Tamara A. Lambert

Measure Management and the Masses: How Acceptability of Operating and Reporting Distortion Varies with Justification, Demography, and Moral Consequences

In three studies totaling almost 5000 subjects, we present respondents with scenarios in which employees manage performance measures by distorting how they report performance or how they operate their organizations. We measure respondents’ judgments about the scenarios and their broader moral values, and interpret statistical associations in light of Moral Foundations Theory (Graham, Nosek, et al 2011) to draw inferences on how respondents view the ‘moral terrain’ of morally-relevant features depicted by the scenarios we present. In our business, public school and hospital settings, we conclude that respondents see reporting distortion as a more appropriate remedy than operating distortion to inequity, and see operational distortions as improving underlying performance more effectively when measures capture true performance more accurately. In our public school and hospital settings, we also conclude that respondents see the organization, (i.e. school or hospital), rather than outside stakeholders, (i.e. students or patients), as representing the in-group to which managers owe loyalty. Respondents also see a sacred element both in reporting and in supporting a school or hospital.

The Effect of Increased Audit Disclosure on Managerial Decision Making: Evidence from Disclosing Critical Audit Matters

We investigate whether and how a “critical audit matter�? (CAM) disclosure affects managers’ real operating decisions in two contexts (issuing a loan that decreases versus increases the average risk profile of loan portfolios, or choosing to hedge versus speculate on commodity risk). We expect a CAM disclosure increases disclosure costs and implies expanded auditor support for both types of activities; but we expect implied auditor support to be valued more highly for risk-increasing than for risk-decreasing activities. As a result, we predict that a CAM disclosure decreases managers’ risk-decreasing activities (due to increased disclosure costs) more than managers’ risk-increasing activities (as the implied auditor support counteracts the increased disclosure costs). We find evidence consistent with our prediction across multiple experiments. Our study sheds light on unintended consequences of a CAM disclosure and provides insight to relevant parties as the new standard goes into effect.

When Does Relevant Information Weaken Auditor Evidence Assessments? An Exploration of the Averaging Effect

Auditing standards task auditors with collecting sufficient appropriate evidence to form audit judgments. Yet cognitive psychology documents a robust finding in which people evaluate a bundle of relevant, directionally consistent evidence as though averaging the strength of the components. In consequence, a bundle of evidence may be viewed as weaker evidence than the bundle’s strongest evidence item alone. We experimentally examine whether this averaging effect occurs in an audit context, and we test a potential moderator. In three independent mini-cases, we ask auditor participants to make judgments about going concern, internal controls, and fraud risk. We present auditors with unfavorable audit evidence relevant to each judgment, manipulating whether we present a single strong evidence item or bundle it with a weaker evidence item. We also manipulate the auditor’s initial impression of the client’s state. We find that experienced auditors succumb to the averaging effect, making more strongly unfavorable judgments in response to the single evidence item than the bundle, and that this bias is reduced when the observed evidence is inconsistent with the auditor’s initial impression. We interpret our results as consistent with the dual-processing theory of cognition.