Auditor Judgment Marietta and Peter

Auditing: A Journal of Practice & Theory American Accounting AssociationVol. 30, No. 4 DOI: 10.2308/ajpt-10170November 2011pp. 285–301

How Partners’ Views InfluenceAuditor Judgment

Marietta Peytcheva and Peter R. Gillett

SUMMARY: Prior research has shown that auditors who learn superiors’ views before

making their own judgment are influenced by them (e.g., Peecher 1996; Tan et al. 1997;

Cohen and Trompeter 1998; Brown et al. 1999; Wilks 2002). We use the theory of

motivated reasoning (Kunda 1990, 1999) to examine the malleability of individual

auditors’ judgments after auditors have reached their own independent conclusions. In a

between-subjects experiment with practicing auditors and audit students, we find that

auditors who learn the views of their superiors after reaching their own judgment

subsequently report that their original, independent judgment had been the same as that

of their superiors. Our findings provide evidence that knowledge of superiors’ views

biases auditors’ reports of their prior independent judgments, potentially inhibiting

discussion and resolution of contrary views. Moreover, in our study this bias is not

significantly different from the influence superiors’ views have on auditors who learn

those views prior to reaching their own conclusions. We discuss the implications of these

findings for audit practice.

Keywords: audit judgment; motivated reasoning; cognitive bias; malleability.

Data Availability: Contact the first author.

INTRODUCTION

Objective, unbiased professional judgment by auditors is a crucial element of the audit

process and an important assumption of professional standards (AAA 1973; PCAOB

2010; SEC 2006; Taub 2006; AICPA 2010, Rule 102). Nevertheless, prior research has

found that in forming their judgments, auditors can succumb to influences from others who are

important to them. Auditors rendering a professional judgment are influenced by knowledge of the

views of their superiors in the audit firm (Brown et al. 1999; Peecher 1996; Tan et al. 1997; Cohen

and Trompeter 1998; Wilks 2002). These prior studies find that auditor judgment is swayed by

Marietta Peytcheva is an Assistant Professor at Lehigh University, and Peter R. Gillett is an AssociateProfessor at Rutgers, The State University of New Jersey.

We thank Shelly Alexander, Michael Alles, Don Arnold, Bryan Church, Deirdre Collier, Tim Fogarty, Udi Hoitash,Jennifer Kohn, Dan Palmon, Mark Peecher, Boris B. Stefanov, Lydia Stefanova, Alex Wagner, Danielle Warren, T.J.Wilks, Arnie Wright, Ari Yezegel, as well as the editor and two anonymous reviewers for their valuable comments andsuggestions.

Editor’s note: Accepted by Ken Trotman.

Submitted: June 2010Accepted: July 2011

Published Online: November 2011

285

superiors’ views learned before reaching conclusions. Our study contributes to the literature on

objectivity of auditor judgment by examining the malleability of auditors’ individual reportedjudgment after the fact—that is, after the auditor has already reached a conclusion.

We build on earlier research that has examined the effect of superiors’ views on auditors who

learn those views before they make their own judgment. Our study differs from earlier studies,

however, in that we examine what happens if the auditor learns the views of evaluators after the

auditor has already made a professional judgment. Our interest is in investigating whether there is

more to the problem than prior knowledge of superiors’ views overwhelming other evidence as

auditors reach their own judgments. This could occur, for instance, because auditors’ recollections

of judgments they had already reached are in some way faulty, or even because auditors choose to

misrepresent what their former views were once they learn superiors’ views. We ask: Given that an

auditor has already made a decision, will the auditor report it accurately to others after learning the

conflicting views of superiors? In the context of the hierarchical structures of audit firms, can

individual, unencumbered professional judgment be communicated candidly between auditors at

different levels in the firm?

These questions are especially important to ask, given recent calls by regulators and the audit

profession for a move to, or convergence with, International Financial Reporting Standards (IFRS)

in the United States. IFRS are perceived to allow greater room for auditor judgment than current

U.S. GAAP. This makes studying the objectivity of auditors’ judgment even more timely, because

prior research has found that auditors can take advantage of the vagueness in accounting standards

to allow reporting choices consistent with their own economic incentives (Trompeter 1994;

Hackenbrack and Nelson 1996).

In reaching the firm’s audit opinion, the audit partner needs to have access to the audit evidence

and to the professional judgment of the individual auditors who obtained and examined it. Even if

the audit process allows for individual auditors reaching their own judgments before learning the

partner’s views, can audit partners access unbiased reports of those judgments after having revealed

their own views? If an auditor who has already made an independent professional judgment finds

out that it conflicts with superiors’ views, the auditor may never openly report that original

judgment. This could eventually mean that independent professional judgment is stifled at lower

levels in audit firms. It is preferable that contrary views surface and be explicitly resolved, rather

than being suppressed in light of knowledge of superiors’ views.

We draw on the theory of motivated reasoning (Kunda 1990, 1999) to examine the malleability

of auditors’ judgments. We examine these issues in a between-subjects experiment with practicing

auditors and upper-level auditing students, in which participants render individual judgments about

the accounting treatment of a transaction. Participants are divided into three groups: (1) a control

group, in which participants never learn the views of superiors in the firm; (2) a group in which

participants learn superiors’ views before making their own judgment; and (3) a group in which

participants first make a judgment themselves, and then learn the views of their superiors.

First, we replicate the findings of prior research: in our experiment, auditors who learn

superiors’ views before making their own judgment are influenced by those views. Second, we find

that auditors who learn the views of superiors in their firm after making their own judgment, report

that their own original judgment was the same as the judgment of their superiors. Our findings

provide evidence on the influence superiors’ views can have on auditors’ reports of their own past

judgments. Moreover, in our experiment, the observed distortion in auditors’ reported memory of

their own prior judgment is not significantly different from the influence superiors’ views have on

auditors who learn those views before making their own judgment. It appears that once auditors

have learned the views of superiors, in many cases only biased reports of their original views are

available. This has a potentially disruptive effect on the prospects of superiors being able to modify

their views in light of arguments put forward by those who report to them.

286 Peytcheva and Gillett

Auditing: A Journal of Practice & TheoryNovember 2011

Our results suggest that auditors’ independent, previously formed judgments can, in effect, be

obliterated by knowledge of superiors’ views, even to the extent of auditors reporting that their

original judgment had matched the judgment of superiors before those views were known. This

finding implies that the presence of cognitive biases in auditing driven by motivated reasoning

(Kunda 1990, 1999), such as biased memory search and reconstruction (Loftus and Pickrell 1995;

Tryon and McKay 2009), may be stronger than previously documented. Such biases, possibly

exacerbated by strategic choices to misrepresent former judgments, could impact auditors’

professional judgment by compromising reports of previously reached conclusions.

LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT

Accountability to Evaluative Audiences with Known Views

A rich literature exists on the objectivity of individual auditor judgment under conditions of

accountability, much of it grounded in the work of Tetlock and colleagues (Tetlock 1985; Tetlock

et al. 1989; Lerner and Tetlock 1999). According to Tetlock’s (1985) social contingency model of

judgment and choice, decision makers who know the views of an evaluative audience engage in

less complex cognitive processes. They resort to the acceptability heuristic in order to cope with

accountability demands: decision makers take the path of least cognitive effort and align their views

with the known views of their evaluative audience (Buchman et al. 1996).

Audit research has extensively studied auditor decision making under accountability to

supervisors with known views and preferences. Peecher (1996) documents that auditors’ judgments

in the context of analytical review are affected by the known preferences of audit partners. Tan et al.

(1997) and Cohen and Trompeter (1998) find that partners’ views significantly influence the

assessments of accountable subordinates. Turner (2001) shows that partners’ preferences affect

auditors’ search strategy in an accounts receivable collectability review task. These studies

consistently show that auditors are influenced by the known preferences of superiors in their firms,

although they do not separate the information effect of superiors’ views from the bias effect, and

therefore do not conclusively determine the extent to which observed influences are non-normative.

Partners’ views have also been shown to exert unambiguously non-normative influence on auditors’

judgment. Brown et al. (1999) conduct an experiment that examines the effect of superiors’ views

on auditor reasoning, showing that the influence of superiors’ views extends beyond their

information content. Controlling for the information effect of supervisor preferences, the study

provides evidence that supervisor preferences induce non-normative bias in auditors’ judgments.

Wilks (2002) documents not only that auditors align their decisions with the known views of

partners, but also that auditors who learn partners’ views before examining evidence engage in pre-

decisional distortion of evidence, assigning greater weight to evidence that confirms partners’ views.

Importantly, the study also shows that, although partners anticipate auditors’ aligning their decision

with the known preferences of their superiors, they do not anticipate pre-decisional distortion of audit

evidence if supervisors’ views are observed early in the audit. These results suggest that although the

review process may mitigate some of the influence superiors’ preferences have on auditor judgment,

reviewers’ lack of awareness of the differential magnitude of the influence, depending on whether their

views are revealed early or late in the audit process, may still affect the conclusions of audit teams.

The stream of literature discussed above finds that auditors who learn superiors’ views beforethey have to make their own judgment are influenced by those views. The first step in our study is to

replicate this finding. We propose the following replication hypothesis:

H1: The reported judgment of auditors who learn the views of their superiors before making

their own judgment is aligned with superiors’ views more than the reported judgment of

auditors who are not aware of the views of their superiors.

How Partners’ Views Influence Auditor Judgment 287


The Malleability of Independent Judgments

Extant research examining the influence of superiors’ views on auditors’ judgment has not so

far studied how learning superiors’ views affects auditors’ self-reports of their independent,

previously reached, judgments. The literature has so far focused on examining how knowing

superiors’ views affects auditors’ judgments that have not already been reached. The studies

reviewed above (Peecher 1996; Tan et al. 1997; Cohen and Trompeter 1998; Brown et al. 1999;

Turner 2001) provide auditors with partners’ preferences before auditors make their own judgment,

and examine how these preferences affect auditors’ subsequent decisions.

Our study examines a different situation in which the auditor has already reached an

independent judgment, but subsequently learns the views of superiors in the firm before revealing it.

We study the effects on auditors’ self-reports about their original judgment after the fact. We

ground our expectations in the theory of motivated reasoning (Kunda 1990), which has been

extensively studied in auditing (e.g., Kadous et al. 2003; Moore et al. 2006; Wilks 2002; see also

Bonner [2008] for a review). This theory (Kunda 1990, 1999) proposes that motivation affects

cognition by biasing the processes of memory search and belief construction.1 According to Kunda

(1990, 1992), cognitive dissonance can provide one strong directional motivation for biased

cognitive processes. Our expectations are that learning the conflicting views of superiors in the

audit firm can bias auditors’ reports of their own prior conclusions.

We examine a scenario in which an auditor has to render a professional judgment about the

recording of an accounting transaction. The auditor studies the facts and reaches an independent

conclusion. After the auditor has reached a conclusion, but before reporting that conclusion to

superiors in the audit firm, the auditor learns that the views of superiors contradict the auditor’s own

judgment. The auditor is then asked to report what his/her own original conclusion had been. At this

point the auditor holds two conflicting cognitions (Festinger 1957; Aronson 1968). The cognition of

the auditor’s autonomous professional judgment conflicts with the cognition that it is to the

auditor’s advantage to report a judgment similar to that of the supervisors to whom the auditor is

accountable (cf. Tetlock 1985; Jones and Wortman 1973). As explained more generally by Kunda

(1990), the cognitions ‘‘My judgment was X’’ and ‘‘I prefer to state not X’’ are dissonant, and the

decision maker seeks to reduce the psychologically uncomfortable state of dissonance. Dissonance

can be reduced by removing one of the dissonant cognitions (Festinger 1957; Festinger and

Carlsmith 1959; Aronson and Carlsmith 1962).

Importantly, we are not examining a situation in which the auditor is required to report to

others his/her modified beliefs—that is, the auditor’s most recent beliefs, very likely updated after

contemplating the views of supervisors in the audit firm. It is understandable, perhaps even

expected, that the auditor might take into account the opinions of supervisors, and might update his/

her own beliefs accordingly. However, we are interested not in the modified or revised judgment,

but in the judgment already made—the prior conclusion reached by the auditor. We examine

whether that independently reached conclusion will be accurately reported to the auditor’s audience

and thus be available as a basis for reasoned discussion and argument.

The fact that the auditor’s judgment has already occurred in the past, combined with the

auditor’s current incentives to report that the original judgment had been in line with the views of

superiors, presents conditions for the auditor to engage in motivated reasoning (Kunda 1990). This

motivation is relatively strong, since it relates to career concerns and concerns over personal

1 The theory of motivated reasoning suggests that reasoning can be driven both by accuracy motivations and bymotivations to achieve directional goals (Kunda 1990, 1999). Both types of motivated reasoning have beenstudied in accounting (see Bonner [2008] for a review). In this study, we focus on the predictions of the theory ofmotivated reasoning with respect to reasoning driven by directional goals.



reputation within the audit firm—a well-documented pressure in auditing contexts (Lord 1992;

DeZoort and Lord 1997). However, outright deception about the auditor’s earlier conclusions is

likely to increase, rather than decrease, the auditor’s cognitive dissonance, and to damage the

auditor’s self-concept consistency (e.g., Aronson and Carlsmith 1962; Kunda 1990; Mazar et al.

2008). Dissonance is increased by the cognition that one has engaged in a behavior inconsistent

with a self-image as a decent person (Aronson 1968; Kunda 1990). In such a situation, the auditor is

pressured both to report that his/her previous conclusions were consistent with superiors’ views,

and also to preserve self-concept consistency (Aronson 1968, 1992; Aronson and Carlsmith 1962)

and favorable view of self (Zhang and Baumeister 2006; Mazar et al. 2008).

The auditor’s reasoning in this situation is likely to be driven by a directional goal. The

auditor’s goal in this case is to maintain the positive regard of superiors (by reporting that the

auditor’s original judgment matched their view), while still maintaining a positive self-image and

disconfirming deceitful self-image (thereby avoiding an increase in dissonance). Motivated

reasoning does not lead decision makers simply to accept the strategically appropriate judgment or

to engage in deception; motivated reasoning instead leads individuals to engage in biased cognitive

processes (Bonner 2008). When decision makers engage in motivated reasoning, they search

memory for beliefs supporting the desired conclusion; they can even creatively combine the

accessed knowledge to create new beliefs (Kunda 1990, 1992). Directional goals (such as the

auditor’s motivation in this situation) bias not only inferential rules, but also beliefs about the self

and about the occurrence of past events. Since this process is unconscious, the auditor’s memory of

his/her earlier, independent judgment can become malleable.

There is strong support in psychology research for the view that memory involves ‘‘a dynamic

reconstruction of past events based on current expectations, beliefs, emotions, and context effects

and that memory is constructive which explains why people can have memory for events that never

occurred’’ (Tryon and McKay 2009). A state of arousal increases the likelihood of memory biases

(Kunda 1990). Research in cognitive psychology and neuroscience has established that memory is

malleable, and is influenced by thoughts, emotions, and subsequent events and information (Tryon

and McKay 2009; Brainerd and Reyna 2002). Studies have shown that retroactive interference—the

influence of subsequent events on memory—can bias memory and even create false memories (e.g.,

Loftus et al. 1992; Loftus 1992; Loftus and Pickrell 1995). Directional goals can bias memory

search (Markus and Kunda 1986), and motivated reasoning can bias reconstruction of past events

toward the desired goal (Ross et al. 1981; Kunda 1990; Sherman and Kunda 1989). The

mechanisms through which motivated reasoning operates include directed memory search and

distorted reconstruction of past events (Bonner 2008).

We therefore expect that in the presence of incentives such as learning the conflicting views of

superiors in the audit firm, auditors’ professional judgments and independently reached conclusions

are malleable even after the fact. Our hypothesis is as follows:

H2: The reported judgment of auditors who learn the views of their superiors after having

made their own judgment is aligned with superiors’ views more than the reported

judgment of auditors who are not aware of the views of their superiors.

Reports of Judgments Made Before versus After Learning Superiors’ Views

We next consider whether the alignment of auditors’ reported judgment with the views of their

superiors differs depending on whether auditors learn superiors’ views before or after they have

made their own judgment. Lerner and Tetlock (1999) and Bonner (2008) discuss that it is difficult

for researchers to distinguish between strategic choice and motivated reasoning as potential drivers

of judgment under accountability. Our study provides some indirect and preliminary evidence on



the role of cognitive biases and limitations versus strategic choice in the observed alignment. On the

one hand, one could expect that finding out partners’ views before making one’s own decision

would increase the degree of alignment relative to finding those views after an independent

judgment has been made. Tetlock et al. (1989) examine the effect of having to commit to an attitude

on the complexity of thought of individuals accountable to audiences with known views. Their

study finds that, as predicted by the Tetlock (1985) model, participants’ confidentially reported

thoughts are less (more) integratively complex2 if participants have (have not) committed to a

position first, before writing down their thoughts. This suggests that auditors who learn partners’

views after they have made a decision may exhibit greater complexity of thought and less alignment

with those views.

However, in Tetlock et al. (1989), participants were assured that only their positions would be

publicly revealed and provided to evaluators, but the private thoughts listed by participants would be

kept fully confidential. Here we are interested in auditors’ public reports of their decisions, and the

analog of this construct in Tetlock et al.’s (1989) study is participants’ publicly reported positions. It is

important to note that greater integrative complexity of thought does not necessarily translate to more

balanced public reports of one’s judgment. In fact, Tetlock et al. (1989) find that individuals align

their reported positions with those of evaluators more in the thoughts-first condition than in the

position-first condition. These results suggest that strategy plays a greater role in the public report of

one’s judgment than in the confidential report of one’s thoughts. Thus it is not clear that the reports of

auditors who learn the views of their superiors after having made their own judgment would differ

from the reports of auditors who learn superiors’ views before making their own judgment.

Wilks (2002) finds that auditors who learn partners’ views earlier in the audit are influenced by

those views to a greater extent than auditors who learn partners’ views later in the audit, and that

this influence is due to unconscious pre-decisional distortion of information. However, all

participants in Wilks (2002) do learn the views of audit partners before they reach an ultimate

conclusion. Further, the study notes that auditors who already know partners’ views before they

interpret the evidence could still be strategically stylizing their initial interpretation of evidence for

persuasion purposes, consistent with the suggestion in Rich et al. (1997).

Thus, depending on the assumptions made about the predominant driver of the expected

alignment, different predictions can be made in our study about whether the alignment of views will

differ when auditors learn partners’ views before versus after they have made a decision

themselves. Based on prior research in psychology and auditing (Kunda 1990, 1999; Tetlock et al.

1989; Wilks 2002), we expect motivated reasoning to be one of the drivers of the observed

alignment. We acknowledge, however, that any observed alignment does not have to result solelyfrom cognitive biases, and that strategic choice could be at work as well (Bonner 2008). Absent a

strategic component, we would expect auditors who learn partners’ views after they have already

made their own judgments to report views less aligned with the views of audit partners than auditors

who first learn the partners’ views and then make a judgment. However, if strategic choice also

plays a role in auditors’ behavior, the difference in reported judgments between the two groups of

auditors should be attenuated. We pose the following research question:

RQ: Is the reported judgment of auditors who learn the views of their superiors after making

their own judgment different from the reported judgment of auditors who learn the views

of their superiors before having made their own judgment?

2 Integrative complexity is defined in terms of the constructs of differentiation and integration, wheredifferentiation is a necessary condition for the presence of integration (Tetlock et al. 1989). Differentiationrefers to the number of distinct aspects of a problem that a decision maker considers, while integration capturesthe connections made between these different aspects.



METHODOLOGY

Participants

Participants in our experiment were practicing auditors from a large international accounting

firm, and upper-level auditing students.3 The experimental design, task, and procedures were

identical for the two groups of participants. The only difference in experimental materials between

the two groups was in the operationalization of the evaluative audience to whom the participant is

accountable, which is addressed in the Study Design and Variables section below. There were 45

practicing auditors (23 males, 22 females) and 56 senior-level auditing students (31 males, 25

females) from a large state university participating in the experiment. Of the auditor participants, 73

percent were at the associate level, and 27 percent were audit seniors.4

Experimental Procedure and Materials

The experiment with auditors took place on the firm’s premises, immediately after an audit

training session. The office managing partner briefly introduced the research project as a study on

audit judgment and decision making, introduced the researcher, expressed support for the study,

and emphasized that participation was voluntary. The experiment with students took place at the

end of an audit lecture. The instructor introduced the study, emphasizing that participation in the

study was voluntary and that non-participation would not affect students’ course grade.5

Before the beginning of the study, participants read and signed informed consent materials.6

Booklets containing the experimental materials were distributed next. The experimental procedure

involved reading an audit scenario and rendering a judgment on the treatment of an accounting

expenditure in the area of fixed assets. In Part One of the experiment, participants read a brief

summary of the important audit issues in the area of fixed assets, a description of the audit task, and

the case information; they were then asked to make a judgment on the case. Participants had to

determine whether the expenditure relating to an economic event should be capitalized and

amortized over future periods, or treated as a current period expense.

Participants in all experimental conditions were asked to make their judgment in Part One of

the experiment and to confirm (by placing a checkmark in a box) that they had indeed reached a

conclusion about the appropriate treatment of the expenditure before proceeding. However,

participants were not asked to record this original judgment. They were asked to remember their

conclusion, so that they could report it in Part Two of the study.

After confirming that they had reached a conclusion in Part One of the experiment, participants

unsealed the booklet containing Part Two of the instrument; this booklet had remained sealed until

participants had completed Part One. In Part Two, participants had to report the judgment they had

3 Since we are aware of no theory positing an interaction between the influence of superiors’ views on auditorjudgment and audit experience, we used students as participants (cf. Peecher and Solomon 2001). As explainedin our Results section, there was no significant difference in the judgments between students and auditors in ourexperiment. However, in addition to the main combined analysis, we present separate analyses for students andauditors.

4 We tested for the presence of significant differences between audit seniors and the rest of our participants byincluding an indicator variable for audit senior in three logistic regressions, which: (1) compared audit seniors tothe rest of our sample, (2) compared audit seniors to audit associates only, and (3) compared audit seniors toaudit students only. The indicator variable for audit senior was insignificant in all analyses, and its inclusion inthe models did not change our results.

5 The instructor had no involvement in, or relation to, this research.6 These materials informed participants about the experimental procedures, emphasized that their participation in

the study was voluntary and confidential, and that they might choose to withdraw from the study procedures atany time before, during, or after the study without any penalty.



made in Part One of the experiment.7 Participants were then asked to fill out a post-experimental

questionnaire. After submitting the experimental materials to the researchers, participants were

debriefed, and were given copies of the consent materials and debriefing statement. The

experimental design and timeline are shown in Table 1.

The audit scenario, read and evaluated by participants, was adapted from a problem in the

study guide to an Intermediate Accounting textbook (Hunt et al. 2004, case 10-3) and is shown in

Appendix A. A scenario involving the audit of fixed assets was chosen, as this is an area not

requiring significant levels of audit experience.8 In this study, the experimental case had a

normatively correct response: the amount expended to undertake a complete renovation and

overhaul of the plumbing system of the plant is appropriately treated as a capital expenditure.

Hence, it was expected that in the absence of any influence, the majority of participants would

select the ‘‘capital expenditure’’ answer. The case was pilot-tested with five doctoral students and

accounting professors, whose suggestions were incorporated in the instrument. Pilot-test

participants assessed the case as clear and unambiguous.

Study Design and Variables

A between-subjects design was used to test our hypotheses. The independent variable

manipulated between conditions was timing of learning of the views of superiors. Participants were

randomly assigned to one of three conditions: CONTROL, BEFORE, and AFTER. Participants in

the CONTROL condition were not given knowledge of the views of audit partners at any stage of

the study. Participants in the BEFORE condition learned the views of audit partners in Part One of

the experiment, before making their own judgment about the accounting transaction. Participants in

the AFTER condition learned the views of audit partners in Part Two of the study—only after

reaching their own audit judgment in Part One, and confirming that they had done so.9

TABLE 1

Experimental Design

Control Before After

Part 1

Accountability instantiated Accountability instantiated Accountability instantiated

Case evidence Case evidence Case evidence

Learn partners’ views

Make a judgment Make a judgment Make a judgment

Part 2

Learn partners’ views

What was your own judgment

that you made in Part One?





Submit Submit Submit

7 Importantly, participants had to report their original judgment from Part One, and not their current opinion.8 Previous studies in the area of the objectivity of auditor judgment have used going concern scenarios (Wilks

2002), practice development issues (Cohen and Trompeter 1998), and preliminary analytical review tasks (Tan etal. 1997). These tasks usually require manager- or partner-level professional judgment. The present studyfocused on a simpler task involving less ambiguity, so as to ensure that participants possessed the requisite task-specific knowledge.

9 The Part Two booklet remained sealed until participants confirmed that they had reached a conclusion in PartOne.



An important difference between Wilks (2002) and our study is that, while both studies employ

before and after conditions, in Wilks (2002) all subordinates learned the views of supervisors

before they made a decision, and the before and after conditions related only to whether the

subordinate learned supervisors’ views relatively early or later in the process, but still beforemaking a decision. In our study, BEFORE and AFTER relate to whether participants learn partners’

views before or after reaching a decision of their own. Thus, while in Wilks (2002) after meant after

the auditor had examined the evidence, but not yet reached a conclusion, in our study AFTERmeans after the auditor has already reached a conclusion. Another important difference is that we

employ a control condition in our study, so we can compare judgments in the treatment conditions

to judgments in the absence of superiors’ views.

The views of audit partners were the same in both the BEFORE and the AFTER groups: that the

expenditure amount should be treated as a current period expense. These views contradicted the

response expected to be favored by participants in the absence of any manipulation. Participants

were also provided with some discussion arguing for this proposition. Specifically, after the views

of audit partners were presented as: ‘‘The expenditure of $73,000 should be recorded as an expense

in the current period,’’ a separate heading ‘‘Partners’ Rationale’’ was followed by justifying

arguments for the views of audit partners, which argued that capitalization would be inappropriate

and mentioned WorldCom as an example of inappropriately capitalized expenses. The justifying

arguments presented as ‘‘Partners’ Rationale’’ were included to enhance the credibility of the stated

views of audit partners.

Similar to previous studies examining objectivity of auditors’ judgment (Tan et al. 1997;

Peecher 1996), we instantiated accountability to superiors in the audit firm. Accountability was

operationalized in a way consistent with previous studies, by asking participants to print their names

on their instruments and by informing them that responses would be reviewed by an evaluative

audience (see, e.g., Peecher 1996; Tan et al. 1997; Lord 1992; Buchman et al. 1996). The way in

which accountability was operationalized was slightly different for auditors and students. At the

beginning of the study, auditors were informed that their responses would be reviewed by audit

partners in their firm, while students were told that their responses would be reviewed by audit

partners and their instructor.10

In Part Two of the experiment, participants were asked to report the original judgment that they

had made earlier in Part One, and to submit this report to the researcher (see Appendix B). The

dependent variable in this study, REPORTED_JUDGMENT, represents the type of original

judgment reported. REPORTED_JUDGMENT takes the value 1 if participants report that their

original judgment had been to expense the amount, and 0 otherwise.

The effectiveness of the experimental manipulation of learning partners’ views was assessed by

asking participants at what point they were given the information about partners’ views on how the

expenditure should be treated. Three answer choices were provided: ‘‘Part One booklet,’’ ‘‘Part Two

booklet,’’ and ‘‘I was not given information about partners’ views.’’ Participants were also asked to

confirm their understanding of the views of audit partners about whether the expenditure should be

expensed or capitalized.

10 Neither auditors’ nor students’ individual responses were in fact reviewed by partners or an instructor. The use ofdeception in this study was deemed justified, and approved by the institution review board (IRB). Given therelatively junior level of participants in our study, our main concern was to assure participants that theirresponses will in fact be fully confidential. We also wanted to preserve a pool of partners willing to participate insuch studies. Therefore, in the debriefing process after the study, both auditors and students were informed thattheir individual responses would not be reviewed by audit partners (and, in the case of students, the instructor aswell), and that each participant’s individual response would remain confidential with the researchers. Thisapproach is open to criticism related to the possible impact on participants if they participate in futureexperiments (see Dopuch 1992; Gibbins 1992).



RESULTS

Descriptive Statistics

One of the 45 auditor participants and one of the 56 student participants did not complete the

experimental task; they were excluded from the study. Of the remaining participants, 41 auditors

and 50 students passed the manipulation checks and were included in the following analyses.11 The

distribution of reported audit judgments for each experimental condition, and the cell size for each

condition, are shown in Table 2, Panel A. Of the 91 participants, 32 were in the CONTROLcondition, 28 were in the BEFORE condition, and 31 were in the AFTER condition. The numbers in

the Capitalize and Expense columns of Table 2 show the number of participants who reported that

their original judgment made in Part One of the experiment was that the expenditure amount should

be capitalized, or expensed, respectively. Table 2, Panels B and C show this data separately for

Students and Auditors, respectively.

Hypotheses Tests

Logistic regression was used to test the experimental hypotheses. First, we tested for

differences between the auditors and students in our sample, by estimating a full model including an

indicator variable for auditor participants and its interactions with the two treatment conditions. All

of these variables were individually insignificant and, taken together, they did not contribute to the

explanatory power of the model (v2 = 2.77, p = 0.428).12 We therefore omitted these three

indicator variables and performed our analyses on the combined sample of students and auditors,

though for comparison we also report results separately for the two groups. The final model is

presented below:

REPORTED JUDGMENT = b0 þ b1 � BEFOREþ b2 � AFTERþ e:

H1

H1 predicted that auditors who learn the views of their superiors before having reached a

judgment themselves are influenced in their judgment by superiors’ views. We therefore expected

that participants in the BEFORE condition would be more likely to report an ‘‘expensed’’conclusion than participants in the CONTROL condition. The sign of the coefficient on the variable

BEFORE is thus predicted to be positive. Table 3, Panel A shows that the coefficient on BEFORE is

positive and significant (z = 3.90, p ,0.001), and H1 is therefore supported. Table 3, Panels B and

C show the similar, comparable results for Students and Auditors, respectively.

Using the coefficients estimated in the model, one can calculate the probability of a participant

in the CONTROL condition (i.e., one not influenced by superiors’ views) reporting a conclusion to

expense the amount to be 0.31. In contrast, the probability of a participant in the BEFORE condition

reporting a conclusion that the amount should be expensed is 0.86, significantly relatively closer to

a non-normative response than 0.31.

H2

H2 predicted that the reported judgment of auditors who learn the views of their superiors afterhaving made their own judgment would be more aligned with superiors’ views than the reported

11 Results remain unchanged if the three auditor participants and the five student participants who did not pass themanipulation checks are included in our analyses.

12 The test statistic is calculated as �2 Log likelihood of the reduced model minus �2 Log likelihood of the fullmodel; degrees of freedom are equal to the number of parameters in the full model minus the number ofparameters in the reduced model.



judgment of auditors who are not aware of the views of their superiors. The proportion of

participants who report an ‘‘expensed’’ conclusion in the AFTER condition was therefore expected

to be significantly greater than in the CONTROL condition, and the sign of the coefficient on the

AFTER indicator variable was predicted to be positive. The coefficient on AFTER in Table 3, Panel

A is positive and significant (z = 3.73, p ,0.001), and therefore H2 is supported. Table 3, Panels B

and C show the similar, comparable results for Students and Auditors, respectively. The probability

of a participant in the AFTER condition reporting that his/her original judgment had been the same

as superiors’ judgment is 0.81, again significantly relatively closer to a non-normative response

than 0.31.

TABLE 2

Descriptive Statistics for REPORTED_JUDGMENT by Condition

Panel A: Overall

REPORTED_JUDGMENTa

Cell Total Percent Expense0 (Capitalize) 1 (Expense)

Conditionb CONTROL 22 10 32 31

BEFORE 4 24 28 86

AFTER 6 25 31 81

Total 32 59 91 65

Panel B: Students

REPORTED_JUDGMENTa



BEFORE 1 15 16 94

AFTER 3 15 18 83

Total 14 36 50 72

Panel C: Auditors

REPORTED_JUDGMENTa



BEFORE 3 9 12 75

AFTER 3 10 13 77

Total 18 23 41 56

Number of observations: 91.a REPORTED_JUDGMENT takes the value 1 if participants report that their original judgment had been to expense the

amount, and 0 otherwise.b Participants in the CONTROL condition were not given knowledge of the views of audit partners at any stage of the

study. Participants in the BEFORE condition learned the views of audit partners in Part One of the experiment, beforethey had made their own judgment about the accounting transaction. Participants in the AFTER condition learned theviews of audit partners in Part Two of the study—only after they had reached their own audit judgment in Part One.



H3

Our main model compared the judgment of participants in the BEFORE condition to that of

participants in the CONTROL condition; it also compared the judgment of participants in the

AFTER condition to that of participants in the CONTROL condition. In additional analysis, we

estimate a model to compare the judgment of participants in the BEFORE condition to that of

participants in the AFTER condition. This analysis allows us to compare the magnitude of influence

of superiors’ views before a judgment is made to the degree of malleability of auditors’ independent

judgment after the fact.

Table 4, Panel A shows a logistic regression model estimated using only participants in the

BEFORE and AFTER conditions, where the intercept represents the BEFORE condition and we test

the significance of a single indicator variable for the AFTER condition. This model is not significant

(v2 = 0.27, p = 0.603); in addition, the coefficient on AFTER is also insignificant (z =�0.52, p =0.605). In considering our research question, it does not appear that the magnitude of influence

superiors’ views have on auditors who have not yet reached a judgment is significantly different

from the malleability of auditors’ reports of their own independent judgment, once they have

TABLE 3

Logistic Regression of REPORTED_JUDGMENTa on Timing of Learning Superiors’ Views

REPORTED JUDGMENT = b0 þ b1� BEFOREþ b2� AFTERþ e:

Panel A: Overall

Variableb Predicted Sign Estimated Coefficient S.E. z Sig.

INTERCEPT �0.79 0.38 �2.07 0.038

BEFORE þ 2.58 0.66 3.90 0.000

AFTER þ 2.22 0.59 3.73 0.000

Panel B: Students


INTERCEPT �0.51 0.52 �0.99 0.323

BEFORE þ 3.22 1.16 2.79 0.003

AFTER þ 2.12 0.82 2.60 0.005

Panel C: Auditors


INTERCEPT �1.10 0.58 �1.90 0.057

BEFORE þ 2.20 0.88 2.49 0.007

AFTER þ 2.30 0.88 2.63 0.005

a REPORTED_JUDGMENT takes the value 1 if participants report that their original judgment had been to expense theamount, and 0 otherwise.

b Participants in the CONTROL condition were not given knowledge of the views of audit partners at any stage of thestudy. Participants in the BEFORE condition learned the views of audit partners in Part One of the experiment, beforethey had made their own judgment about the accounting transaction. Participants in the AFTER condition learned theviews of audit partners in Part Two of the study—only after they had reached their own audit judgment in Part One.



learned the differing views of superiors. Table 4, Panels B and C show the similar, comparable

results for Students and Auditors, respectively.

DISCUSSION

The existing body of literature on individual auditor judgment has consistently documented the

influence superiors’ views exert on auditors who learn those views before making a judgment of

their own. Missing from this literature is an examination of the extent to which independent

judgment that has already been reached can remain objective, and persist long enough to be

communicated to and discussed with colleagues and superiors, after auditors have learned the views

of those superiors. Audit opinions are the result of the collective efforts of teams of auditors.

Although audit partners are the ones ultimately responsible for the expression of the audit opinion,

that opinion is based on the work, and professional judgments, of numerous auditors throughout the

audit firm (NYSSCPA 2009). It is therefore important that throughout the audit process, audit teams

have access to the independent judgment of individual auditors, uninfluenced by the views of

others, as a basis for discussion and decision making.

We study how malleable individual auditor judgment is once it has been formed, if auditors

subsequently learn of the conflicting views of audit partners. This question is important to audit

practice, since the malleability of auditors’ prior judgment by the views of superiors could pose

communication problems during audits, and even eliminate meaningful discussion that could have

been generated by the tension between different points of view and the valuable intellectual effort of

resolving such disagreements. In this paper, we examine auditors’ behavior in rendering reports of

TABLE 4

Comparison of REPORTED_JUDGMENTa in the BEFORE and AFTER Conditionsb

Panel A: Overall

Variable Estimated Coefficient S.E. z Sig.

INTERCEPT BEFORE 1.79 0.54 3.32 0.001

AFTER �0.37 0.71 �0.52 0.605

Panel B: Students



AFTER �1.10 1.21 �0.91 0.182

Panel C: Auditors



AFTER 0.11 0.94 0.11 0.911

a REPORTED_JUDGMENT takes the value 1 if participants report that their original judgment had been to expense theamount, and 0 otherwise.

b Participants in the BEFORE condition learned the views of audit partners in Part One of the experiment, before they hadmade their own judgment about the accounting transaction. Participants in the AFTER condition learned the views ofaudit partners in Part Two of the study—only after they had reached their own audit judgment in Part One.



their individual judgments, through the lens of the theory of motivated reasoning (Kunda 1990,

1999), which posits that directional goals influence cognition through biased memory search and

belief construction processes.

Our experiment, conducted with practicing auditors and audit students, replicates the findings of

earlier research documenting that partners’ views influence auditors who have not yet reached their

own judgment (e.g., Peecher 1996; Tan et al. 1997; Cohen and Trompeter 1998; Brown et al. 1999;

Wilks 2002). More importantly, we find that auditors who learn the views of audit partners only after

having independently reached their own professional judgment, report after the fact that their own

prior judgment had matched the views of audit partners. This suggests that the views of superiors in

the firm can bias auditors’ reports of their own prior judgment even after that judgment has been

independently formed. Moreover, in our study this after-the-fact bias is not significantly different

from the influence superiors’ views have on auditors who learn them prior to reaching a conclusion.

This finding builds on earlier research documenting pre-decisional biases in auditor judgment (Wilks

2002), suggesting that auditor judgment under accountability is also subject to post-decisional

malleability and that this bias may pose additional threats to communication within audit teams.

In addition to the general limitations of experimental research, our findings are also subject to

the following limitations. Auditor participants in our study were at the associate and supervising

senior levels; we cannot therefore be certain that the behavior observed in our study would

generalize to audit managers. While results were similar for auditors and students in our study, it is

possible that experience might mitigate the biases observed here. Further, the views of audit

partners presented in the experimental task reflected a relatively conservative decision; it is possible

that auditor judgment would be influenced to a smaller extent by less conservative views of

superiors. Also, participants in the after condition did not provide a record of their independently

reached judgment, so although they confirmed that they had reached a conclusion before viewing

the partner’s views, it cannot be established that they actually did so.13 Our results should be

generalized with caution, because participants in our study had access to a limited amount of

evidence and had to choose between only two alternatives; on a real engagement, auditors can

choose to collect more evidence, and could defer or suspend their judgment. Finally, we note that

our study does not demonstrate a non-normative influence of superiors’ views on the judgment of

auditors who learn these views before forming their own judgment, because auditors may be

appropriately responding to the information content present in the views of audit partners. Our

study suggests that knowledge of partners’ views may have a non-normative influence on auditor

judgment to the extent that such knowledge could lead auditors to withhold their own

independently reached opinions from others in the firm (AICPA 2010).

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APPENDIX A

Case Evidence

K&H, Inc. has been in its plant facility for twenty years. Although the plant is still quite

functional, numerous capital improvement and repair costs often have to be incurred on it. The

company’s plant asset book value is currently $450,000, as indicated below:

Original Cost $1,350,000

Accumulated Depreciation 900,000

Book Value $450,000



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During the current year, the following expenditures were made involving the plant facility

(assume that all amounts are material):

A. The entire plant was repainted at a cost of $47,000.

B. The company purchased at a major discount several months’ supply of machine lubricants,

cleaners, and a vat of anticorrosive phosphoric acid for a total cost of $23,000.

C. A plumbing leak occurred in March and because of it the entire plant had to be shutdown for a week. A complete renovation and overhaul of the plumbing system had tobe undertaken in the following two months, at a total cost of $73,000.

You will be asked to make an audit judgment about accounting event C above.

APPENDIX B

Report of Participant Judgment

Please record your own judgment below:

What was your own judgment about event C that you made in Part One?

___ My judgment was that the expenditure in event C should be expensed.

___ My judgment was that the expenditure in event C should be capitalized.



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