How Does an Initial Expectation Bias Influence Auditors' Application and Performance of Analytical Procedures?

Prior research demonstrates that knowledge of unaudited balances biases auditors' expectations during analytical procedures. What is less understood is how these biases affect auditors' subsequent investigations and their conclusions about the reasonableness of a particular balance. We emp...

Full description

Saved in:
Bibliographic Details
Published in:The Accounting review 2013-07, Vol.88 (4), p.1413-1431
Main Authors: Pike, Byron J., Curtis, Mary B., Chui, Lawrence
Format: Article
Language:English
Subjects:
Accounting
Accounting balances
Accounting interpretations
Accounting methods
Auditing
Auditing procedures
Auditors
Bias
Business audits
Economic fluctuations
Economic performance
Estimation bias
Expectations
False information
Financial accounting
Financial audits
Financial reporting
Financial statements
Focalism
Gross profits
Hypothesis
Identity
Studies
Unaudited financial statements
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Prior research demonstrates that knowledge of unaudited balances biases auditors' expectations during analytical procedures. What is less understood is how these biases affect auditors' subsequent investigations and their conclusions about the reasonableness of a particular balance. We employ the selective accessibility model to examine the differences in analytical procedure performance when auditor expectations are formed with versus without knowledge of the client's unaudited financial statement balances. In an experimental setting, we found that auditors with knowledge of unaudited balances favored hypotheses and supporting information indicating that the client's balance was reasonably stated. Auditors who formed expectations without current-year figures were more willing to evaluate competing alternatives, could better identify the most pertinent information, and were significantly more likely to identify a material misstatement using an analytical procedure.
ISSN:0001-4826
1558-7967
DOI:10.2308/accr-50426