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Auditor perceptions of prior involvement and reputation threats as antecedents of quality threatening audit behavior

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  • Marietta Peytcheva
  • Peter R. Gillett
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    Abstract

    Purpose – The purpose of this paper is to investigate practicing auditors' beliefs regarding the effect of prior involvement on the occurrence of quality threatening behaviour (QTB) during an audit. The authors examine the extent to which auditors' beliefs about QTB are consistent with the theoretical framework of Kanodia et al., according to which prior involvement in audit work would increase the likelihood of auditors suppressing evidence inconsistent with earlier audit decisions. Design/methodology/approach – The authors conduct an experiment in which auditors assess the likelihood of perceived reputation threats associated with encountering disconfirming evidence late in the audit, and the likelihood that such evidence will be suppressed. Findings – Auditors participating in the study believe that prior involvement will induce a perception of personal reputation threats in an auditor encountering evidence inconsistent with the conclusions of earlier audit work. Participants perceive an auditor with prior involvement in the audit work to be more likely to suppress audit evidence than an auditor with no prior involvement; this effect is largely explained by the personal reputation threats believed to be induced by prior involvement. Research limitations/implications – The findings provide important information, from the perspective of practicing auditors, about a situational antecedent of QTB that is present on most audit engagements. Prior involvement is perceived by auditors to induce a conflict of interest in reporting troublesome evidence uncovered late in the audit. These perceptions suggest it is important to raise reviewers' awareness of the possibility of undesirable behavior in such situations. Potential limitations of the study relate to generalizability of the results under different levels of misstatement risk and under different environments in audit practice. Also, the authors do not measure auditors' actual behaviour, but their assessment of hypothetical situations and beliefs about others' actions. Future research can examine actual auditor behaviour in the presence of prior involvement. Originality/value – The paper provides evidence on auditors' beliefs about the effects on QTB of prior involvement, a factor that has not been previously studied in this line of research. The authors show that auditors' beliefs about QTB are consistent with Kanodia et al.'s theoretical framework. The study is the first to measure auditors' assessments of perceived reputation threats and to show their mediating effect on the predicted behavior of audit professionals.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Managerial Auditing Journal.

    Volume (Year): 27 (2012)
    Issue (Month): 9 ()
    Pages: 796-820

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    Handle: RePEc:eme:majpps:v:27:y:2012:i:9:p:796-820

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    Web page: http://www.emeraldinsight.com

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    Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
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    Related research

    Keywords: Assessed likelihood of evidence suppression; Auditing; Auditors; Individual behaviour; Individual perception; Prior involvement; Quality threatening behavior; Reduced audit quality acts; Reputation threats; United States of America;

    References

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    1. Fisher, Robert J, 1993. " Social Desirability Bias and the Validity of Indirect Questioning," Journal of Consumer Research, University of Chicago Press, vol. 20(2), pages 303-15, September.
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    4. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
    5. Prendergast, Canice & Stole, Lars, 1996. "Impetuous Youngsters and Jaded Old-Timers: Acquiring a Reputation for Learning," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1105-34, December.
    6. Bazerman, Max & Neale, Margaret, 1992. "Nonrational escalation of commitment in negotiation," European Management Journal, Elsevier, vol. 10(2), pages 163-168, June.
    7. Tan, Hun-Tong & Yates, J. Frank, 1995. "Sunk Cost Effects: The Influences of Instruction and Future Return Estimates," Organizational Behavior and Human Decision Processes, Elsevier, vol. 63(3), pages 311-319, September.
    8. Jeff Carpenter & Glenn Harrison & John List, 2005. "Field experiments in economics: An introduction," Artefactual Field Experiments 00034, The Field Experiments Website.
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    Cited by:
    1. Ulfert Gronewold & Anna Gold & Steven Salterio, 2013. "Reporting Self-Made Errors: The Impact of Organizational Error-Management Climate and Error Type," Journal of Business Ethics, Springer, vol. 117(1), pages 189-208, September.

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