The Influence of a Self-Interest Threat to Auditor Independence and Emotion on Auditors’ Inventory Valuation Judgments

Posted: 31 Jan 2015

See all articles by Janne Chung

Janne Chung

York University - Schulich School of Business

Jeffrey R. Cohen

Boston College - Department of Accounting

Gary S. Monroe

University of New South Wales (UNSW) - Australian School of Business

Date Written: January 29, 2015

Abstract

Using an experiment with 96 experienced practicing auditors as participants, this paper investigates the effects of a self-interest threat to auditor independence and of emotion on auditors’ inventory valuation judgments. We predict that the presence of a self-interest threat in a judgment context (in the form of a job offer from the client) will lead participants to recommend a less conservative value (higher value) for the client’s ending inventory in relation to the absence of a self-interest threat (where there is no job offer). We also hypothesize that a more positive emotion will lead participants to recommend a less conservative inventory value compared to a more negative emotion. Additionally, participants in the positive-emotion treatment and with a self-interest threat present will recommend an inventory value that is less conservative (higher value) relative to individuals in all other conditions; and participants in the negative-emotion and self-interest threat not present condition will recommend an inventory value that is more conservative (lower value) relative to individuals in all other conditions. The results confirm our expectations. Implications for practice and future research are also discussed.

Keywords: Self-interest threat; emotions; audit judgments; auditor independence; Pleasure, Arousal, and Dominance (PAD) scale

Suggested Citation

Chung, Janne and Cohen, Jeffrey R. and Monroe, Gary S., The Influence of a Self-Interest Threat to Auditor Independence and Emotion on Auditors’ Inventory Valuation Judgments (January 29, 2015). Available at SSRN: https://ssrn.com/abstract=2557630

Janne Chung (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Jeffrey R. Cohen

Boston College - Department of Accounting ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-3165 (Phone)
617-552-2097 (Fax)

Gary S. Monroe

University of New South Wales (UNSW) - Australian School of Business ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia
+61293856443 (Phone)

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