The influence of client and partner preferences on audit judgments.

Abstract

This dissertation develops a model which predicts that others' preferences, operationalized as client-imposed fee pressure and a partner's preferred "approach" to auditing, will affect audit judgments. The model also develops hypotheses predicting that information acquisition and information evaluation are the mechanisms through which others' preferences influence audit judgments. The model's predictions were tested in a behavioral experiment in which four versions of an audit case were distributed to audit managers from one auditing firm. A between-subjects design was used; two levels of client fee pressure and two partner-preferred approaches to auditing were manipulated between participants. The experiment required auditors to determine the extent to which work performed by a client's internal audit department would affect planned external audit procedures. Additionally, participants provided assessments of the level of quality of the client's internal audit department. Participants determined the number of information cues to acquire before providing the above judgments. For each information cue acquired, the participants assessed: (1) whether the cue was positive, negative, or irrelevant; and (2) the importance of the cue. Consistent with the model's predictions, participants experiencing a high level of fee pressure relied on work performed by the client's internal audit department to a greater extent than did participants experiencing a low level of fee pressure. Contrary to the model's predictions, a partner's preference did not have significant influence on audit judgments. Surprising was the finding that while the number of audit hours budgeted was influenced by fee pressure, assessments of the quality of the internal audit department, which were relatively low, did not vary as predicted across the treatment conditions. These results suggest that information acquisition and evaluation need not be the mechanisms through which others' preferences influence audit judgments. A conjecture is that the mechanism through which others' preferences influence audit judgments is through biased interpretation of that level of quality at which the internal audit department's quality is considered acceptable. Congruent with the above conjecture, but contrary to the model's predictions, evidence from this study indicates that information acquisition and information evaluation were not the mechanisms through which others' preferences influenced audit judgments. The results of this study highlight the need for additional research examining how and in what contexts the various components of the judgment process are affected by others' preferences.