Counteracting the Directional Influence of Incentives on Auditor Judgment

48 Pages Posted: 6 Mar 2018 Last revised: 6 Jan 2021

See all articles by Yuepin (Daniel) Zhou

Yuepin (Daniel) Zhou

University of Illinois at Urbana-Champaign - Department of Accountancy

Date Written: April 10, 2020

Abstract

Auditing standards require auditors to be objective in their judgment. However, certain incentives inherent in the auditing environment motivate auditors to adopt a directional goal and to prefer incentive-consistent audit conclusions over others, undermining auditor objectivity. I predict and find that making auditors’ intrinsic motivation for their work salient counteracts the directional influence of incentives on auditor judgment. I show that the counteracting effects are achieved by salient intrinsic motivation prompting auditors to search for relatively more evidence that contradicts their incentive-consistent audit conclusion, to evaluate acquired evidence as being less supportive of their incentive-consistent conclusion, and to integrate the evidence into their judgment to a greater extent. The results indicate that salient intrinsic motivation that focuses auditors on the intrinsic rewards of a task can mitigate the negative impact of motivated reasoning on audit quality, a challenging issue that has constantly concerned regulators, practitioners, and academics.

Keywords: directional incentives, intrinsic motivation, motivated reasoning, information search, information evaluation

Suggested Citation

Zhou, Yuepin, Counteracting the Directional Influence of Incentives on Auditor Judgment (April 10, 2020). Available at SSRN: https://ssrn.com/abstract=3126368 or http://dx.doi.org/10.2139/ssrn.3126368

Yuepin Zhou (Contact Author)

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

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