How Do Auditors Weight Informal Contrary Advice? The Joint Influence of Advisor Social Bond and Advice Justifiability

Abstract

Auditors frequently seek informal advice from peers to improve judgment quality, but the conditions under which advice improves auditor judgment are poorly understood. We predict and find evidence of a trust heuristic among auditors receiving advice from advisors with whom they share a social bond. This heuristic is evident among non-specialists, who weight advice according to its justifiability when it is received from a weaker social bond advisor, but fail to objectively assess the quality of advice received and weight it heavily when it comes from a stronger social bond advisor, regardless of its justifiability. Specialists, while less prone to the trust heuristic in advice weighting, show inconsistencies in advice weighting and their assessments of advice quality. In particular, specialists discount better justified advice from stronger social bond advisors, despite rating this advice as being of relatively high quality. This defensiveness likely arises from an aversive social comparison process attributable to the high ego-relevance of a task within one's specialization. Future research is warranted to corroborate or refute this possibility.

Subjectivity in Professionals' Incentive Systems: Differences between Promotion‐ and Performance‐Based Assessments

“…Specifically, we use 1,000 bootstrap re‐samples of the data to calculate bias‐corrected 95 percent confidence intervals for the indirect effect, with significance indicated by intervals that do not include zero. To test whether the indirect effect is a conditional indirect effect, we follow Preacher et al's () recommendation to apply the logic of a simple slopes approach (Aiken and West ) that compares the indirect effect across the two levels of the moderator variable—that is, promotion eligibility (e.g., see Menon et al ; Inman et al ; Mandel and Johnson ; Giessner and van Knippenberg ; Wiedermann et al ; Kadous et al ).…”

If You Want My Advice: Status Motives and Audit Consultations About Accounting Estimates

“…The experimental case (adapted from Peecher et al. [] and Kadous, Leiby, and Peecher []) instructed participants to assume they were consulting with a colleague at the same rank but on a different engagement on a valuation issue arising during the audit of Retail Credit Incorporated (RCI), a client that securitizes credit card receivables. The case provided extensive background on the securitization in question, evidence collected by the colleague, and industry benchmarks for comparison.…”

“…While contrariness can signal self‐confidence, organizations often discourage conflicting opinions and reward “yes men” even when they claim to prefer independent thought (Prendergast []). Moreover, advice‐seekers in auditing are likely to expect consultants to justify their recommendations (Kadous, Leiby, and Peecher []). As a result, consultants may feel accountable to the advice‐seeker and feel pressure to match their recommendations to the preferences of the advice‐seeker (Peecher []).…”

“…In contrast, as consultants’ expertise on an issue decreases, they are less likely to believe that they possess the necessary knowledge to reasonably justify increased precision. Moreover, those with less knowledge on an issue are increasingly likely to use effort‐reducing heuristics (Kadous, Leiby, and Peecher []). Because an evolved response to status motives is to appear distinctive or argumentative (Griskevicius, Goldstein, et al [], Griskevicius, Tybur, et al []), consultants with less expertise are likely to adopt a position of contrariness in response to status motives, knowing that they may lack the expertise in a given context to defend an increase in precision.…”

“…In sum, our study identifies conditions affecting the degree to which consultant recommendations are likely to help remedy deficiencies in the audit of estimates. This is an important step, as prior literature on advice focuses primarily on the advice‐seeker and treats the properties of consultant recommendations as exogenous or fixed (Yaniv [], Ng and Shankar [], Kadous, Leiby, and Peecher []). Our findings can inform audit firm policies that require consultation with knowledgeable persons, as well as standard‐setters and regulators whose responsibility is to provide guidance on using consultation to conduct more effective audits of financial statement estimates.…”