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Prompting the Benefit of the Doubt: The Joint Effect of Auditor‐Client Social Bonds and Measurement Uncertainty on Audit Adjustments

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  • STEVEN J. KACHELMEIER
  • BEN W. VAN LANDUYT

Abstract

We design an incentivized experiment to test whether measurement uncertainty elevates the risk that social bonds between auditors and reporters compromise audit adjustments. Results indicate that, when audit evidence is characterized by some residual uncertainty, the adjustments our auditor‐participants require are sensitive to whether auditors have an opportunity to form a modest but friendly social bond with reporters. In contrast, although auditors do not adjust fully even when misstatements are known with certainty, social bonding has no effect in this scenario. Accordingly, our experiment contributes beyond the main effects of social bonding and measurement uncertainty demonstrated in prior research by showing that these forces interact. A practical implication is that regulators and practitioners should consider both the technical and the social challenges facing audits of complex estimates.

Suggested Citation

  • Steven J. Kachelmeier & Ben W. Van Landuyt, 2017. "Prompting the Benefit of the Doubt: The Joint Effect of Auditor‐Client Social Bonds and Measurement Uncertainty on Audit Adjustments," Journal of Accounting Research, Wiley Blackwell, vol. 55(4), pages 963-994, September.
    • Handle: RePEc:bla:joares:v:55:y:2017:i:4:p:963-994
    DOI: 10.1111/1475-679X.12171
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    References listed on IDEAS

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    Cited by:

    1. Dan Dacian Cuzdriorean, 2018. "Auditing Research: A Review Of Recent Research Advances," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 6(4), pages 14-26.
    2. Douthit, Jeremy D. & Kachelmeier, Steven J. & Van Landuyt, Ben W., 2024. "Does auditor assurance of client prosocial activities affect subsequent reporter-auditor negotiations?," Accounting, Organizations and Society, Elsevier, vol. 112(C).
    3. Van Landuyt, Ben W., 2021. "Does emphasizing management bias decrease auditors’ sensitivity to measurement imprecision?," Accounting, Organizations and Society, Elsevier, vol. 88(C).
    4. Zachary T. Kowaleski & Brian W. Mayhew & Amy C. Tegeler, 2018. "The Impact of Consulting Services on Audit Quality: An Experimental Approach," Journal of Accounting Research, Wiley Blackwell, vol. 56(2), pages 673-711, May.
    5. Abdel-Rahim, Heba Y. & Lorenz, Melanie P. & Zaher, Angie Abdel, 2022. "How do cultural difference, cultural exposure, and CQ affect interpretations of trust from contract choices? Evidence from dyadic cross-country experiments," Accounting, Organizations and Society, Elsevier, vol. 96(C).
    6. W. Brooke Elliott & Stephanie M. Grant & Frank D. Hodge, 2018. "Negative News and Investor Trust: The Role of $Firm and #CEO Twitter Use," Journal of Accounting Research, Wiley Blackwell, vol. 56(5), pages 1483-1519, December.
    7. Jessen L. Hobson & Matthew T. Stern & Aaron F. Zimbelman, 2020. "The Benefit of Mean Auditors: The Influence of Social Interaction and the Dark Triad on Unjustified Auditor Trust," Contemporary Accounting Research, John Wiley & Sons, vol. 37(2), pages 1217-1247, June.
    8. Lin, Hsiao-Lun & Yen, Ai-Ru, 2022. "Auditor rotation, key audit matter disclosures, and financial reporting quality," Advances in accounting, Elsevier, vol. 57(C).

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