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Auditor Mindsets in Fraud-Detection Planning
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Study 1 established either deliberative mind-set by having Ss contemplate personal change decision or implemental mind-set by having Ss plan execution of intended personal project. Ss were subsequently requested to continue beginnings of 3 fairy tales, each describing a main character with a decisional conflict. Analysis revealed that deliberative mind-set Ss ascribed more deliberative and less implementational efforts to main characters than implemental mind-set Ss. In Study 2, Ss were asked to choose between different test materials. Either before or after making their decision, Ss were given information on deliberative and implementational thoughts unrelated to their task at hand. When asked to recall these thoughts, predecisional Ss recalled more deliberative and less implementational thoughts, whereas for postdecisional Ss the reverse was true. These findings suggest that deliberative and implemental mind-sets tune thought production and information processing.
Rewarding collective outcomes has become an increasingly important strategic motivational tool for driving collective success, reflecting the insight that paying employees for individual contributions does not always optimize performance in collective endeavors. Research into different types of collective pay for performance (PFP), or pay that is contingent on collective outcomes, has been studied in diverse academic fields (e.g., economics, strategy, psychology), but the compartmentalization between these academic disciplines hinders conceptual coordination. To advance this research and its related insights, this article provides a review of the theory and evidence pertaining to the relationships between different collective PFP types and collective outcomes. We also provide a meta-analysis that shows that collective PFP has desirable outcomes (e.g., meta-analysis shows an overall ρ = 0.11; p < .001), substantiating the value of studying collective PFP separately from individual PFP. The review also reveals a lack of empirical and theoretical development and highlights the need for a comprehensive theory of collective PFP. Our cross-disciplinary review of 106 empirical articles builds a foundation for advancing common pursuits, integrating knowledge, and creating theory. The consolidated perspectives point to promising directions for future research.
Explored the impact of accountability (the need to justify one's views to others) on the complexity of people's thinking on controversial social issues. 48 undergraduates reported their thoughts on 3 issues and then responded to a series of attitude scales relevant to each topic. Ss provided this information under 1 of 4 conditions: expecting their attitudes to be anonymous or expecting to justify their attitudes to an individual with liberal, conservative, or unknown views. Consistent with previous work on strategic attitude shifts, Ss reported more liberal attitudes when they expected to justify their views to a conservative. Accountability also increased the integrative complexity and evaluative inconsistency of the thoughts reported on each issue but only when Ss expected to justify their attitudes to an individual with unknown views. Findings suggest that accountability leads to more complex information processing only when people do not have the cognitively lazy option of simply expressing views similar to those of the individual to whom they feel accountable. (39 ref) (PsycINFO Database Record (c) 2012 APA, all rights reserved)
The focus of this chapter is on the course of action, which is understood to be a temporal, horizontal path starting with a person's desires and ending with the evaluation of the achieved action outcome. The phenomena of choosing an action goal, initiating the appropriate actions, and executing these actions are assumed to be situated in between. This comprehensive perspective conceives of the course of action as a number of consecutive, distinct segments or phases. It raises questions concerning how people choose action goals, plan and enact their execution, and eaaluate thek efforts. The concept of "mind-set" is employed to find answers to these questions in terms of the cognitive processes or orientations that allow for easy completion of the different action phases.
The concepts of goals and plans have not only played an important role in research on motivation and self-regulation (Ach, 1935; Carver & Scheier, 1981; Kruglanski, 1996; Lewin, 1926; Miller, Galanter, & Pribram, 1960), but goals and plans and their effects on affect, behavior, and cognition have become a very popular research topic in social psychology (Frese & Sabini, 1985; Gollwitzer & Bargh, 1996; Halisch & Kuhl, 1987; Pervin, 1989). The goal concept has also received recent attention in educational psychology (Snow & Corno, 1996). Modem goal theories can be c1assified in two groups: (a) goal content theories, and (b) self-regulation theories of goal striving. How these goal theories contribute to theorizing about educational implications of goal setting and goal striving is discussed in this chapter.
It is proposed that goals can be activated outside of awareness and then operate nonconsciously to guide self-regulation effectively (J. A. Bargh, 1990). Five experiments are reported in which the goal either to perform well or to cooperate was activated, without the awareness of participants, through a priming manipulation. In Experiment 1 priming of the goal to perform well caused participants to perform comparatively better on an intellectual task. In Experiment 2 priming of the goal to cooperate caused participants to replenish a commonly held resource more readily. Experiment 3 used a dissociation paradigm to rule out perceptual-construal alternative explanations. Experiments 4 and 5 demonstrated that action guided by nonconsciously activated goals manifests two classic content-free features of the pursuit of consciously held goals. Nonconsciously activated goals effectively guide action, enabling adaptation to ongoing situational demands.
Two tasks where failures of cognitive control are especially prevalent are task-switching and spatial Simon task paradigms. Both tasks require considerable strategic control for the participant to avoid the costs associated with switching tasks (task-switching paradigm) and to minimize the influence of spatial location (Simon task). In the current study, we assessed whether the use of a self-regulatory strategy known as "implementation intentions" would have any beneficial effects on performance in each of these task domains. Forming an implementation intention (i.e., an if-then plan) is a self-regulatory strategy in which a mental link is created between a pre-specified future cue and a desired goal-directed response, resulting in facilitated goal attainment (Gollwitzer in European Review of Social Psychology, 4, 141-185, 1993, American Psychologist, 54, 493-503, 1999). In Experiment 1, forming implementation intentions in the context of a task-switching paradigm led to a reduction in switch costs. In Experiment 2, forming implementation intentions reduced the effects of spatial location in a Simon task for the stimulus specified in the implementation intention. Results supported the prediction that the need for high levels of cognitive control can be alleviated to some degree by making if-then plans that specify how one responds to that critical stimuli.
There continues to be disagreement about whether financial incentives help or harm performance, especially in interesting tasks. Although the Jenkins, Mitra, Gupta, and Shaw (1998) meta-analysis finds a positive effect of incentives, including in interesting tasks (reported ρ ^ = +.34; our computed δ = +.79), a more recent and widely cited meta-analysis by Weibel et al. (2010) reports, in contrast, a negative effect (δ = -.13) of incentives on performance in interesting tasks. Thus, the effect size for interesting tasks differs by .92 standard deviation (SD) between the two meta-analyses, a very large difference. We incorporate primary studies from these two meta-analyses and other sources in a new, more complete meta-analysis of incentives-performance in interesting and noninteresting tasks. We also examine additional key moderators (incentive intensity, how motivation-driven performance is, and autonomy). We find that the incentives-performance relationship is positive in both interesting (δ = +.58) and noninteresting tasks (δ = +.52). In addition, we find that the positive incentives-performance relationship is robust to not only task interest, but also to incentive intensity, how motivation-driven performance is, and autonomy. However, the incentives-performance relationship is less positive for performance measured as quality, especially in interesting tasks. We provide suggestions for future research. (PsycInfo Database Record (c) 2021 APA, all rights reserved).
Prior research documents that auditors fail to revise audit plans to effectively address identified fraud cues. While auditors may understand what evidence would address such cues, we propose that auditors fail to apply this understanding because they use implemental mindsets when making decisions for themselves (i.e., deciding). However, we also propose that auditors use deliberative mindsets when advising. To test our predictions, we assign auditors to a decider or an advisor role in a realistic case that contains seeded fraud cues and asks them to consider revising last year's plan. We also manipulate whether the case prompts auditors to revise the plan unconventionally. Results indicate decider‐condition auditors use implemental mindsets: Prompted deciders follow the unconventional plan without regard to underlying fraud risk and unprompted deciders stick with the same‐as‐last‐year plan. Advisor‐condition auditors use more deliberative mindsets: In the prompt and no prompt conditions, they identify plans that are strongly linked to their own fraud risk assessments and that better align with experts' recommended plan for effectively addressing the seeded fraud cues. Supplemental analyses suggest deciding and advising auditors both follow experts' plan when they believe in its potential effectiveness but, after controlling for the influence of perceived effectiveness, deciding auditors follow it to a greater extent simply because they believe the PCAOB wants it. By contrast, advising auditors do not exhibit signs of excessive PCAOB influence. Our findings provide evidence that seeking informal advice (or thinking like an advisor) helps auditors to effectively revise audit plans in response to identified fraud risk – it helps when a prompt is present or not, suggesting it complements rather than merely substitutes for interventions meant to improve auditors' judgment and decision‐making.
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Behavioral scientists use mediation analysis to understand the mechanism(s) by which an effect operates and moderation analysis to understand the contingencies or boundary conditions of effects. Yet how effects operate (i.e., the mechanism at work) and their boundary conditions (when they occur) are not necessarily independent, though they are often treated as such. Conditional process analysis is an analytical strategy that integrates mediation and moderation analysis with the goal of examining and testing hypotheses about how mechanisms vary as a function of context or individual differences. In this article, we provide a conceptual primer on conditional process analysis for those not familiar with the integration of moderation and mediation analysis, while also describing some recent advances and innovations for the more experienced conditional process analyst. After overviewing fundamental modeling principles using ordinary least squares regression, we discuss the extension of these fundamentals to models with more than one mediator and more than one moderator. We describe a differential dominance conditional process model and overview the concepts of partial, conditional, and moderated moderated mediation. We also discuss multilevel conditional process analysis and comment on implementation of conditional process analysis in statistical computing software.
The present research examines the causal relationship between specific curiosity and creativity. To explicate this relationship, we introduce the concept of idea linking, a cognitive process that entails using aspects of early ideas as input for subsequent ideas in a sequential manner, such that one idea is a stepping stone to the next. Study 1 demonstrated the causal effect of specific curiosity on creativity. Study 2, a field study of artisans selling handmade goods online, found that experiencing specific curiosity predicts greater next-day creativity. Study 3 demonstrated idea linking as a mechanism for the effect of specific curiosity on creativity. Study 4 further established the impact of idea linking on creativity, finding that it boosted creativity beyond the well-established intervention of brainstorming. We discuss specific curiosity as a state that fuels creativity through idea linking and idea linking as a novel technique for creative idea generation.
The objective of our paper is to obtain a better understanding of how auditors anticipate the potential for PCAOB inspection, experience the inspection, cope with the consequences of the inspection, and understand the PCAOB's influence within the context of professionalism. We use a qualitative approach that employs both surveys (55) and interviews (20) of auditors (of varying rank and firm) across a five‐year period (2012‐2017). Respondents suggest that PCAOB inspectors are powerful, representing the “prosecution,” “judge,” and “jury” of the auditing profession. We therefore employ a structural metaphor of the PCAOB inspection as a judicial “trial.” By controlling the criteria used to evaluate performance, inspectors have the power to repeatedly “subpoena,” “interrogate,” and return a “verdict” on the firm (auditor); those judged as “guilty” require supervised “probation.” This process is perceived as having improved audit quality, but at a cost. Passing an inspection is so important, that auditors (firms) have resorted to impression management strategies and “functionally stupid” work practices (e.g., excessive documentation, a decrease in critical thinking as a result of a “box ticking” approach to auditing). Further, some respondents believe that being a good auditor has come at the expense of being a good accountant; the emphasis on audit process and concurrent de‐emphasis on technical accounting could ultimately lead to audits themselves falling short. In addition, it is evident that inspectors and auditors differ in their perceptions of risk; likely manifesting because inspectors are standards‐focused while auditors (firms) are methodology‐focused. Finally, the inspection process has created excessive stress and tension, beyond budget and fee pressures, which some auditors perceive as affecting the pool of talented auditors that firms may be able to attract and retain in the future.
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In two experiments, we examine whether performance-contingent incentives facilitate the creative process by enhancing the initial preparation that precedes creative incubation. The defining characteristic of both experiments is a second-stage task that is separated in time from the first-stage implementation of different incentive schemes. In Experiment 1, the second stage takes place ten days after we implement conditions with quantity incentives, high-creativity incentives, incentives with a minimum-creativity threshold, and a fixed-pay control condition. In Experiment 2, we test the effects of incentives with an incubation period of 20 minutes, during which an experimenter escorts participants on a walk between compensated work periods. In both experiments, we find that participants with quantity incentives outperform the high-creativity production of their fixed-pay counterparts only in the second-stage task. Mediation analyses suggest that quantity-incentivized participants' propensity to try more divergent ideas in the first stage sparks their creativity advantage in the second stage.
JEL Classifications: D24; D91; M11; M41.
Intrinsic motivation is generally thought to be positively associated with performance on a variety of tasks. However, there is only sparse experimental evidence supporting this idea and we know little about the specific mechanisms behind any effect. We develop theory about how auditors’ intrinsic motivation for their jobs can improve their judgments about complex accounting estimates. We experimentally test whether a prompt to make auditors’ intrinsic motivation for their jobs salient improves the specific information processing behaviors necessary for high‐quality judgments in complex audit tasks. It does: Prompted auditors attend to a broader set of information, process information more deeply, and request more relevant additional evidence. Supplemental analyses show that these processing behaviors mediate between salient intrinsic motivation and an improved ability to identify a biased complex estimate. Our theory and analyses indicate that auditors’ intrinsic motivation for their work provides unique value for improving judgment quality, particularly in the context of performing complex audit tasks. Our study supports the view that high‐quality cognitive processing can improve auditors’ professional skepticism by providing a foundation for skeptical judgments.
Auditors are more likely to identify misstatements in complex estimates if they recognize problematic patterns among an estimate's underlying assumptions. Rich problem representations aid pattern recognition, but auditors likely have difficulty developing them given auditors' limited domain-specific expertise in this area. In two experiments, I predict and find that a relational cue in a specialist's work highlighting aggressive assumptions improves auditors' problem representations and subsequent judgments about estimates. However, this improvement only occurs when a situational factor (e.g., risk) increases auditors' epistemic motivation to incorporate the cue into their problem representations. These results suggest that auditors do not always respond to cues in specialists' work. More generally, this study highlights the role of situational factors in increasing auditors' epistemic motivation to develop rich problem representations, which contribute to high-quality audit judgments in this and other domains where pattern recognition is important.
Leveraging insights gained through a burgeoning research literature over the past 28 years, this paper presents a significant revision of the model of creativity and innovation in organizations published in Research in Organizational Behavior in 1988. This update focuses primarily on the individual-level psychological processes implicated in creativity that have been illuminated by recent research, and highlights organizational work environment influences on those processes. We revisit basic assumptions underlying the 1988 model, modify certain components and causal connections, and introduce four new constructs into the model: (1) a sense of progress in creative idea development; (2) the meaningfulness of the work to those carrying it out; (3) affect; and (4) synergistic extrinsic motivation. Throughout, we propose ways in which the components underlying individual and team creativity can both influence and be influenced by organizational factors crucial to innovation.
We examine recent developments in judgment and decision-making (JDM) research to provide insight into how two big ideas in this area can be leveraged as overlapping frameworks to examine and improve auditor judgment. The ideas are (1) that human thinking and reasoning can be characterized by a dual-process model and (2) that conscious and nonconscious goals drive cognition. Despite that these ideas are well established in the broader JDM literature and have great promise for improving auditor judgment, we observe minimal use of them in the audit JDM literature. Thus, we briefly outline these ideas, and we develop fundamental, high-level research questions related to audit JDM research that are based on these ideas. Finally, we provide guidance for designing and evaluating experiments that effectively use these frameworks, whether in auditing or other rich decision-making contexts. The frameworks can help researchers improve audit quality by enhancing our understanding of auditors’ judgment processes and the factors that influence them, by allowing for new ways of thinking about how to improve auditor judgment, and by suggesting new interventions for improving auditor judgment.
In this essay, the authors rejoin the debate about financial incentive effectiveness. They (a) briefly review the state of the literature in 1998, (b) highlight new meta-analytic findings and update conclusions regarding the financial incentives–performance relationship, (c) address the myth that financial incentives erode intrinsic motivation, (d) provide explanations for the presumed failure of financial incentives and (e) offer some concluding thoughts and suggestions for future research.
Although pay-for-performance’s potential effect on employee performance is a compelling issue, understanding this dynamic has been constrained by narrow approaches to pay-for-performance conceptualization, measurement, and surrounding conditions. In response, we take a more nuanced perspective by integrating fundamental principles of economics and psychology to identify and incorporate employee characteristics, job characteristics, pay system characteristics, and pay system experience into a contingency model of the pay-for-performance–future performance relationship. We test the role that these four key contextual factors play in pay-for-performance effectiveness using 11,939 employees over a 5-year period. We find that merit and bonus pay, as well as their multiyear trends, are positively associated with future employee performance. Furthermore, our findings indicate that, contrary to what traditional economic perspectives would predict, bonus pay may have a stronger effect on future performance than merit pay. Our results also support a contingency approach to pay-for-performance’s impact on future employee performance, as we find that merit pay and bonus pay can substitute for each other and that the strength of pay-for-performance’s effect is a function of employee tenure, the pay-for-performance trend over time, and job type (presumably due to differences in the measurability of employee performance across jobs).
Auditors experience significant problems auditing complex accounting estimates, and this increasingly puts financial reporting quality at risk. Based on analyses of the specific errors that auditors commit, we propose that auditors need to be able to think more broadly and incorporate information from a variety of sources in order to improve audit quality for these important accounts. We experimentally demonstrate that a deliberative mindset intervention improves auditors’ ability to identify unreasonable estimates by improving their ability to identify and incorporate into their analyses contradictory information from diverse parts of the audit and improving their ability to think critically about the evidence. We perform additional analyses to demonstrate that our intervention improves auditor performance by causing them to think differently rather than simply to work harder. We demonstrate that critical thinking can improve the identification of unreasonable estimates and, in doing so, we provide new directions for addressing audit quality issues.This article is protected by copyright. All rights reserved.
There has been considerable discussion about the U.S. reporting standards becoming less rules based, similar to International Financial Reporting Standards (IFRS). One proposed advantage of a change to IFRS is increased comparability across multinational and non-U.S. companies. Additionally, some believe that IFRS afford greater flexibility in its principles, thereby enabling firms’ accounting choices to better reflect the true economic nature of any given transaction (FASB, 2002; SEC, 2003). With fewer rules, both financial statement preparers and auditors would be expected to adjust to having more options with regards to financial reporting. However, some proposed changes leave the option open to implement IFRS (or other principles-based standards) in ways that still follow rules in U.S. GAAP. This paper investigates whether prior year accounting treatments influence the judgment for current year treatments when one way to implement the standard is to follow the prior year treatment. We find that some auditors fixate on prior year scenarios and judgments, even if the current year scenario and applicable accounting standards are different. We find that holding auditors accountable for their decision making process reduces the likelihood of sticking with the prior year treatment most notably when the prior year standards were U.S. GAAP.
This chapter advances to a testable middle-range theory predicated on the politician metaphor: the social contingency model of judgment and choice. This model does not map neatly in any of the traditional levels of analysis: the individual, the small group, the organization, and political system. The unit of study is the individual in relation to these social milieux. The model borrows, qualifies, and elaborates on the cognitive miser image of the thinker that has been so influential in experimental work on social cognition. The model adopts the approval and status-seeker image of human nature that has been so influential in role theory, symbolic interactionism, and impression management theory. The model draws on sociological and anthropological theory concerning the necessary conditions for social order in positing accountability to be a universal feature of natural decision environments. The social contingency model is not tightly linked to any particular methodology. The theoretical eclecticism of the model demands a corresponding commitment to methodological eclecticism. The social contingency model poses problems that cross disciplinary boundaries, and that require a plurality of methodologies. The chapter ends with considering the potential problem of proliferating metaphors in social psychological theory.
This study examines differences in auditors’ search behaviors associated with the preferences of audit management (reviewer preferences) and the nature of the required response (belief versus action) in the context of an accounts receivable collectibility review. I find that auditors facing reviewers who expressed concern about auditors spending time specifically looking for evidence inconsistent with explanations provided by the client (credence preference) examined fewer evidence items and followed a more client-prompted search (i.e., a search for evidence that follows directly from the client’s explanation) than those facing reviewers who expressed concern about auditors’ ready acceptance of client explanations without adequate justification (skepticism preference) and those facing reviewers who expressed no specific concern (unknown preference). Further, auditors in the action conditions examined fewer evidence items and spent less time per evidence item than those in the judgment conditions. Additional analyses also indicate that auditors who were held accountable to a reviewer with an unknown preference generally responded as if the reviewer maintained a skepticism preference.
This paper reports the results of an experiment that examines how incentive-based compensation contracts compare to flat-wage compensation contracts in motivating individual learning and performance. I use a multiperiod cognitive task where the accounting system generates information (feedback) that has both a contracting role and a belief-revision role. The results suggest that incentives enhance performance and the rate of improvement in performance by increasing both: (1) the amount of time participants devoted to the task, and (2) participants' analysis and use of information. Further, I find evidence that incentives improve performance only after considerable feedback and experience, which may help explain why many prior one-shot decision-making experiments show no incentive effects. Collectively, the results suggest that incentives induce individuals to work longer and smarter, thereby increasing the likelihood that they will develop and use the innovative strategies frequently required to perform well in complex judgment tasks and learning situations.
The PCAOB recently expressed concern regarding the sufficiency and effectiveness of review and supervision of audit field work. For the audit review process to succeed as a quality control mechanism, any issues or questions identified by a reviewer must be adequately resolved and documented in the workpapers. If audit review fails to correct for errors/biases in the work of reviewees, there can be serious detrimental effects on audit quality and, in turn, financial statement quality. Our study extends the literature by examining the phase of the review process in which reviewees respond to (or “close”) notes/comments provided by their reviewers. Utilizing an experiment, we find that certain contextual factors (review timeliness and review note frame) influence reviewee follow-through during this critical phase. Specifically, we find that a delayed review elicits significantly lower effort levels than a timely review. Review note frame (i.e., how the reviewer phrases the rationale given for the underlying directive of a review note) significantly affects reviewee effort and performance when the review is timely. Through mediation analyses, we explore the mediating effect of effort on performance. In addition, we find that reviewer delay leads to greater over-documentation.
This study investigates the effects of differential accountability pressure strength on auditors’ materiality judgments. We evaluate whether incremental levels of accountability (i.e., review, justification, feedback) increase judgment conservatism, decreases judgment variability, and increases effort. One hundred sixty auditors participated in a between-subjects experiment that included a planning materiality task and a proposed audit adjustment materiality task. As predicted, auditors under higher levels of accountability pressure (i.e., justification, feedback) provided more conservative materiality judgments and had less judgment variability than auditors under lower levels of pressure (i.e., review, anonymity). The results also indicate that accountability strength was positively related to the amount of time spent on the task, explanation length, and consideration of qualitative materiality factors. Finally, the results show that use of a planning materiality decision aid influenced the accountability effects for the planning materiality judgment. These judgments were more conservative and less variable when the planning materiality decision aid was available. We consider implications for research, practice, and policy in the context of the study’s limitations.
The purpose of this paper is to review theories and evidence regarding the effects of (performance-contingent) monetary incentives on individual effort and task performance. We provide a framework for understanding these effects in numerous contexts of interest to accounting researchers and focus particularly on how salient features of accounting settings may affect the incentives-effort and effort-performance relations. Our compilation and integration of theories and evidence across a wide variety of disciplines reveals significant implications for accounting research and practice. Based on the framework, theories, and prior evidence, we develop and discuss numerous directions for future research in accounting that could provide important insights into the efficacy of monetary reward systems.
The effect of accountability and time budgets on auditors' testing strategies
- S Asare
The effect of performance-based incentive contracts on System 1 and System 2 processing in affective decision contexts: fMRI and behavioral evidence
- A Farrell
Do strategic reasoning and brainstorming help auditors change their standard audit procedures in response to fraud risk?
- V Hoffman
An accountability framework for financial statement auditors and related research questions. Accounting
- M Peecher