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    The Influence of Process Accountability and Accounting...
    research summary posted October 22, 2014 by Jennifer M Mueller-Phillips, last edited October 22, 2014, tagged 09.0 Auditor Judgment, 15.0 International Matters, 15.02 IFRS Changes – Impacts 
    271 Views, 1 Comment
    The Influence of Process Accountability and Accounting Standard Type on Auditor Usage of a Status Quo Heuristic
    Practical Implications:

    The results of this study are important for both audit firms and regulators to consider as standards change to become more principles-based (or as firms move towards using IFRS). The evidence indicates that auditors will sometimes fixate on the prior year accounting treatment, even if the applicable accounting standard has changed, and/or there are changes in the scenario. However, this bias towards maintaining the status quo can be mitigated by holding auditors accountable for their decision making process, particularly through a partner asking about the auditors’ decision making process.


    For more information on this study, please contact Scott Vandervelde.


    Messier, Jr., W. F., L. A. Quick, and S. D. Vandervelde. 2014. The influence of process accountability and accounting standard type on auditor usage of a status quo heuristic. Accounting, Organizations and Society 39 (1): 59-74

    International Financial Reporting Standards, principles-based standards, status quo bias, accountability, auditor judgment
    Purpose of the Study:

    There has been considerable discussion about the U.S. reporting standards becoming less rules based, similar to International Financial Reporting Standards (IFRS). One proposed advantage of a change to IFRS is increased comparability across multinational and non-U.S. companies. Additionally, some believe that IFRS afford greater flexibility in its principles, thereby enabling firms’ accounting choices to better reflect the true economic nature of any given transaction. With fewer rules, both financial statement preparers and auditors would be expected to adjust to having more options with regards to financial reporting. However, some proposed changes leave the option open to implement IFRS (or other principles-based standards) in ways that still follow rules in U.S. GAAP. This paper investigates whether prior year accounting treatments influence the judgment for current year treatments when one way to implement the standard is to follow the prior year treatment.

    The authors motivate their expectations based on status quo theory and accountability theory. Status quo theory suggests that individuals often choose to maintain a prior decision when faced with a new choice. Accountability theory suggests that when individuals are held accountable for their decision making process, this will reduce the bias towards the status quo. 

    Design/Method/ Approach:

    The research evidence is collected in 2010 through 2013. The authors use an experiment to collect data from auditors, mainly at the senior and manager level, from Big 4 and large national accounting firms in the United States and Norway.

    • The authors find that some auditors fixate on prior year scenarios and judgments, even if the current year scenario and applicable accounting standards are different.
    • The authors find that holding auditors accountable for their decision making process reduces the likelihood of sticking with the prior year treatment, most notably when the prior year standards were U.S. GAAP.
    Auditor Judgment, International Matters
    IFRS Changes – Impacts