Auditors’ Information Search and Documentation: Does Knowledge of the Client Preference Or PCAOB Accountability Pressure Matter?

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Auditors regularly make judgments regarding whether a client’s chosen accounting policy is appropriate and in accordance with generally accepted accounting Principles (GAAP). However, to form this judgment, auditors must either possess adequate topic-specific knowledge or must gain such knowledge through information search. This search is subject to numerous biases, including a bias toward confirmation of a client’s preference. It is important to further our understanding of bias in auditors’ information search to identify its causes and effects. Furthering our understanding is necessary to provide a basis for recommending and evaluating a potential debiaser, such as accountability. the Public Company Accounting ... continued below

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Olvera, Renee M. May 2012.

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  • Olvera, Renee M.

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Auditors regularly make judgments regarding whether a client’s chosen accounting policy is appropriate and in accordance with generally accepted accounting Principles (GAAP). However, to form this judgment, auditors must either possess adequate topic-specific knowledge or must gain such knowledge through information search. This search is subject to numerous biases, including a bias toward confirmation of a client’s preference. It is important to further our understanding of bias in auditors’ information search to identify its causes and effects. Furthering our understanding is necessary to provide a basis for recommending and evaluating a potential debiaser, such as accountability. the Public Company Accounting Oversight Board (PCAOB) annually inspects the audit files of selected engagements, which introduces a new form of accountability within the auditing profession. This new form of accountability has come at great cost, however, there is little empirical evidence regarding its effects on auditors’ processes. As such, it is important to understand whether the presence of accountability from the PCAOB is effective in modifying auditors’ search behaviors to diminish confirmation bias. Using an online experiment, I manipulate client preference (unknown vs. known) and PCAOB accountability pressure (low vs. high) and measure search type (information –focus or decision-focus), search depth (shallow or deep) and documentation quality. I investigate whether auditors’ information search behaviors differ based on knowledge of client’s preference and in the presence of accountability from an expected PCAOB inspection. I also investigate whether differences in auditors’ information search behaviors influence documentation quality, which is the outcome of greatest concern to the PCAOB. I hypothesize and find a client preference effect on information search type such that auditors with knowledge of the client preference consider guidance associated with the client’s preference longer than those without knowledge of the client’s preference. Contrary to expectations, PCAOB accountability pressure does not influence information search depth. with respect to documentation quality, I find that auditors engaged in a more information-focused search have higher documentation quality. Further, as expected, auditors who initially engage in a decision-focus and deep search have higher documentation quality than those auditors who initially engaged in a decision-focused but shallow search.

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UNT Theses and Dissertations

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  • May 2012

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  • Nov. 6, 2012, 3:03 p.m.

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  • Nov. 16, 2016, 12:55 p.m.

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Olvera, Renee M. Auditors’ Information Search and Documentation: Does Knowledge of the Client Preference Or PCAOB Accountability Pressure Matter?, dissertation, May 2012; Denton, Texas. (digital.library.unt.edu/ark:/67531/metadc115132/: accessed October 18, 2017), University of North Texas Libraries, Digital Library, digital.library.unt.edu; .