Disclosure Checklists and Auditors’ Judgments of Aggressive Accounting
35 Pages Posted: 15 Feb 2013 Last revised: 8 Apr 2020
Date Written: March 1, 2017
This study investigates if auditors who feel accountable to management (as opposed to the audit committee) are more susceptible to pro-client bias after using a disclosure checklist. We theorize that the use of a disclosure checklist, even though it is uninformative about the aggressiveness of the accounting methods used, can influence auditors’ judgments of the acceptability of aggressive reporting by inducing a less critical state of mind. We propose that this less critical state of mind is reflected in higher levels of pro-client bias, particularly when management is the appointing party. Our experimental data for two cases, obtained from experienced auditors working at a Big Four audit firm, support this prediction. Our findings imply that threats to auditor independence are more subtle than has often been assumed.
Keywords: checklist; auditor independence; pro-client bias; audit judgment; aggressive accounting
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