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    The Effects of a Supervisor’s Active Intervention in S...
    research summary posted May 7, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind, 09.11 Auditor judgment in the workpaper review process, 11.0 Audit Quality and Quality Control, 11.01 Supervision and Review – Effectiveness in Auditing Section Research Summaries Space public
    Title:
    The Effects of a Supervisor’s Active Intervention in Subordinates’ Judgments, Directional Goals, and Perceived Technical Knowledge Advantage on Audit Team Judgments
    Practical Implications:

    This study suggest that supervisors can not only influence their subordinates’ judgment by intervening in subordinates’ judgment process(es), but can also increase their own biases by intervening. In doing so, their increased biases impact the final decisions regarding the audit testwork. Findings suggest that auditors are not aware of this increase in supervisors’ biases, and, thus are not consciously taking steps to mitigate this effect (e.g., avoiding early interventions). Authors suggest training or policy changes that could lower the risk of additional bias. This could be done by making auditors aware of consequences of intervening in subordinates’ judgments. Policies and/or planning could take additional steps to reduce the amount of superiors’ early interventions as much as possible.

    Citation:

    Peecher, M. E., Piercey, M. D., Rich, J. S., and R. M. Tubbs. 2010. The Effects of a Supervisor’s Active Intervention in Subordinates’ Judgments, Directional Goals, and Perceived Technical Knowledge Advantage on Audit Team Judgments. The Accounting Review 85 (5):  1763-1786. 

    Keywords:
    audit team judgments; client pressure; directional goals; active intervention; technical knowledge
    Purpose of the Study:

    Supervision and review of subordinates’ work is a requirement under GAAS.  However, when supervisors have preferred conclusions in mind (often at a subtle, “subconscious” level) and then intervene to “coach” or “instruct” subordinates’ work and judgment processes, the subordinates’ judgment can become biased in the same direction as their supervisors’. Such biased intervention could not only bias the subordinate’s judgment, but reaffirm the supervisors’ (unconscious) biases.  This study evaluates how the intervention on subordinates’ judgment impacts the supervisor’s finalized judgments for the audit team, and whether technical proficiency impacts this effect. This study primarily evaluates: 

    • Whether audit supervisors (who have preferred conclusions in mind) that intervene and guide their subordinates judgments are more biased in their final judgments, compared to those supervisors who do not intervene (but also have preferred conclusions in mind).
    • How the supervisors’ technical knowledge may influence the potential biases on his/her final judgment. 
    • Whether such effects of intervening are conscious or sub-conscious.
    Design/Method/ Approach:

    For the first experiment, financial services industry specialist auditors are used in a valuation task. The participants were paired (one subordinate, one supervisor) based on their experience. Subordinates were comprised of staff and senior staff; supervisors were in-charges and seniors. Participants were asked to review financial information for a hypothetical client and then to assess the discount rate. Supervisors were asked to review the subordinates’ discount rate before finalizing the audit team’s discount rate.

    For the second experiment, auditors from a major accounting firm were asked to read the same materials provided to participants in the first experiment and then rate how biased the audit team’s estimate is from the best possible estimate (from “extremely low” to “no bias” to “extremely high”).

    Findings:
    • The final judgment of audit supervisors who intervened in their subordinate’s judgment process was influenced more than the judgment of those supervisors who did not intervene, even though both sets of supervisors had the same directional goals/preferences.
    • Audit supervisors’ perceived technical expertise reduced the effects of their initial preferences/directional goals.
    • While auditors believe that directional goals/preferences bias supervisors’ finalized judgments, they do not appear to believe that intervening with subordinates’ judgment increases this bias. This suggests that the increases in the bias are not conscious or acknowledged.
    Category:
    Auditor Judgment, Audit Quality & Quality Control
    Sub-category:
    Prior Dispositions/Biases/Auditor state of mind, Auditor judgment in the workpaper review process, Supervision & Review – Effectiveness
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