The Effect of Moods on Auditors’ Inventory Valuation Decisions

Abstract

This paper investigates the effect of different mood states-specifically positive, neutral, and negative mood-on inventory valuation decisions. Psychological research suggests that different mood states can lead to different professional judgments in the performance of an ambiguous task. Compared with neutral-and negativemood individuals, positive-mood individuals have the lowest consensus and make the least conservative judgment ͑i.e., the highest inventory valuation͒, and negative-mood individuals have the highest consensus and make the most conservative judgment ͑i.e., the lowest inventory valuation͒. An experiment conducted with 102 Australian audit professionals found that, consistent with the literature, mood states affect the dispersion and extent of conservatism in the inventory valuation judgment. A follow-up experiment conducted with 170 final-year Australian auditing students suggests that the effect of moods on judgment may be due to the mood-congruent retrieval of information by the participants. Implications for practice and research are also provided.

The Impact of Authority on Reporting Behavior, Rationalization and Affect

“…While moods can impact a decision or behavior (Chung et al. ), emotions are the results of a decision or behavior.…”

External Auditors' Judgment and Decision Making: An Audit Process Task Analysis

“…Mood is a state of mind or feeling that is task‐irrelevant, yet it could impact auditor judgment. Chung, Cohen, and Monroe () explore whether auditors in a positive mood condition exhibit lower consensus and less conservatism relative to auditors in a negative mood condition. They find that positive‐mood participants' approach to decision‐making results in the lowest judgment consensus when compared with the neutral and negative‐mood participants.…”

An analysis of the influences of individual optimism, risk taking and self-confidence on professional accounting

“…Birnberg (2011), observed that in the last decades psychologists, experimental economists and accountants have begun to examine the role of the decision maker's emotional state (affect) on the decision process. Thus, Chung et al (2008) analyzed auditors' behavior making inventory valuation decisions and found that mood state affects the degree of conservatism in the audit mission. Hence, the author highlighted that auditors in a positive mood are less conservative than those in a negative mood.…”