Does Audit Effort Impede the Willingness to Impose Audit Adjustments?

Abstract

In two incentivized auditing experiments, participants specify lower adjustments when they choose to generate evidence than when the same evidence is provided without investigative action. This finding is consistent with theory from mental accounting and information choice, which in combination predict that choosing to undertake effortful investigation can magnify aversion to costly adjustments. Supporting this theory, we do not observe an effort choice effect if we separate investigative and adjustment decisions in noninteractive pairs in our first experiment. In our second experiment, we allow all participants to interact in pairs, observing a negative effect of effort choice only when participants responsible for evidence perceive high involvement in the adjustment decisions made by their paired counterparts. Our study provides insight into why auditors exert diligent effort only to waive the adjustments implied by that effort. A potential implication is that technological advances that facilitate evidence collection could enhance auditor independence.