Heuristics and biases: Expertise and task realism in auditing.

Smith, James; Kida, Thomas

doi:10.1037/0033-2909.109.3.472

Cited by 369 publications

(159 citation statements)

References 91 publications

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“…Auditors seem to display overconfidence in their abilities (Kent and Weber, 1998) and possibly also in their ethics (Cohen et al, 1995). Auditors are susceptible to a number of other heuristics, including the representativeness heuristic (Kellogg and Kellogg, 1991;Smith and Kida, 1991;Uecker and Kinney, 1977), anchoring and adjustment (Bedard and Wright, 1994;Bonner and Pennington, 1991;Hirst and Koonce, 1996), and availability (Bonner and Pennington, 1991;Haynes and Kachelmeier, 1998).…”

Section: Some Reasons For the Breakdown In Corporate Governancementioning

confidence: 99%

History repeats itself: The failure of rational choice models in corporate governance

Marnet

2007

Critical Perspectives on Accounting

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Conventional proposals to reform corporate governance based on the rational model of decision making may be insufficient in preventing future corporate debacles. Typically underestimated are the pressures from conflicts of interest and bias on reputational intermediaries. Judgements and choices made by auditors during professional engagements may not strictly adhere to the rational model of decision making. This is of significance with regard to the gatekeeper function of auditors and relevant legislation. A discussion on earnings management elaborates by suggesting that strictly numerical measures are not a reliable guide to the quality of corporate governance. It is suggested that our understanding of monitor behaviour in corporate governance would be improved by placing it on psychologically more realistic foundations. Some of these foundations are introduced.

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Section: Some Reasons For the Breakdown In Corporate Governancementioning

confidence: 99%

History repeats itself: The failure of rational choice models in corporate governance

Marnet

2007

Critical Perspectives on Accounting

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“…The article by Smith and Kida (1991) provides a general review of research findings on the heuristics and biases exhibited by auditors. In the context of sampling, these behaviors include anchoring and adjustment, representativeness, neglect of base rates, insensitivity to sample size, information-search biases, and biased recall.…”

Section: Suggested Resources For Further Readingmentioning

confidence: 99%

Sampling Practices of Auditors in Public Accounting, Industry, and Government (Retracted)

Hall

Hunton

Pierce

2002

Accounting Horizons

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Although audit sampling is a common procedure, relatively little is known about the sampling practices of auditors in public accounting, industry, and government. This study surveyed practicing auditors to determine how they: (1) planned sample sizes, (2) selected sample items, and (3) evaluated sample outcomes. Respondents also provided data on the training received, debiasing techniques employed when using nonstatistical (judgmental) methods, and literature sources relied on to provide guidance regarding sampling matters. Respondents in all areas of practice reported that a majority of audit sampling applications rely on nonstatistical methods for sample planning, selection, and evaluation. Despite the heavy reliance on nonstatistical methods, less than 10 percent of respondents reported receiving training in debiasing techniques, and no respondents reported using these techniques. Among statistical methods dollar-unit sampling is the most frequently employed technique. All respondents reported reliance on employer guidelines, and most reported reliance on sampling standards promulgated by the American Institute of Certified Public Accountants.

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“…This is presumably because auditors pay attention to negative information regardless of question framing (Smith and Kida 1991). However, more recent studies suggest that framing may affect auditor judgment under some circumstances.…”

Section: Effect Of Step Frame On Audit Time Budgeting Judgmentsmentioning

confidence: 83%

Budgeting Audit Time: Effects of Audit Step Frame and Verifiability

Maksymov

Nelson

Kinney

2017

Behavioral Research in Accounting

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Auditors must ensure that their audit plans budget sufficient time for key audit steps. Research has shown that insufficient audit time budgets can be detrimental to audit quality. We examine whether framing audit steps negatively (e.g., assess whether management's assumptions are not appropriate) increases time budgetsparticularly for steps in which the auditor perceives that performance quality is less verifiable, and thus most at risk of being performed with low quality. First, we report the results of analyses indicating that, in practice, audit steps are predominantly framed positively, potentially resulting in smaller time budgets. We then report the results of an experiment in which 50 experienced audit managers budget time for an audit program that tests a Level-3 fair-value estimate. Prior research and Public Company Accounting Oversight Board (PCAOB) inspections indicate that this is a challenging audit area, vulnerable to allegations of low audit quality. The results support our predictions and suggest that reframing audit steps negatively would increase audit time budgets-an audit quality indicatorparticularly for less-verifiable steps.

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Heuristics and biases: Expertise and task realism in auditing.

Cited by 369 publications

References 91 publications

History repeats itself: The failure of rational choice models in corporate governance

History repeats itself: The failure of rational choice models in corporate governance

Sampling Practices of Auditors in Public Accounting, Industry, and Government (Retracted)

Budgeting Audit Time: Effects of Audit Step Frame and Verifiability

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