The Effects of Prior Auditor Involvement and Client Pressure on Proposed Audit Adjustments

Abstract

ABSTRACTThis study draws upon research on escalation of commitment, motivated reasoning, and prior involvement to formulate hypotheses about the effects of prior auditor involvement and client pressure on the magnitude of proposed audit adjustments. Consistent with theory, our experimental results reveal that auditors who have no involvement in waiving a prior period audit adjustment propose current period audit adjustments that are significantly larger than auditors who have involvement in waiving a prior period audit adjustment. Further, we find that client pressure significantly reduces the magnitude of proposed audit adjustments, although the effect of client pressure does not vary across levels of prior involvement. This suggests that client pressure continues to exert a meaningful influence on auditor judgments in the post-SOX environment.