Staff auditors are often reluctant to voice concerns due to the perceived negative consequences of speaking up. We investigate the role of psychological safety in auditors' voice. We hypothesize and find that psychological safety is a crucial mediator that explains the effects of various contextual, issue, and individual factors on auditors' decisions to speak up. We also study whether providing an AI-enabled anonymous communication channel improves auditors' voice decisions through psychological safety. Contrary to findings in other team settings where enhanced anonymity increases employees' voice, we do not observe such an effect in the audit team setting. We discuss the reasons for this unique result and its implications for designing interventions that enhance psychological safety to improve auditors' voice.

SUMMARY The PCAOB recently implemented amended standards on the use of valuation specialists. We report interviews with 42 auditors and valuation specialists in which we describe the role of valuation specialists and problems during fair value audits under the original guidance. We evaluate whether the amended guidance will change practice and mitigate these problems. We find that specialists are more involved in fieldwork relative to planning and completion. Despite changes to communication and review requirements, specialists’ limited role in making conclusions relative to auditors will continue. Our analysis suggests the changes in standards are unlikely to meaningfully change practice. We expect little change because the amended standards will not increase specialists’ responsibility for outcomes or provide them additional guidance, they will not require auditors to acquire valuation knowledge, and they cannot reduce the inherent uncertainty in fair value settings. These issues underlie many of the problems in this area. JEL Classifications: M40; M41; M42.

Financial reporting quality can benefit from companies and auditors using artificial intelligence (AI) in complex and subjective financial reporting areas. However, benefits will only accrue if managers incorporate AI-based information into their financial reporting decisions, which the popular press and academic literature suggest is uncertain. We use a multi-method approach to examine how financial executives view and respond to AI. In a survey, respondents describe various uses of AI at their companies, spanning from simple to complex functions. While managers are not averse to the use of AI by their companies or their auditors, they appear to be uncertain about how auditors' use of AI will directly benefit their companies. In an experiment that manipulates whether a company and/or its auditor use AI, managers whose companies use AI record larger audit adjustments for a complex accounting estimate when the auditor uses AI. Auditor AI use does not affect managers' adjustment decisions in the absence of company AI. This study highlights the importance of considering the effects of AI use by both companies and their auditors when evaluating how AI influences auditing and financial reporting.

The personality traits of narcissism, Machiavellianism, and psychopathy, collectively referred to as the "Dark Triad" (DT), have received meaningful attention in the accounting literature. This paper aims to help researchers digest the existing DT research in accounting and inform productive DT research going forward. Specifically, we present an operating, reporting, and assurance framework for analyzing how DT traits affect decisions in all stages of financial reporting, including auditing the financial statements. Our framework is of use to researchers interested in the effects of DT traits and other personality traits in a variety of accounting contexts.

Regulators and researchers provide evidence that auditors' judgment quality is problematic in complex audit tasks. We introduce a framework for improving auditor judgment in these tasks. The framework builds on dual-process theory to recognize that high-quality judgment in complex tasks requires that auditors (i) possess the knowledge needed for the task, (ii) recognize the need for analytical (versus heuristic) processing, and (iii) have sufficient cognitive capacity to complete the analytical processing. Based on the framework, we predict that auditors' need for cognition (NFC), a characteristic theoretically linked to recognizing the need for analytical processing, is associated with higher quality complex judgments. Analysis of 11 studies supports this assertion. We demonstrate the usefulness of the framework by predicting and finding that priming auditors with an accuracy goal improves judgments, particularly for lower NFC auditors, who are less likely to spontaneously engage in analytical processing. The framework facilitates systematic development of interventions to improve auditor judgment by highlighting that solutions should address the specific conditions causing judgment problems.

ABSTRACTAuditors frequently use valuation specialists to help them evaluate fair values, but researchers and regulators know little about how auditors use these specialists. Based on interviews with 28 auditors and 14 valuation specialists, I develop a theoretical framework informed by expert systems and professional competition theories. The interviews suggest that institutional pressures in the fair value environment unevenly impact auditors and specialists, causing tension between auditors' needs for ontological security and jurisdictional claims. This tension leads to one‐sided competition between auditors and specialists and incomplete acceptance of specialists' work. Auditors' competitive behaviors coupled with this incomplete acceptance result in a tendency to make specialists' work conform to auditors' views. Collectively, these findings suggest that auditors use specialists as an institutional mechanism to create comfort, but not insight. This study links expert systems and professional competition theories, and it provides critical insight into some assumptions underlying tenets of each theory. It also informs researchers, regulators, and practitioners interested in understanding and addressing problems related to the use of specialists.

Junior auditors collect the bulk of audit evidence, yet they do not always speak up to communicate potentially important audit issues. Such inappropriate “voice” decisions can endanger audit quality. We examine whether and how staff auditors influence each other in making voice decisions. First, a survey provides descriptive evidence that staff auditors consult their peers for advice on whether to speak up. Next, two experiments provide evidence that voice advice among peers at the staff level can be problematic. We find that staff auditors consistently underestimate the importance of raising issues compared to their supervisors, and they rely on social cues that are not diagnostic of issue importance in giving voice advice to peers. Finally, we predict and find that staff auditors tend to follow peer advice when it confirms their initial stance, and that an expectation of high (versus low) quality supervisor feedback increases their willingness to speak up. Most importantly, we find that contradictory peer advice only influences staff auditors’ willingness to speak up when leadership feedback is not expected to be of high quality. Together these results indicate that staff auditors seek out and follow voice advice from their peers, but appropriate leadership feedback practices can mitigate the negative impact of peer advice on upward communication.

ABSTRACT 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.

SUMMARY Critics argue that audit research rarely impacts practice, in part due to challenges associated with synthesizing and interpreting research. We propose that using the Elaboration Likelihood Model (ELM) as a meta-theoretical framework can help in understanding the collective findings within auditor judgment and decision-making (JDM) research. Our goal is to demonstrate the utility of the ELM by interpreting the results of two samples of studies on client cooperation and auditors' moods. Our synthesis of client cooperation studies suggests cooperation on a current issue affects auditors' judgments only when auditors lack motivation to think carefully about the task. In contrast, a history of client cooperation tends to bias even highly motivated auditors' judgments. Our synthesis of mood studies suggests motivational interventions are necessary, but not sufficient, to mitigate mood's effects on judgments. Our ELM interpretations offer theoretical explanations for seemingly unrelated predictions and findings that can inform future research and practice.

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.

Auditors rely on specialists within their teams to audit highly specialized areas of the financial statements. Yet, auditors and specialists do not always effectively work together, inhibiting specialists' contributions to the audit. We approach this problem by examining specialists' judgments and decisions in the presence of varying audit team behavior. In an experiment with professional valuation specialists as participants, we study the process by which psychological ownership – the feeling that something is one's own – can improve specialists' contributions to audits, and whether auditor behavior that infringes on specialists' work prevents specialists from engaging in this process. We find that specialists with higher versus lower psychological ownership over their audit work engage in deeper cognitive processing only when auditors do not infringe on their work. Deeper processing results in improved contributions to the audit—specialists make more evidence-informed judgments and communicate those judgments more effectively. We contribute to auditing and psychology research by demonstrating the causal chain through which psychological ownership improves specialists' contributions to audits. Further, while psychological ownership is a potential mechanism for interventions aimed at specialists' judgments and behavior, our study emphasizes that the effectiveness of such interventions will depend on auditors' behavior as well.

Auditors must recognize problematic patterns among the assumptions underlying complex estimates to identify misstatements. Pattern recognition requires rich problem representations of complex estimates that auditors may be unable to develop given their lack of valuation expertise. I predict and find that a relational cue in a specialist's work showing how assumptions relate to each other can improve auditors' problem representations and subsequent judgments about estimates. However, this improvement only occurs when auditors are motivated by low client source credibility to incorporate this cue into their problem representations. This suggests auditors do not always respond to cues in their specialists' work and suggests avenues for research to improve auditors' use of specialists' work. More generally, my findings highlight the role of motivational factors like client source credibility in auditors' development of problem representations. This has implications for the design of training, decision aids, and other interventions aimed at improving auditors' problem representations.

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.

Auditors and regulators have invested heavily in improving audits of estimates in recent years, but problems in this area persist. We examine the causes of these problems and why they persist. To do so, we interview 24 very experienced auditors about how they audit complex accounting estimates such as fair values and impairments and what problems they experience in the process. We find that auditors overwhelmingly choose to audit the details of management's estimate rather than use other allowable approaches. The steps auditors describe and the language they use to describe those steps indicate that they follow a process of verifying individual elements of management's assertions on a piecemeal basis, resulting in overreliance on management's process, rather than engaging in a critical analysis of the overall estimate. The problems that auditors identify are consistent with this view, and include failures to notice inconsistencies among the estimate and other internal data or external conditions and overreliance on specialists to identify, evaluate, and challenge critical assumptions. We interpret these processes and problems using institutional theory and identify two root causes: standards' and firm policies' emphasis on verifying management's model, and audit firms' division of knowledge between auditors and specialists. Institutional theory proposes these conventions arise from firms extending use of procedures that are legitimate in one area (i.e., auditing accounts without significant uncertainty) to a new area (i.e., auditing complex estimates), even though they are likely less effective in the new area. These conventions are reinforced by regulators' method of inspection and by firms' reluctance to change methods without a prompt to change to a clearly better method. We argue that these institutionalized conventions thwart auditors' good-faith attempts to engage in skeptical analysis of estimates. Thus, audit quality problems are likely to persist.

Audit-team specialists (valuation specialists employed by the audit firm) who evaluate a subset of the assumptions integral to a complex estimate often include caveats on otherwise-clean results to communicate reservations about certain assumptions to auditors. Although caveats can contain interpretation that may improve auditors’ judgments about estimates, auditors do not uniformly view caveats as helpful and the effect of caveats on auditors’ judgments has not been explored. In this study, I investigate the conditions under which auditors benefit from audit-team specialists’ caveats. Given the inherent subjectivity in estimates and the difficulty in integrating the results of all of the audit procedures to conclude on an estimate overall, I expect auditors to discount audit-team specialists’ caveats unless another cue has already increased auditors’ concern about an estimate. One important cue in the estimates arena is the perceived credibility of the source of the estimate because audits of estimates often require relying on clients’ assertions about future events, for which relatively little objective evidence exists. I experimentally examine how a caveat interacts with auditors’ perceptions of their clients’ source credibility to affect their judgments about estimates. Drawing on theories of elaboration and persuasion, I predict and find that auditors’ evaluation of evidence related to a biased estimate and subsequent judgments benefit from a caveat when auditors perceive the initial preparer of an estimate to have relatively low source credibility; auditors who perceive the initial preparer to have higher source credibility discount the caveat and judge a biased estimate as more reasonable. This initial evidence about the interactive effect of caveats and perceived client source credibility has implications for future research on improving audits of estimates.

Auditors frequently use valuation specialists to help them improve the quality of audits of fair values, but problems related to specialists’ involvement suggest specialists do not always improve audit quality. I interviewed 28 audit partners and managers with extensive experience using valuation specialists to investigate how auditors use valuation specialists in audits of fair values and how specialists’ involvement affects audit quality. I find that while valuation specialists perform many of the most difficult and important elements of auditing fair values, auditors retain responsibility for making overall conclusions about fair values. Collectively, the interviews reveal a tendency among auditors to make specialists’ work conform to the prevailing audit team view. This puts audit quality at risk. I apply Giddens’ (1990, 1991) theory of trust in expert systems to identify a root cause underlying this problematic tendency. The necessity of trusting in an expert system of valuation specialists causes tension for auditors who ultimately bear responsibility for judgments about fair values, yet who must rely on the expertise of specialists to make these judgments. Auditors’ tendency to make specialists’ work conform arises from this tension as a way to preserve their expert role. By identifying auditors’ tendency to make specialists’ work conform to their prevailing view and theorizing a root cause of this tendency, this study informs researchers, practitioners, and standard setters interested in improving audit quality in the fair value setting.

We interview 24 very experienced auditors about how they audit complex accounting estimates such as fair values and impairments and what problems they experience in the process. We find that auditors overwhelmingly choose to audit the details of management's estimate rather than use other allowable approaches. The steps auditors describe and the language they use to describe the steps indicate that they follow a process of verifying individual elements of management's assertions on a piecemeal basis, resulting in over-reliance on management's process, rather than engaging in a critical analysis of the overall estimate. The problems that auditors identify are consistent with this view, and include failures to notice inconsistencies among the estimate and other internal data or external conditions and over-reliance on specialists to identify, evaluate, and challenge critical assumptions. We interpret these processes and problems using institutional theory and identify two root causes: standards' and firms' emphasis on verifying management's model and audit firms' chosen division of knowledge between auditors and specialists. Institutional theory predicts these conventions arise from firms extending use of procedures that are legitimate in one area (i.e., auditing accounts without uncertainty) to a new area (i.e., auditing complex estimates), even though they are less effective in the new area. They are reinforced by regulators' method of inspection and by firms' reluctance to change methods without a prompt to change to a clearly better method. We argue that these conventions thwart auditors' good-faith attempts to engage in skeptical analysis of estimates.

Preliminary Draft We are grateful to John Fogarty for helpful discussions about this project. We also thank Wendy Bailey, Dan Stone, Arnie Wright, and workshop participants at Notre Dame, Kentucky, and the Northeast Behavioral Accounting Research Seminar for comments on prior drafts of this paper. Additionally, we thank the auditors and their firms who have given their time assisting with the interviews. Jackie Hammersley is grateful for the support provided by a Terry Sanford Research Award. Accounting estimates, including fair values and impairments, are increasingly important to the interpretation of financial statements. Auditors are charged with assessing the reasonableness of management's accounting estimates; however, estimates are difficult to audit. We perform a task analysis to determine how they audit estimates and what problems they experience. We rely on several data sources. First, we analyze auditing standards and interview 24 managers and partners to assess how auditors perform the task and how well their performance matches the required process. Next, we rely on the interviews and a content analysis of recent PCAOB inspection reports to shed light on the difficulties auditors experience in auditing estimates. We find that while auditors' reported processes generally match standards, they generally evaluate estimates by focusing on auditing the details of management's estimate instead of creating an independent one. Further, no auditors mentioned considering whether any important conditions were omitted from management's model. We also find that both auditors and regulators report auditor difficulties with over-reliance on management's process. That is, auditors sometimes fail to understand management's process for generating the estimate, fail to adequately test the underlying data and assumptions, and fail to notice inconsistencies among the estimate and other internal data or external conditions. We draw conclusions about underlying causes of these problems and make recommendations for changes to auditing standards, practices, and auditor training to improve the audits of estimates.