The Effects of a Supervisor’s Active Intervention in Subordinates’ Judgments, Directional Goals, and Perceived Technical Knowledge Advantage on Audit Team Judgments

Abstract

Prior research shows that an audit supervisor’s active intervention in a subordinate’s judgment distorts that judgment. However, subordinates’ judgments are only one input into audit team judgments. How do supervisors finalize audit team judgments after actively intervening in their subordinates’ judgments? In an experiment using audit teams, supervisors with weaker or stronger goals to reach a client-preferred conclusion either were or were not asked to first actively coach a subordinate’s judgment (i.e., active intervention) before reviewing it and finalizing the audit team’s judgment. Supervisors’ intervention influenced subordinates’ inputs, which, in turn, supervisors incorporated into their final judgments. More interestingly, intervention biased supervisors’ final judgments, controlling for supervisor directional goal strength and for concurrent effects on subordinates’ inputs. However, supervisors distorted their judgments less as they perceived a larger technical knowledge advantage over subordinates. In a second experiment, auditors appear aware of the bias-reducing knowledge advantage effects but unaware of the bias-increasing active intervention effects. We discuss implications for audit team judgments and audit quality control.

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.…”

Perbedaan Tujuan Auditor Atas Tingkat Overconfidence Pertimbangan Auditor (Studi Eksperimental)

“…Tujuan direksional bergantung pada pilihan yang telah ditetapkan sebelumnya berdasarkan pengaruh sosial (Peecher et al 2010). Pengaruh sosial yang berkaitan dengan auditor pada umumnya berhubungan dengan atasan (Peecher et al, 2010) maupun klien (Kadous et.al, 2003).…”

“…Pengaruh sosial yang berkaitan dengan auditor pada umumnya berhubungan dengan atasan (Peecher et al, 2010) maupun klien (Kadous et.al, 2003). Hackenbrack dan Nelson (1996) menunjukkan bahwa auditor cenderung mendukung metode pelaporan yang diinginkan klien, hal ini menunjukkan adanya pengaruh hubungan dengan klien terhadap pertimbangan audit.…”

Unintended Consequences of Lowering Disclosure Thresholds: Proposed Changes to SFAS No. 5

“…For example, while long (short) investors are motivated to view disclosures in a more favorable (unfavorable) light, the potential for actual investment losses also provides strong pressure to maintain some sense of reasonableness in their beliefs about an investment rather than simply believing what they want to believe about it (Hales 2007). When factors are present that make reasonableness constraints more salient in settings such as these, directional motivated reasoning goals (while strong) can also become quickly bounded (Peecher et al 2010). Thus, investors" long or short positions can provide them with strong directional goals that will likely bias their judgments, but can also provide them with similarly strong reasonableness constraints that limit further motivated reasoning (see Figure 1).…”