Do Effects of Client Preference on Accounting Professionals' Information Search and Subsequent Judgments Persist with High Practice Risk?

45 Pages Posted: 10 Mar 2006 Last revised: 10 Dec 2007

See all articles by Kathryn Kadous

Kathryn Kadous

Emory University - Goizueta Business School

Anne M. Magro

George Mason University - Department of Accounting

Brian C. Spilker

Brigham Young University

Multiple version iconThere are 2 versions of this paper

Date Written: July 2007

Abstract

Audit and tax professionals tend to make judgments consistent with their client's preference, even when that preference is aggressive. Client preference affects judgments directly and indirectly, via information search. In particular, professionals focus their search on information that supports the client's preferred position at the expense of considering information that does not. Biased search is associated with inflated assessments of the likelihood that a client's preferred position will be supported in court and recommendations that are inappropriately aggressive (Cloyd and Spilker 1999). In an experiment with tax professionals as participants, we examine whether high practice risk (i.e., exposure to monetary and nonmonetary costs of making inappropriate recommendations) mitigates these effects. We find that when facing a client with high (versus low) practice risk, professionals perform a more balanced search and this reduces the indirect impact of client preference on judgments. We also find that after controlling for the impact of information search, client preference has a direct, negative impact on recommendations for both high and low practice risk clients, indicating that professionals adjust their recommendations away from the client-preferred position. We interpret this as a conservative reaction to increased environmental risk for all client types. This study sheds light on the direct and indirect paths by which client preference effects occur and demonstrates that high practice risk serves as a boundary condition on confirmation bias and on client preference effects.

Keywords: Confirmation bias, information search, practice risk, path analysis

JEL Classification: M41, D83, H20, K34

Suggested Citation

Kadous, Kathryn and Magro, Anne M. and Spilker, Brian, Do Effects of Client Preference on Accounting Professionals' Information Search and Subsequent Judgments Persist with High Practice Risk? (July 2007). Available at SSRN: https://ssrn.com/abstract=887723 or http://dx.doi.org/10.2139/ssrn.887723

Kathryn Kadous (Contact Author)

Emory University - Goizueta Business School ( email )

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

Anne M. Magro

George Mason University - Department of Accounting ( email )

Fairfax, VA
United States
703-993-1765 (Phone)

Brian Spilker

Brigham Young University ( email )

Marriott School of Management 523 TNRB
Provo, UT 84602
United States
801-378-4644 (Phone)
801-378-5933 (Fax)

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