Auditor Attention to and Judgments of Aggressive Financial Reporting

Posted: 5 Aug 1999


This study identifies conditions that affect how auditors attend to and judge the possibility of aggressive financial reporting in their client?s financial statements. An experiment was conducted with 100 audit seniors and managers to determine whether the risk of misstatement and corroboration of that risk influence attention and judgment. Results indicate that auditors devote more attention to aggressive reporting in a financial statement account when it is assessed as having a high, rather than low, risk of misstatement. Moreover, attention to potential aggressive reporting in low-risk accounts is heightened only when auditors have previously examined evidence that corroborates misstatement risk for a high-risk account. If this corroborating evidence for the high-risk account is considered after the low-risk accounts are examined, auditors are less likely to note the possibility of aggressive reporting in low-risk accounts. Follow-up analyses suggest that different cognitive processes are responsible for these behaviors. Specifically, when assessments of high risk are available to guide processing of aggressive reporting evidence, judgments appear to be based on the risk assessment more than the evidence itself. In contrast, when such assessments are not available, the amount of attention given to evidence of aggressive reporting determines auditors? judgements.

JEL Classification: M49, C91

Suggested Citation

Phillips, Fred, Auditor Attention to and Judgments of Aggressive Financial Reporting. Journal of Accounting Research, Vol 37, No 1, Spring 1999. Available at SSRN:

Fred Phillips (Contact Author)

University of Saskatchewan ( email )

Edwards School of Business
25 Campus Drive
Saskatoon, Saskatchewan S7N 5A7
306-966-8401 (Phone)
306-966-2514 (Fax)


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