Halo Effect in Analytical Procedure: The Impact of Client Profile and Information Scope

Global Journal of Business Research, Vol. 8 (1) pp. 9-26, 2014

18 Pages Posted: 2 Feb 2014

See all articles by Intiyas Utami

Intiyas Utami

Satya Wacana Christian University

Indra Kusuma

Universitas Gadjah Mada (UGM)

Dr. Gudono

Universitas Gadjah Mada (UGM)

Dr. Supriyadi

Universitas Gadjah Mada (UGM) - Faculty of Economics and Business (FEB)

Date Written: 2014

Abstract

Many auditors use risk-based audit as a methodology that emphasizes assessing audit risk. A holistic perspective during strategic assessment encourages the auditor to focus on the big picture. They understand the industry and client business and determine the risk of material misstatement as an initial hypothesis about the client. Previous research found that a holistic perspective in strategic assessment causes a halo effect. This study focuses on the phenomena of a halo effect in analytical procedures, the impact of a client’s profile and scope of information that be presented to auditor in planning an audit. We propose that auditor judgment is impacted by the client’s profile and professional judgment will be different in a holistic perspective. This study is motivated by bounded rationality of individuals and uses representative heuristics to evaluate clients. The holistic opinion of the person tends to be consistent when analyzing detailed diagnostic information about the person. In an analytical procedure context, understanding of the industry and client business influences the extent to which they adjust account-level risk assessment. We propose two hypotheses. The first hypotheses is that the risk of material misstatement after presentation of client’s profile is positively correlated with the risk of material misstatement after get financial information of client. The second hypothesis is an auditor who obtains information about a client in the scope of holistic information would determine the risk of material misstatement lower than auditor who obtains information in scope of specific information. Data from laboratory experiment using various levels of auditor were collected. The finding suggest a halo effect is generated during analytical procedures and when auditors obtain information about the client in holistic scope.

Keywords: Halo Effect, Analytical Procedure, Scope of Holistic Information, Specific Scope Information

JEL Classification: M42

Suggested Citation

Utami, Intiyas and Kusuma, Indra and Gudono, Dr. and Supriyadi, Dr., Halo Effect in Analytical Procedure: The Impact of Client Profile and Information Scope (2014). Global Journal of Business Research, Vol. 8 (1) pp. 9-26, 2014, Available at SSRN: https://ssrn.com/abstract=2323009

Intiyas Utami (Contact Author)

Satya Wacana Christian University ( email )

Diponegoro Street 52-60
Salatiga, Central Java 50711
Indonesia
0298311881 (Phone)

Indra Kusuma

Universitas Gadjah Mada (UGM) ( email )

Bulaksumur, Yogyakarta
Yogyakarta, Special Province of Yogyakarta
Indonesia

Dr. Gudono

Universitas Gadjah Mada (UGM) ( email )

Bulaksumur, Yogyakarta
Yogyakarta, Special Province of Yogyakarta
Indonesia

Dr. Supriyadi

Universitas Gadjah Mada (UGM) - Faculty of Economics and Business (FEB) ( email )

Jl. Humaniora, Bulaksumur
Sleman
Jogjakarta, DI Yogyakarta 55281
Indonesia

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