Is auditor financial decision-making affected by prior audit report information? A behavioral approach

Nora Muñoz-Izquierdo; María-Del-Mar Camacho-Miñano; María-Del-Pilar Sánchez-Martín; David Pascual-Ezama

doi:10.1016/j.heliyon.2024.e30971

Is auditor financial decision-making affected by prior audit report information? A behavioral approach

Heliyon. 2024 May 11;10(10):e30971. doi: 10.1016/j.heliyon.2024.e30971. eCollection 2024 May 30.

Authors

Nora Muñoz-Izquierdo¹, María-Del-Mar Camacho-Miñano², María-Del-Pilar Sánchez-Martín³, David Pascual-Ezama^{2

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Affiliations

¹ CUNEF University, Leonardo Prieto Castro, 2, 28040, Madrid, Spain.
² Complutense University of Madrid, Facultad de Ciencias Económicas y Empresariales, Campus de Somosaguas, 28223, Pozuelo de Alarcón, Madrid, Spain.
³ Facultad de Ciencias Económicas y Empresariales, Universidad Francisco de Vitoria, Pozuelo de Alarcón, Madrid, Spain.
⁴ Sloan School of Management-Fulbright Visiting Scholar. MIT, US RCC-Harvard Business School Research Fellow, Harvard University, USA.

Abstract

The role of financial experts is to provide their professional judgments with an opinion included in the financial reports after reviewing an entity's financial information, following a specific audit process. We investigate whether confirmation bias (through prior audit opinions) occurs among auditors during the audit process and decision-making, and whether experience mitigates this effect. A total of 175 non-experienced auditors run a 2x4 between-subjects experiment (experiment 1) studying how financial information (IV with two levels: negative and neutral/positive) and previous audit report (IV with four levels: absence, negative, moderately negative, and positive) might influence the issuance of the subsequent decision-making (DV). In addition, a total of 32 junior level 1 auditors (less than one year of experience), 31 junior level 2 auditors (up to 3 years of experience) and 20 senior auditors (more than 3 years of experience) run a 2 × 4 × 3 between-subjects experiment (experiment 2) analyzing if experience (IV with three levels of experience: less than one-year, between one and three years, more than three years) mitigates this effect (experiment 2). Results confirm that the previous-year audit report affect auditors' current assessment, showing that positive and negative prior opinions persuade auditors when suggesting the next one. This finding is relevant as auditors' opinions could be conditioned by prior opinions instead of their own expertise. Our evidence also suggests that professional experience mitigates this influence on auditors' assessments. Consequently, this study has relevant implications for partners, audit professionals and audit firm recruiters. A general implication is that auditor training courses should reinforce the auditor's own expertise and criteria based on the deep analysis of financial and economic data rather than on the work of previous auditors.

Keywords: Audit opinion; Auditing; Auditors; Behavioral auditing; Financial information; Professional experience.