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The occurrence and awareness of a misstatement effect in auditors' internal control severity judgments

The occurrence and awareness of a misstatement effect in auditors' internal control severity... We define a misstatement effect as a tendency for auditors to take the non‐detection of a misstatement as evidence of the absence of a material weakness and test the hypothesis that it occurs unconsciously in their internal control severity judgments. In a between‐participants design, which is analogous to the practice setting, we find that auditors evaluate an internal control deficiency less severely when it has not led to a misstatement. However, in a within‐participants design, where the misstatement manipulation (detected or not detected) is more salient, we find that auditors evaluate the deficiencies as equally severe, suggesting that the misstatement effect in the between‐participants design is not intended. The findings suggest the need to consider the use of decision aids that align auditors' heuristics and knowledge. For instance, auditors may be required to document possible misstatements that could occur when evaluating control deficiencies that have not led to misstatements. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Auditing Wiley

The occurrence and awareness of a misstatement effect in auditors' internal control severity judgments

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References (50)

Publisher
Wiley
Copyright
© 2017 John Wiley & Sons Ltd
ISSN
1090-6738
eISSN
1099-1123
DOI
10.1111/ijau.12093
Publisher site
See Article on Publisher Site

Abstract

We define a misstatement effect as a tendency for auditors to take the non‐detection of a misstatement as evidence of the absence of a material weakness and test the hypothesis that it occurs unconsciously in their internal control severity judgments. In a between‐participants design, which is analogous to the practice setting, we find that auditors evaluate an internal control deficiency less severely when it has not led to a misstatement. However, in a within‐participants design, where the misstatement manipulation (detected or not detected) is more salient, we find that auditors evaluate the deficiencies as equally severe, suggesting that the misstatement effect in the between‐participants design is not intended. The findings suggest the need to consider the use of decision aids that align auditors' heuristics and knowledge. For instance, auditors may be required to document possible misstatements that could occur when evaluating control deficiencies that have not led to misstatements.

Journal

International Journal of AuditingWiley

Published: Nov 1, 2017

Keywords: ; ; ;

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