Does Audit Effort Impede the Willingness to Impose Audit Adjustments?

50 Pages Posted: 26 Oct 2019

See all articles by Steven J. Kachelmeier

Steven J. Kachelmeier

University of Texas at Austin

Dan Rimkus

University of Texas at Austin, Red McCombs School of Business, Department of Accounting, Students

Date Written: October 14, 2019

Abstract

In an abstract, incentivized experiment patterned after the investigation and adjustment decisions that characterize auditing, we find that participants who adjust for information obtained from their willful investigation specify lower adjustments than participants who get the same information without having to take investigative action. Our theory draws on mental accounting and information choice effects, which in combination predict that unfavorable outcomes from costly investigative actions can impede the willingness to incur additional costs in the adjustment process. Separating investigative and adjustment decisions in a paired variant of the task removes the effect of investigative effort on adjustments, but introduces a systematic negative effect on adjustments from sharing risk with paired participants. Our study provides potential insight into the puzzle of why auditors willingly exert costly effort to uncover material misstatements, only to subsequently waive the adjustments that would correct these misstatements.

Keywords: audit effort, waived audit adjustments, auditor independence, mental accounting, information choice effects

Suggested Citation

Kachelmeier, Steven J. and Rimkus, Dan, Does Audit Effort Impede the Willingness to Impose Audit Adjustments? (October 14, 2019). Available at SSRN: https://ssrn.com/abstract=3469748 or http://dx.doi.org/10.2139/ssrn.3469748

Steven J. Kachelmeier

University of Texas at Austin ( email )

Department of Accounting
2110 Speedway, Mail Stop B6400
Austin, TX 78712
United States
512-471-3517 (Phone)
512-471-3904 (Fax)

Dan Rimkus (Contact Author)

University of Texas at Austin, Red McCombs School of Business, Department of Accounting, Students ( email )

Austin, TX
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
67
Abstract Views
436
rank
374,288
PlumX Metrics