who are also informed of the preparer’s affect, are significantly influenced by the preparer’s judgment.”

To explain their results, the researchers cite a psychological phenomenon known as the “ironic rebound effect,” which predicts that sometimes when individuals are trying not to rely on information, they, ironically, rely on it more.

“A little alarm bell should go off when personal feelings about client personnel come to light, prompting reviewers to consider what judgment the preparer would likely have reached based on the evidence in the workpapers,” Hoffman suggests.

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