We specify measures of accounting consistency both across time and across firms based on the textual similarity of accounting policy footnotes disclosed in 10-K filings. We first examine how these measures relate to earnings quality. Accounting consistency over time is positively associated with a number of earnings quality proxies, including earnings persistence, predictability, accrual quality, and absolute discretionary accruals. We also find that lower consistency relative to other firms in the industry is associated with larger absolute accrual model residuals. Finally, we examine the information processing effects of accounting consistency. We find that greater accounting consistency in the time-series and the cross-section is associated with lower information asymmetry, as proxied by bid-ask spread and illiquidity. Greater cross-sectional consistency is also associated with greater analyst coverage, more accurate analyst forecasts, decreased dispersion in analyst forecasts, and stronger stock return synchronicity. Data Availability: The accounting consistency measures developed in this study are available upon request. All other data are available from the sources cited in the text. JEL Classifications: M41.

With the current shift toward real-time audit review, subordinates become aware of supervisors' views earlier in the audit process. I use an experiment to examine whether earlier knowledge of supervisors' views increases subordinates' tendencies to agree with those views because subordinates predecisionally distort evidence. In a going-concern task, I find that auditors who learn the partner's view before evaluating evidence (1) evaluate individual evidence items as more consistent with the partner's view, and (2) make going-concern judgments that are more consistent with the partner's view, than do auditors who learn the same partner's view after evaluating evidence. In a second experiment, I examine whether auditors anticipate the distortion's effect on subordinates' judgments. I find that auditors expect subordinates to make judgments that agree with supervisors' views, but auditors do not expect subordinates to agree even more with those views when subordinates learn those views earlier in the audit process.

As people are deciding between two alternatives, they may distort new information to support whichever alternative is tentatively preferred. The presence of such predecisional distortion of information was tested in decisions made by two groups of professionals, auditors and salespersons. Both groups exhibited substantial distortion of information, with little reduction for professional decisions compared to nonprofessional ones. However, auditors' distortion was significantly smaller than that of salespersons. In addition, holding professionals accountable for their decisions, akin to a supervisory review, lowered distortion somewhat for salespersons but not at all for auditors. The latter seemed to act as if they were always being held accountable. Because people seem unaware that they are distorting information, at least at the moment this bias is occurring, they are fully convinced of the soundness of their choices. This may make it difficult for distortion to be detected by decision makers themselves or even by supervisors who cannot completely duplicate their subordinate's knowledge.Decision Making, Accountability, Bias in Judgments

To contribute to the PCAOB project on auditing fair value measurements (FVMs), we synthesize relevant academic literature to offer insights, conclusions, and future research directions for auditors, standard-setters, and academics focusing on auditing FVMs. We structure our synthesis along two dimensions: (1) an emphasis on the auditor's need to understand how FVMs are prepared, and (2) the audit steps and procedures necessary to verify and attest to FVMs, including an awareness of the potential biases inherent in auditing FVMs. Drawing primarily from the judgment and decision-making literature, we highlight a number of potential biases and limitations in the preparation and audit of FVMs. Additionally, we note that the specialized valuation knowledge necessary to effectively audit FVMs will be difficult for auditors to gain and maintain.

Practitioners and regulators are concerned that when auditors perceive management's attitude or character as indicative of low fraud risk, they are not sufficiently sensitive to high levels of incentive or opportunity risks in their overall fraud‐risk assessments. In this study, we examine whether a fraud‐triangle decomposition of fraud‐risk assessments (that is, separately assessing attitude, opportunity, and incentive risks prior to assessing overall fraud risk) increases auditors' sensitivity to opportunity and incentive cues when perceptions of management's attitude suggest low fraud risk. In an experiment with 52 practicing audit managers, we find that auditors who decompose fraud‐risk assessments are more sensitive to opportunity and incentive cues when making their overall assessments than auditors who simply make an overall fraud‐risk assessment. However, this increased sensitivity to opportunity and incentive cues appears to happen only when those cues suggest low fraud risk. When opportunity and incentive cues suggest high fraud risk, auditors are equally sensitive to those cues whether they use a decomposition or a holistic approach. We discuss and examine potential explanations for this finding.