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    The Impact of Positive and Negative Mood on the Hypothesis...
    research summary posted April 23, 2012 by The Auditing Section, last edited May 25, 2012, tagged 04.0 Independence and Ethics, 04.04 Moral Development and Individual Ethics Decisions, 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind 
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    Title:
    The Impact of Positive and Negative Mood on the Hypothesis Generation and Ethical Judgments of Auditors
    Practical Implications:

    The results of this study show that auditors in a negative mood performed better in a hypothesis generation task than did auditors in a positive mood. On the other hand, auditors in a positive mood made more ethical judgments on both a sample-size and inventory write-off ethical dilemma. The study increases our understanding of the effects of mood on auditors’ ethical and professional judgments. The results of this study may be helpful to audit firms in structuring their ethical policies and procedures and developing training programs. In addition, the influence of mood on hypothesis generation may be of particular concern considering the importance of analytical procedures to the audit process.

    Citation:

    Cianci, A.M. and J.L. Bierstaker. 2009.  The impact of positive and negative mood on the hypothesis generation and ethical judgments of auditors. Auditing: A Journal of Practice & Theory 28 (2): 119-144.

    Keywords:
    mood; auditor judgment; ethical tasks; hypothesis generation
    Purpose of the Study:

    Research in psychology and accounting has increasingly shown the importance of mood on decision-making.  One consistent finding in this line of research is that a negative mood leads to more systematic processing and a positive mood leads to more heuristic processing.  Additionally, prior theoretical work posits that a positive mood will improve ethical task performance while a negative mood will impair ethical task performance.  This study investigates the following questions:

    • Will auditors who are in a negative mood state use more systematic processing and therefore perform better on a hypothesis generation task compared to auditors in a positive mood?
    • Will auditors who are in a positive mood state make more ethical judgments than auditors who are in a negative mood state?
    Design/Method/ Approach:

    The research evidence was collected prior to June 2006. Internet questionnaires were mailed to auditors and a total of 54 auditors responded. Most respondents were affiliated with local or regional firms and were either staff- or senior-level. Participants were induced to either a positive, negative, or neutral mood state.  Each participant then completed 3 audit tasks:

    • Auditors were asked to generate plausible explanations for the significant change in financial ratios as part of an analytical procedure task
    • Auditors were asked to assess the likelihood of requiring the write-off of potentially obsolete inventory that would reduce the Company’s preliminary EPS. 
    • Auditors were asked to assess the likelihood they would report they had selected and tested too many sample items, once they found out what the sample size should have been (because they did not have that guidance initially).
    Findings:
    • Auditors in a negative mood provided significantly more explanations for the fluctuations in financial ratios than auditors in a positive mood and only marginally more explanations than auditors in a neutral mood.
    • There was no significant difference in explanations for the fluctuations in financial ratios provided by auditors in the positive and neutral mood.
    • Auditors in a positive mood appear to make more ethical judgments than those in a negative mood. Auditors in a neutral mood were measured between the positive and negative moods. When asked the likelihood they would recommend to the client that inventory be written off, auditors in the positive and neutral mood did not recommend a write-off of obsolete inventory differently. For the sample size question (would they report that they had over-sampled?), auditors in a negative and neutral mood did not rate the likelihood of reporting to their supervisor differently.
    Category:
    Independence & Ethics, Auditor Judgment
    Sub-category:
    Moral Development and Individual Ethics Decisions, Prior Dispositions/Biases/Auditor state of mind
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