Abstract
We investigate how the strictness of a requirement to consult on potential client fraud affects auditors' propensity to consult with firm experts. We consider two specific forms of guidance about fraud consultations: (1) strict, i.e., mandatory and binding; and (2) lenient, i.e., advisory and non-binding. We predict that a strict consultation requirement will lead to greater propensity to consult, particularly under certain client- and engagement-related conditions. Results from two experiments with 163 Dutch audit managers and partners demonstrate that consultation propensity is higher under a strict consultation requirement, but only when underlying fraud risk is high. The strictness effect is also greater under tight versus relaxed time pressure. Further, a strict standard increases auditors' perceived probability that a fraud indicator exists. Overall, we demonstrate that the formulation of a standard can have the desired effect on the judgments of auditors while also creating unexpected incentives that may influence auditor judgments.
Original language | English |
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Pages (from-to) | 925-949 |
Number of pages | 25 |
Journal | Accounting Review |
Volume | 87 |
Issue number | 3 |
DOIs | |
Publication status | Published - May 2012 |
Keywords
- auditing standards
- consultation requirement
- consultation propensity
- deadline pressure
- fraud
- fraud risk
- AUDITOR BEHAVIOR
- DECISION-MAKING
- TIME PRESSURE
- ACCOUNTABILITY
- RISK
- PERFORMANCE
- JUSTIFICATION
- INFORMATION
- JUDGMENTS
- FRAMEWORK