An Experimental Investigation of Auditor-Auditee Interaction Under Ambiguity

Posted: 5 Dec 1999

See all articles by Mark F. Zimbelman

Mark F. Zimbelman

Brigham Young University

William S. Waller

University of Arizona - Department of Accounting

Abstract

This study experimentally investigates the interaction between auditors and auditees in a strategic setting. Auditee subjects asserted an asset value, given knowledge of the true value. Auditor subjects selected a costly sample of the assets and decided whether to accept or reject an auditee's asserted value. The experiment included between-subjects manipulations of auditee pay for undetected overstatements and ambiguity facing auditors. We investigate whether auditees anticipate the effect of auditors' ambiguity aversion on their decisions to sample and reject the reported balance. Results indicate that sampling increased with increases in either auditors' ambiguity or auditees' incentive to misstate. Also, controlling for sample size, auditors tended to reject the asserted value given a stronger incentive to misstate, but were unaffected by ambiguity. Auditees' misstatement rate was higher given a stronger incentive to misstate, and lower given more ambiguity facing auditors. Further, we document a strategic effect of ambiguity as the effect of auditors' ambiguity in reducing auditees' tendency to misstate was larger given a weaker incentive to misstate.

JEL Classification: M49, C91

Suggested Citation

Zimbelman, Mark F. and Waller, William S., An Experimental Investigation of Auditor-Auditee Interaction Under Ambiguity. Available at SSRN: https://ssrn.com/abstract=193909

Mark F. Zimbelman (Contact Author)

Brigham Young University ( email )

Marriott School of Management 540 N Eldon Tanner Building
Provo, UT 84602
United States
801-422-1227 (Phone)

William S. Waller

University of Arizona - Department of Accounting ( email )

Tucson, AZ 85721
United States
520-621-2351 (Phone)
520-520-3742 (Fax)

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