Faculty Publications

The Joint Effect Of Supervisor Influence And Investor Perspective: Unintended Consequences On Assessing Accounting Estimates

Document Type

Article

Keywords

Accounting estimates, Auditor’s adjustment decisions, Financial statement misstatements, Investor perspective, Professional skepticism, Supervisor influence

Journal/Book/Conference Title

Managerial Auditing Journal

Volume

37

Issue

1

First Page

151

Last Page

169

Abstract

Purpose: The purpose of this paper is to examine the joint effect of supervisor influence and investor perspective on novice auditors’ assessments of accounting estimates. Design/methodology/approach: The experiment used a 2 × 2 between-subjects design, randomly assigning proxies of novice auditors among four conditions. The authors manipulated the supervisor’s level of emphasis on evidence that suggests accounting estimate adjustment and whether auditors are prompted to take an investor perspective. Participants were asked to assess the misstatement risk of the allowance for doubtful accounts of the client company. Findings: The authors find that auditors assign a higher (lower) risk of misstatement when their supervisor places high (low) emphasis on evidence suggesting accounting adjustment. The authors also find that contrary to the belief that taking the perspective of investors could enhance objectivity and independence, investor perspective leads to a decrease (rather than an increase) in auditors’ perceived risk of misstatement when the supervisor places low emphasis on evidence suggesting accounting adjustment. Originality/value: This study provides early evidence on the efficacy of investor perspective and is one of the first to document an unintended consequence of asking auditors to take an investor perspective.

Department

Department of Accounting

Original Publication Date

1-3-2022

DOI of published version

10.1108/MAJ-02-2021-3034

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