Abstract
Effective consultation is critical for improving the audit of estimates. In an experiment where audit managers acted as consultants to other auditors, we examine conditions in which consultants either recommend estimates that differ substantially from advice-seekers' assessments (contrariness) or recommend narrower reasonable ranges of estimates (precision). Psychology theory argues that both of these attributes can improve estimates. We examine whether these attributes depend on consultants' status motives, that is, the desire to gain respect from or power over others. We find that active status motives lead consultants with higher specialized knowledge to provide recommendations that are less contrary, but more precise. However, consultants increase precision by tightening range bounds in a manner that is not counter to management's preference and thus unlikely to prompt the audit team to challenge the estimate. We also find that higher consultant decision authority constrains precision. Our findings suggest limits to consultation's potential effectiveness in improving estimates. For instance, our findings suggest that firms and standard setters direct consultants to focus scrutiny on the range bound that is most likely to constrain management opportunism.
Original language | English |
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Pages (from-to) | 1331-1363 |
Number of pages | 33 |
Journal | Journal of Accounting Research |
Volume | 54 |
Issue number | 5 |
DOIs | |
Publication status | Published - Dec 2016 |
Keywords
- auditor consultation
- use of specialists
- accounting estimates
- status motives
- evolutionary psychology
- decision authority
- advice
- EVOLUTIONARY PSYCHOLOGY
- QUALITY ASSESSMENT
- DECISION-MAKING
- MODEL
- REPRESENTATIONS
- ACCOUNTABILITY
- ASSESSMENTS
- PERSPECTIVE
- PERFORMANCE
- REPUTATION