Disclosure Checklists and Bias in Audit Judgments
February 26, 2013 Leave a comment
Disclosure Checklists and Bias in Audit Judgments
RSM Erasmus University
Erasmus University Rotterdam (EUR); Erasmus School of Economics; Erasmus Research Institute of Management (ERIM)
Independent
January 30, 2013
Abstract:
We investigate whether using a disclosure checklist affects auditors’ judgments of the acceptability of aggressive reporting methods. The use of decision aids such as checklists in audit settings is increasing and existing research generally suggests that checklist use can improve decision-making quality. We argue that the use of a disclosure checklist can also have detrimental effects as it increases auditors’ acceptance of aggressive reporting methods by inducing cognitive biases. Our data, collected using an experiment with experienced auditors of a Big Four company as participants, supports this prediction. Specifically, in line with theory that checklist use can induce automation bias, we find that auditors using a disclosure checklist are more lenient in their evaluation of aggressive reporting. Furthermore, we find that this effect is stronger for auditors who have been hired by a company’s management board than for auditors who have been hired by an independent audit committee, which is consistent with theory that checklist use can also induce pro-client acceptability bias. We discuss the implications of these findings for research and practice.
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