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    Effects of Technical Department’s Advice, Quality A...
    research summary posted March 16, 2015 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.09 Impact of Consultation on Judgments, 11.0 Audit Quality and Quality Control 
    Effects of Technical Department’s Advice, Quality Assessment Standards, and Client Justifications on Auditor’s Propensity to Accept Client-Preferred Accounting Methods
    Practical Implications:

    “These findings demonstrate the complementary roles that professional standards and the audit firms’ technical departments play in enhancing the quality of auditor’s decisions, and indicate that the nature of advice matters.” Furthermore, as asserted in its concluding remarks, this study highlights, “the role and limitations of in-house consultation and advice in enhancing auditors’ decisions, and suggests that the nature of advice sought by, and presented to, auditors matters.”

    For more information on this study, please contact Terence Bu-Peow Ng.


    Ng, T.B. and P. G. Shankar. 2010. Effects of Technical Department’s Advice, Quality Assessment Standards, and Client Justification on Auditors’ Propensity to Accept Client-Preferred Accounting Methods. The Accounting Review 85 (5): 1743-1761.

    Advice, quality assessment, justification, auditor judgment
    Purpose of the Study:

    This study references “reasonableness constraints” in reference to the theory of motivated reasoning which suggests that individuals are prone to biased reasoning in favor of a directional goal. This study investigates, “whether the effect of an SAS No. 90-like standard requiring auditor assessment of the quality, not just the acceptability, of a client’s accounting methods (QAS) on auditors’ decisions is contingent on the presence and/ or nature of advice and strength of the client’s justification for its preferred accounting method.”

    Design/Method/ Approach:

    Participants were audit seniors, supervisors, and managers from two Big 4 firms in Singapore. This study involved an experiment that was performed in two stages. In stage one, no hypothetical advice is provided from the firm’s technical department as QAS (absent or present) and client justification (weak or strong) are manipulated. In stage two, hypothetical advice is provided as QAS, client justification strength, and advice nature (with or without an explicit recommendation) are manipulated. 

    • In the absence of advice, QAS does not affect auditors’ decision, regardless of client justification strength.
    • In the presence of advice from technical department, the presence of QAS, “significantly reduces auditors’ propensity to accept the client-preferred method, but only when the advice explicitly recommends the use of the most appropriate method and the client’s justification is strong.”  
    Audit Quality & Quality Control, Auditor Judgment
    Impact of Consultation on Judgments