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
Date Written: August 19, 2019
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: Suggested Citation