Abstract

Professionals are expected to act in the best interest of those dependent on their expertise. Unfortunately, they may not always be able to do this because of cognitive or emotional biases or economic incentives which may lead them to act in their own self interest. Auditors are required by professional standards to be skeptical and base their assessment on audit evidence. Trust “...characterized by a cognitive “leap” beyond the expectations that reason and experience alone would warrant...” (Lewis & Weigert, 1985, p 970) is unacceptable as evidence. While auditor’s trust of clients should be irrelevant to audit decisions, there is mixed evidence on whether professionalism overcomes such biases. The research objective is to assess whether auditing professionals are influenced by their trust of clients. Five preparatory studies developed the case, a video and other experimental materials. In a 2x2 experiment, I manipulated the behaviors of the management of the firm being audited as low or high ability (competence or expertise in their field) and low or high benevolence (positive orientation towards the auditor) to create a low trustworthiness scenario, a high trustworthiness scenario and two moderate trustworthiness scenarios. I randomly assigned 26 experienced auditors to these four experimental conditions. I assessed how much the trustworthiness of their client affected their trust and their assessment of the risk of a material misstatement. I found that client trustworthiness marginally affected auditor’s trust of the client and that it had no effect on the auditor’s assessment of the risk. I assessed whether trust of the client and the risk affected a decision about the range of acceptable figures which, in turn, affects the extent of audit testing. I found that as trust increased, the extent of the audit testing was reduced. This suggests that experienced auditors may be unable to prevent trust from affecting their audit decisions. Unexpectedly, I also found that as the risk of a material misstatement increased, the extent of audit testing decreased. Both these findings were supported by qualitative analyses that also indicate auditors do not always follow their professional standards and base their audit on risk and evidence.