Jennifer Kahle Schafer

Belief Revision in Accounting: A Literature Review of the Belief-Adjustment Model

The belief-adjustment model has been an integral part of accounting research in belief revision, especially in the examination of order effects. Hogarth and Einhorn ((1992) Cognitive Psychology, 24, 1–55) created the belief-adjustment model to serve as a theoretical framework for studying individuals’ decision-making processes. The model examines several aspects of decision-making, such as encoding, response mode, and task factors. The purpose of this chapter is to provide a comprehensive examination of the accounting studies that have used the theoretical framework of the belief-adjustment model in auditing, tax, and financial accounting contexts. Roberts’ ((1998) Journal of the American Taxation Association, 20, 78–121) model of tax accountants’ decision-making is used as a guideline to organize the research into categories. By using Roberts’ categorization, we can better sort out the mixed results of some prior studies and also expand the review to include a more comprehensive look at the model and its application to accounting. While many variables have been examined with respect to their effect on accounting professionals’ belief revisions, most studies examine them in isolation and do not consider the interaction effects that these variables may have. Our framework also identifies areas of the belief-adjustment model that need further research.

Justification and self-review: mitigating irrelevant affect in fraud judgments

Research in psychology and accounting suggest that affect (client likeability) toward a person can impact human judgment, resulting in more favorable treatment for likeable than dislikeable individuals. This study investigates whether two debiasing mechanisms, justification and self-review, mitigate the impact of affect (client likeability) on fraud risk assessments. Consistent with prior research on nonfraud audit judgments, this study finds that in absence of any debiasing mechanism, inexperienced auditors are susceptible to affect biases in fraud judgments. Extending prior research, we find justification is not sufficient to mitigate likeability, but self-review is an effective mechanism to mitigate the effect of client likeability in a fraud judgment task. Supplemental findings indicate that general accounting experience, in itself, does not mitigate client likeability; however, the effectiveness of the self-review mechanism extends to these participants.

Do Auditor Advocacy Attitudes Impede Audit Objectivity

Biased evaluation of evidence exists when an auditor either over-emphasizes evidence that supports management assertions or over-emphasizes evidence against management assertions. This study examines if an auditor’s advocacy attitudes lead to bias in information search for audit evidence. We measure the range of advocacy attitudes of individual auditors and hypothesize that auditors at either end of the advocacy spectrum may impede the objectivity of evidence gathered. Results from 60 Big 4 auditors indicate that advocacy attitudes affect both initial judgments and consequent search strategies of auditors. When initial judgments are client-favorable, all auditors exhibit search strategies focused on finding evidence to take a more conservative position; however, when initial judgments represent an unfavorable client position, auditors with lower advocacy attitudes exhibit a stronger tendency to search for additional evidence against a client-favorable position, consistent with a confirmation bias. Conversely, auditors with more neutral attitudes plan a more objective search effectively mitigating the bias. Aggregate findings establish an important link between bias and information search that may manifest itself in auditor training procedures and be of interest to auditing regulators.

How Government Spending Impacts Tax Compliance

This study examines how taxpayer level of goal congruence (the extent to which a taxpayer’s interests align with the interests of the tax collecting agency) can improve tax compliance. While there is ample evidence on the deterrent effect of audit probability on taxpayer noncompliance, there is no evidence related to the potential role that goal congruence may have on compliance behavior. Results of our study indicate that goal congruence influences taxpayer compliance decisions, in that those with higher goal congruence (i.e., greater support for how tax dollars are spent) report higher amounts of taxable income. In addition, we find that audit probability only influences taxpayer compliance decisions when there is support for the government’s use of tax dollars. When taxpayers do not support government programs, their compliance is lower regardless of the audit probability. This highlights the importance of gaining taxpayer support for government programs, and that attempts to align the goals of taxpayers with those of the government may increase voluntary compliance among taxpayers. We also examine the role that Machiavellianism, a measure of moral obligation, plays in taxpayers’ compliance decisions. We find that for certain individuals who are motivated more by self-interest (those with high Machiavellianism), a high audit rate as well as support for a program may be necessary to improve compliance behavior. Theoretical and practical implications of these findings are discussed.

Effort and Deliberation: Mitigating Irrelevant Affect in Accounting Judgments

Research suggests that affect toward a person can impact human judgment, with inexperienced auditors being more susceptible to affective biases. Research has also found that accountability may improve certain judgments. The current study investigates whether two strategies which induce accountability, effort and deliberation, may effectively mitigate affect (client likeability) in a fraud judgment task. Results of two experiments, with inexperienced auditors and experienced accountants with low task-specific knowledge, indicate that judgments are impacted by client likeability. Furthermore, inducing effortful thought does not effectively eliminate the inclusion of client likeability for individuals who do not possess experiential task knowledge. However, inducing deliberation does effectively mitigate the influence of client likeability in a fraud judgment for inexperienced professionals and accounting professionals with low task specific knowledge.