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    The Effects of Auditors’ Accessibility to “Tone at the Top...
    research summary posted February 24, 2015 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.04 Management Integrity, 09.0 Auditor Judgment, 09.02 Documentation Specificity 
    The Effects of Auditors’ Accessibility to “Tone at the Top” Knowledge on Audit Judgments
    Practical Implications:

    The results of the study identify two points where decision aids are likely to be successful in improving audit quality—when developing a mental representation of the “tone at the top” and/or when establishing a preliminary assessment of control environment effectiveness. Although developing an understanding of the client’s “tone at the top” requires retrieval of positive evidence supportive of “tone at the top” effectiveness, the process of doing so may undermine auditors’ efforts at incorporating negative evidence into their mental representations. Structuring decision aids, working papers, and reviews to ensure that the relatively abundant positive “tone at the top” information does not suppress the negative information would alleviate a favorable bias in the auditors’ “tone at the top” mental representations. This is critical given that “tone at the top” mental representations permeate subsequent audit decision making.  

    For more information on this study, please contact Regan Schmidt.


    Schmidt, R.N. 2014. The effects of auditors’ accessibility to “tone at the top” knowledge on audit judgments. Behavioral Research in Accounting 26 (2): 73-96.

    auditor, tone at the top, control environment, knowledge, mental representation, interference, decision aid
    Purpose of the Study:

    Auditors must evaluate the “tone at the top” due to its pervasive impact on the client’s financial reporting practices and the auditors’ reliance on internal controls. However, few studies have examined how audit evidence unique to the “tone at the top” impacts audit judgments. The prior research has noted that, even in organizations that experience fraud, evidence for assessing “tone at the top” effectiveness tends to comprise a higher proportion of positive evidence supporting “tone at the top” effectiveness and a lower proportion of negative evidence supporting “tone at the top” ineffectiveness. There is also a concern expressed in auditing standards regarding the lack of documentary evidence relevant to assessing “tone at the top” effectiveness. Lacking such documentation, auditors must rely on their memory processes when evaluating “tone at the top” effectiveness. This study investigates whether the approach auditors use when accessing their memory of audit evidence influences their evaluations of “tone at the top” effectiveness and subsequent audit judgments.

    Design/Method/ Approach:

    The experimental research evidence was collected in 2008. The study participants were auditors with approximately two years of audit experience on average. Participants read the background information of the client company and were provided with 50 unchanging “tone at the top” information items (i.e., evidence). The study then manipulated how participants recalled the evidence from memory. Participants subsequently provided a preliminary assessment of the effectiveness of the control environment, a plausibility assessment of management’s explanation for differences noted in preliminary analytical procedures, and fraud risk assessments. 

    • Holding the underlying evidence of the “tone at the top” constant, auditors who recall positive evidence supportive of “tone at the top” effectiveness prior to negative evidence develop more favorable “tone at the top” mental representations as compared to auditors who recall negative evidence prior to positive evidence. Accordingly, retrieving the abundant positive “tone at the top” evidence from memory may suppress accessibility to the negative “tone at the top” evidence.
    • The auditors’ “tone at the top” mental representation significantly impacts the auditors’ control environment assessment, as well as subsequent audit judgments including the auditors’ reliance on client management’s explanation in analytical procedures and fraud assessments. Mediation analyses document that the control environment assessment mediates the relationship between the auditors’ “tone at the top” mental representation and subsequent audit judgments.
    • This study clarifies the results of prior research that documented audit judgments were not sensitive to “tone at the top” information. By examining intervening cognitive processes, the results of this study provides an insight to suggest that, in prior studies, when auditors were making their audit judgments, the “tone at the top” evidence was not accessible (i.e., the negative “tone at the top” evidence was inhibited from the mental representation).
    Auditor Judgment, Risk & Risk Management - Including Fraud Risk
    Documentation Specificity, Management Integrity