A description of factors contributing to good judgment is developed by considering both the process of exercising judgment and the results of having exercised it. Factors are developed from public accountants' perceptions of important components in characterizing good professional judgment in public accounting. Descriptive data about important judgment quality factors are presented and hypotheses conceming justification are tested using responses to a process-oriented questionnaire. The emphasis is on the natural environment of the professional accountant and the types of judgment situatiotis which occur in the field, with reliance on respondents to interpret their own comments.The qoestionnaire results provide a description of judgment factors which professional accountants see as important. Factor categories related to expectation, outcome, and justification perspectives on judgment quality are shown to play a role in defining good judgment, with variations related to position (level of responsibility) in the accounting firm. The results also indicate that justification is perceived differently by people in different positions.Resume. Les auteurs decrivent les facteurs contribuant a la quality du jugement en prenant en consid&ation a la fois le processus d'exercice du jugement et les resultats de ce processus. Ces facteurs out ete determines a partir des flements perjus par les experts-comptables comme 6tant importants dans la definition de ce qu'est un bon jugement professionnel, en expertise comptable. Les auteurs presentent des donnees descriptives au sujet des principaux indices de qualite du jugement et testent certaines hypotheses relatives a la justification, a partir de reponses a un questionnaire axe sur le processus. Us s'interessent a I'environnement naturel du comptable professionnel et aux cas de jugement qu'on retrouve dans la pratique, en confiant aux repondants le soin d'interprfter leurs propres observations. Les resultats du questionnaire offrent une description des facteurs que les comptables professionnels jugent importants dans revaluation de la qualite d'un jugement. II semble que les categories de facteurs reliees a une evaluation en termes d'attentes, de resultats et de justification jouent un certain role dans la definition de ce qu'est un bon jugement, qui varie selon Ie posts occupy (niveau de responsabilite) a I'interieur du cabinet comptable. Les resultats indiquent egalement que Ton pergoit la justification differemment selon le poste.
The outcome effect occurs where an evaluator, who has knowledge of the outcome of a judge's decision, assesses the quality of the judgment of that decision maker. If the evaluator has knowledge of a negative outcome, then that knowledge negatively influences his or her assessment of the ex ante judgment. For instance, jurors in a lawsuit brought against an auditor for alleged negligence are informed of an undetected fraud, even though an unqualified opinion was issued. This paper reports the results of an experiment in an applied audit judgment setting that examined methods of mitigating the outcome effect by means of instructions. The results showed that simply instructing or warning the evaluator about the potential biasing effects of outcome information was only weakly effective. However, instructions that stressed either (1) the cognitive nonnormativeness of the outcome effect or (2) the seriousness and gravity of the evaluation ameliorated the effect significantly. From a theoretical perspective, the results suggest that there may both motivational and cognitive components to the outcome effect. In all, the findings suggest awareness of the outcome effect and use of relatively nonintrusive instructions to evaluators may effectively counteract the potential for the outcome bias.
Audit partners may be called upon to evaluate, ex post, the work of another auditor. One example of such an evaluation is a Peer Review. An experiment was conducted that examined the influence of outcome knowledge on the going concern and peer evaluation judgments of 122 audit partners from Canada and the United States. Outcome information was manipulated at three levels—no outcome, negative outcome, and positive outcome information. The results confirm previous research and show that audit partners are subject to the influence of outcome information. Negative outcome information influenced (1) audit partners' assessments of the likelihood of the client's continued existence (hindsight effects), (2) the evaluation of the incumbent auditor's judgment (outcome effects), and (3) judgments of the importance of evidence items. Auditors who received outcome information tended to rate outcome-consistent items of evidence as more important. This suggests that the biasing effect of outcome knowledge operates by acting as a filter that magnifies the relative salience of outcome-consistent information.
Abstract. This paper reports the results of an experiment examining the framing bias and a potential debiasing technique. Practicing auditors formed a judgment about a hypothetical client's inventory internal control system to determine the amount of related substantive testing. Auditors from two Big Six firms were randomly assigned to one of four treatments in a fully crossed 2 times 2 between‐subjects design. The initial description of the internal control system was identical for all treatments, as were the items of additional evidence about the system. Auditors either judged the risk of the control system or the strength of the control system. The risk‐strength frames were crossed with two levels of debiasing technique: “none” or “evidence rating.” Results indicate that without debiasing, significant framing effects were present, but that evidence rating significantly mitigated the framing effect. In this auditing context, the framing bias appears to be easily induced, but is not robust. Although the profession should be aware of this potential problem, effective remedial or proactive steps can be easily implemented and may naturally occur in current practices.
Public expectations of auditors' objectivity, the on-going debate over auditors' independence (SEC 2001), and previous research motivate our study of one aspect of auditor rotation. Using an experimental case, we examine the impact of continuity on concurring partner reviews. Continuity specifically refers to a concurring partner's assumed degree of prior involvement with a client engagement. We explore two levels of prior involvement—a continuing concurring partner (i.e., involved as a concurring partner in the current and prior year's engagement) and a new concurring partner (i.e., involved as a concurring partner in the current year's engagement only). Based on information in the case, audit partners in the role of concurring partners make judgments related to goodwill impairment. Consistent with our expectation, continuing concurring partners are less likely than new concurring partners to conclude that purchased goodwill may be impaired. Based on our results, the recent regulatory actions mandating within-firm rotation of concurring partners are likely to affect audit firm judgments.
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