Nonprofessional investors' perceptions of the incremental value of continuous auditing and continuous controls monitoring: An experimental investigation

Abstract

In this study, we investigate nonprofessional investors' perceptions of the incremental value of additional assurance provided by continuous auditing (CA) and continuous controls monitoring (CCM) relative to traditional periodic auditing. We also examine whether nonprofessional investors' perceptions of incremental value of CA and CCM depend on whether the procedure is performed by internal or external auditors, given that external auditors are likely to be perceived as more independent and objective than internal auditors. We conduct two experiments, one using 120 nonprofessional investors recruited by a national survey company, and the second using 184 participants recruited via Amazon's Mechanical Turk platform. The first experiment employed a 2×2 between-participants design in which we manipulate the type of assurance (CA or CCM) and the source of assurance (internal or external auditors). The second experiment was identical to the first experiment, with the addition of a fifth condition to test a conjecture stemming from the results of the first experiment. The results from both experiments indicate that although nonprofessional investors believe that continuous auditing decreases the likelihood of material errors and asset misappropriation, nonprofessional investors do not concomitantly increase their investment upon learning about the implementation of these sophisticated continuous assurance techniques. Evidence from the second experiment provides support for the contention that the reason why nonprofessional investors do not increase their investment pursuant to implementation of CA or CCM is due to the salience of the additional costs of these techniques. These results have important implications for firms considering the implementation of additional assurance procedures such as CA and CCM.