Learning from others’ deficiencies: How group affiliation and election basis jointly affect auditors’ effective use of inspection feedback

Both external and internal inspectors typically select audit engagements to inspect using a risk-based approach (i.e. they pick those they predict are more likely to have deficiencies). While reducing the amount of resources needed to find audit deficiencies, this approach can perversely influence the behavior of non-inspected auditors who read the inspection feedback. Using social identity theory and attribution theory, I predict that auditors’ effective use of inspection feedback depends on whose engagements are inspected (more vs. less closely affiliated auditors) and how the engagements are selected (risk vs. random basis). I predict and find that auditors identify more strongly with the inspected auditors when inspections are risk-based or pertain to more closely affiliated auditors (e.g., same office). This stronger identification triggers defensive attributions, decreasing the perceived value of the report, and reducing the degree to which they employ corrective action that addresses inspector feedback in their own audits. Random selection is more neutral in nature, reducing identification and improving incorporation of inspection feedback, but only when the feedback is for less closely affiliated auditors. Implications for auditors, audit firms, and regulators are discussed.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Accountancy

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2018

Author dc:creator

• Hetrick, Kamber Vittori

Contributors dc:contributor

• Bauer, Tim D.
• Peecher, Mark E.
• Hobson, Jessen L.
• Trotman, Ken T.
• Laurent, Sean

• risk-based selection
• audit inspections
• group affiliation
• auditor behavior
• feedback

Statement dc:rights

• Copyright 2018 Kamber Hetrick

Language dc:language

en

Handle dc:identifier

http://hdl.handle.net/2142/101165

OAI identifier oai:identifier

oai:www.ideals.illinois.edu:2142/101165