How Strength of Habits Developed as Staff Influences Senior Auditors’ Evaluation of Assumptions Underlying an Estimate

47 Pages Posted: 3 Jan 2019 Last revised: 20 Aug 2019

See all articles by Sarah E. Bonner

Sarah E. Bonner

University of Southern California

Kathryn Kadous

Emory University - Goizueta Business School

Tracie M. Majors

University of Southern California

Date Written: August 19, 2019

Abstract

Effective auditing of estimates is critical for audit quality. We posit that audit staff develop and carry over into senior-hood habits to use superficial, piecemeal, and confirmatory cognitive processes, which are effective for staff tasks but ineffective for auditing estimates. Behaviors become habits when they are repeated and concurrently rewarded in a particular context; habits are automatically, unconsciously activated by context cues. In an experiment, we measure audit seniors’ habit strength and manipulate (imagined) context. In a typical audit room context, seniors with stronger habits identify fewer issues with an estimate than those with weaker habits. Seniors with stronger habits perform better in an audit room lacking key context cues and therefore preventing habit activation; seniors with weaker habits do not. This interaction and additional analyses provide strong support for habits as the causal construct. Our findings provide new directions for research on audit quality and implications for audit practice.

Keywords: habits, cognitive processing, accounting estimates, audit quality, impairment, fair value, professional skepticism

JEL Classification: G10, M40, M41, M42, D80, D91

Suggested Citation

Bonner, Sarah E. and Kadous, Kathryn and Majors, Tracie McDonald, How Strength of Habits Developed as Staff Influences Senior Auditors’ Evaluation of Assumptions Underlying an Estimate (August 19, 2019). Available at SSRN: https://ssrn.com/abstract=3302949 or http://dx.doi.org/10.2139/ssrn.3302949

Sarah E. Bonner

University of Southern California ( email )

Marshall School of Business
Los Angeles, CA 90089-0441
United States
213-740-5025 (Phone)
213-747-2815 (Fax)

Kathryn Kadous

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States
404-727-4967 (Phone)

Tracie McDonald Majors (Contact Author)

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

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